News: Latvia aims to protect Shareholders of LLC companies

The shareholder interests are protected in Latvia by introducing the mandatory notarial form of the documents regarding transfer of shares in the company.

The changes in the Latvian Commercial Law adopted on 01.07.2013 introduce a significant reform in the shares transferability in Latvia. The amendments refer to the changes in the legal structure of the company in Latvia as well as the changes in the management board (changing the director of the company, appointing/dismissal of the board members) and making amendments in the Articles of association (the statutes).

Transfer of shares

Until 30.06.2013 the shares were freely transferable and it was not mandatory to conclude and sign an agreement regarding the share acquisition. It was sufficient if the previous shareholder signed the new shareholder registry approving that the share transfer has been completed.

The recent changes in the Commercial Law as of 1st July 2013 determine the form of the agreement to be concluded between the previous shareholder and new owner of shares as well as the procedure of forming the list of shareholders in the company (shareholder`s registry). The Commercial Law in Latvia stipulates that the agreement between the prior and new shareholder must be in writing (share purchase agreement, share transfer agreement, share donation agreement, barter or other type of agreement). On this stage, the notary is not involved.

If the shares are transferred on the basis of a donation, barter or other type of the agreement except a purchase, it is required to receive a consent of the shareholder`s meeting unless the Articles of association provides otherwise. Thus, the all transactions with shares except purchase are subject of shareholders consent. Such regulation aims to protect the current shareholders if one of the shareholders intends to avoid the lawful pre-emptive rights.

If the shares are transferred under the share purchase agreement (SPA) more detailed regulation applies. In order to protect the current shareholders the seller shall inform the all others shareholders and the management board of the company regarding the proposed share transaction. In this case, the other shareholders may proceed to exercise their pre-emptive rights. Therefore, the seller or the buyer shall present the share purchase agreement with the essential terms and conditions, and the shareholder shall decide within one month whether to proceed or allow selling the shares to the proposed buyer. The statement and the purchase agreement shall be sent to the shareholder`s declared address according to the information indicated in the shareholder`s registry.

According to the Latvian Commercial Law, the shareholders are recorded with the shareholder`s registry (list of shareholders) which is usually signed and sealed into two copies, one copy for the management board and the other to submit with the Commercial Registry. According to the recent changes, it is required to sign the shareholder`s registry by the chairman of the management board (director) and the seller and the buyer. All signatures must be certified before the notary.

Increase of share capital

The increase of share capital may affect the legal structure in the company. According to the Latvian Commercial Law the resolution regarding the increase of the share capital shall adopt in the shareholder`s meeting. Pursuant to the new regulation, such decision should be signed by the shareholders at the presence of the notary.

Secondly the increase of share capital refers to the amendments in the Articles of Association (the Statutes). Although the decision on increasing the share capital shall adopt the shareholders at the shareholder`s meeting (shareholder`s resolution), the Articles of association shall sign the company board (all members of the board). Pursuant to the changes as of 1st July the signatures on the Articles of Association should be verified at the notary. Thus, the shareholders protection has been maintained on the highest level.

Other changes

The notary is involved only regarding the fundamental changes in the company such as transfer of shares, increase of the equity capital, changes in the company board and directors. Other changes such as change of legal address do not require a notarial approval and they are left under discretion of the management board, since they do not affect the rights of shareholders.