Significant Changes in the Regulation of Commercial Companies’ Operations Adopted Last Summer

In the summer of the previous year (on 1 June and 1 July 2023), amendments to the Commercial Law were adopted which, among other things, provide for changes in dividend distribution and the reporting procedure for ultimate beneficial owners (UBOs), requirements for the payment of share capital, for officials and formation of the shareholder register, the competence of the Supervisory Board, as well as in requirements for the indication of the addresses of natural persons in documents to be submitted to the Commercial Register of the Republic of Latvia (Commercial Register). Below is a more detailed overview of each of the above changes.

Read about changes in the Commercial Law related to the categorization of share types and their accounting within public limited liability companies here.

Dividend Distribution

Dividends of companies can also be distributed disproportionately to the shares held by the shareholders if such right is provided for in the articles of association.

Until now, disproportionate dividend distribution could only be carried out by those companies that had introduced share categories in their articles of association; disproportionate dividends could only be distributed among owners of different share categories.

According to the new procedure, it is only necessary to specify in the articles of association that dividends among shareholders can be distributed disproportionately. It is no longer necessary to introduce share categories in the articles of association to exercise such rights.

Rights of Companies to Request Information on the Existence or Non-Existence of UBOs

The Commercial Law establishes the right of the board of a company to request from a shareholder information and documentation on the existence or non-existence of an UBO. Upon receipt of such a request, the shareholder is obliged to provide the requested information and documentation to the company within two weeks. If the shareholder fails to comply with the request within the aforementioned period, they lose voting rights in the company as well as the right to receive dividends. The shareholder shall regain this right as soon as they fulfil their obligation.

To avoid misuse of these rights by the board of the company, the shareholder will have the possibility to submit information and documents confirming the existence or non-existence of the UBO directly to the Commercial Register.

If the shareholder fails to submit the information requested by the company to the management board or the Commercial Register, the court may exclude the shareholder from the company on the basis of the company’s request. In such a case, the shares are transferred to the company, which is obliged to pay the shareholder the amount of his contribution in the company.

Requirements for the Payment of Share Capital

The Commercial Register will only register the fully paid-up share capital; subscribed share capital will no longer be registered.

When establishing a company, the share capital must be fully paid up by the time the application for the registration of the company is submitted to the Commercial Register. Until now, a company could have been established without paying the entire share capital.

When increasing the share capital, the application for registration of changes in the Commercial Register must be submitted only after the deadline for the payment of shares has expired (not exceeding 6 months) or when all shareholders have paid all the newly issued shares. Until now, it was possible to increase the share capital without paying the full amount of the share capital until the initial application for the share capital increase was submitted to the Commercial Register.

The share capital of a company can now be transferred not only to an account opened with a credit institution but also to an account opened with an electronic money or payment institution. The share capital can be paid in this way, not only when establishing a company, but also in the case of a share capital increase.

The requirement to open an account for the transfer of share capital will now also apply to a limited liability company (SIA) with no minimum capital requirement. When establishing a no minimum capital requirement SIA, the Commercial Register will have to be provided with a document from the payment institution certifying the payment of the share capital.

Restrictions on Positions

If an individual is subject to business restrictions in another EU Member State, the Republic of Iceland, the Kingdom of Norway or the Principality of Liechtenstein, such a person cannot hold a position in a commercial company in Latvia (e.g., as a member of the management board or the supervisory board).

Information on whether a person is subject to such restrictions will be verified by the Commercial Register in the information system available to it. The receipt of information on the existence of such restrictions for persons who are already registered as officials in the enterprise register will not be a basis for deletion of information from the enterprise register.

Formation of Shareholders’ Register

In the shareholders’ register, the following information must now be provided from now on:

• the email address of the shareholder, if the shareholder has requested its use for communication,
• categories of shares, if applicable; and
• the number of votes arising from the shares.

Henceforth, it will no longer be necessary to indicate the date of share payment in the shareholders’ register.

Competence of the Supervisory Board

With amendments to the Commercial Law, it is stipulated that the Supervisory Board, as a company’s supervisory body, represents the interests of the society in broader sense, not just those of shareholders.

Additionally, the Supervisory Board is assigned the following tasks:

• to approve the general operating principles of the company and its development and financial objectives, as well as to monitor their implementation,
• oversee the operation of the internal control and risk management system.

Disclosure of Addresses for Natural Persons

For natural persons (e.g. shareholders, members of the management board, members of the supervisory board, etc.), in documents specified by the Commercial Law (e.g., memorandum of association, shareholders‘ register, etc.), it is no longer required to provide the address of the place of residence. Instead, the address where the person can be reached should be indicated.