Which forms of company incorporation exist in Latvia

24.02.2015

Having decided to do business in Latvia, the next thing one has to do is to select the most appropriate form of incorporation for the intended commercial operations. In this article, we have provided a summary of all possible forms of enterprises, which differ in terms of corporate structure.

Commercial enterprises

In order to carry out commercial activities in Latvia, any entity must be registered in the Commercial Register (Komercreģistrs), with self-employed persons being the only exception. All commercial types of companies are governed by the Commercial Law of the Republic of Latvia.

Capital companies

Limited liability company (LLC) – Sabiedrība ar ierobežotu atbildību (SIA)

  • Legal entity: yes.
  • Liability: A company is not liable for the the debts of its shareholders; in turn, the shareholders’ liability is restricted to the extent of their investment into the equity capital.
  • Founders: One or more individuals or legal entities, including non-residents of Latvia. After the incorporation of a Company, its founders become the shareholders thereof.
  • Shareholders: shareholders of the Company may sell, pledge their shares of invested capital or have those presented as a gift. In case such shares are sold, the existing shareholders shall have the pre-emptive right to the purchase thereof. One can become a new shareholder of the Company within the consent of other shareholders. The register of shareholders is kept by the company’s Board and stored in the Commercial Register of the Register of Enterprises of the Republic of Latvia. The Company’s shareholders take decisions on the principal matters of the Company by expressing their will through participation in shareholders’ meetings.
  • Board: at least one member of the Board is required. A Board member may be a shareholder of the Company or otherwise, and can be a resident or a non-resident of Latvia. Board members handle business operations, represent the Company and manage and dispose of the Company’s assets according to the shareholders’ decisions within the boundaries of the Company’s economic operations.
  • Council: is not required, but can still be appointed by the Company’s shareholders. The Council maintains supervision over the actions of the Board.
  • Minimum equity capital: 2800 EUR (one can also incorporate an LLC with reduced equity capital*). At least 50% of the equity capital is paid during the registration of the company; the remaining amount is payable within a year of the incorporation. The capital may be paid with money or property; at that, in case the value of the invested property exceeds the amount of 4000 EUR, an assessment by a sworn appraiser is required.

The Company’s capital is comprised of the total amount of shares in the fixed capital invested by the shareholders.

A Limited liability company (LLC) is the most widespread company type in Latvia. As of January 2015, 72% of all active businesses in Latvia are incorporated as an LLC.

*LLC (SIA) with reduced equity capital

In order to create a small business in Latvia, one can incorporate an LLC with reduced equity capital (1 to 2799 EUR). Such Company may be incorporated provided that all the following criteria are met:

  • All shareholders are natural persons and the number thereof does not exceed five (may be non-residents);
  • Only the founders of the company can be appointed as Board members;
  • No shareholder can be a member of any other company with reduced equity capital.

Joint stock company (JSC) – Akciju sabiedrība (AS)

  • Legal entity: yes.
  • Liability: A company is not liable for the the debts of its shareholders; in turn, the shareholders’ liability is restricted to the extent of their investment into the equity capital through the purchase of shares.
  • Founders: One or more individuals or legal entities, including non-residents of Latvia.
  • Shareholders: shareholders of the Company may freely sell, pledge their shares in the Company or have those presented as a gift at their own discretion. Internal issues of the Company are decided upon by the meeting of shareholders.
  • Board: at least one member of the Board is required. A Board member does not have to hold shares in the Company or be a resident of Latvia. Board members handle business operations, represent the Company and manage and dispose of the Company’s assets according to the decisions of the Council and meeting of shareholders.
  • Council: a Council of 3 (5 in case the Company’s shares are traded on stock market) to 20 persons is required. The Council maintains supervision over the actions of the Company’s Board.
  • Minimum equity capital: 35 000 EUR. At least 25% of the equity capital (but no less than 35 000 EUR) is paid during the registration of the company; the remaining amount is payable within a year of the incorporation. The equity capital payable upon registration may only be paid in cash, while the remaining capital may be paid later with cash or property.

The Company’s capital is comprised of the total amount of shares in the fixed capital invested by the shareholders through the purchase of shares.

The main difference between a joint stock company and an LLC is that the shares of a joint stock Company may be exchanged freely and traded on stock markets after the IPO procedure. There are different kinds of shares, granting different rights to the operation of business, payment of dividends and the amount of liquidation quota.

The register of shareholders is kept by the Board and stored in the Company.

European company – Societas Europaea (SE)

Incorporation of a European Company may be achieved through reorganization into a joint stock company.

Being a legal entity, such form of business allows changing the jurisdiction within the boundaries of the European Union without suspending the Company’s operations, dissolving the Company or incorporating a new enterprise. Apart from the EU Member States, an SE can also be relocated to Iceland, Norway or Liechtenstein.

The minimum equity capital of a Societas Europaea is 120 000 EUR.

This form of business shall be described more thoroughly in future articles.

Partnerships

These only have certain traits characteristic of a legal entity (e.g. partnerships may own their property), yet a partnership is not a legal entity in the full sense of the world. Companies need the status of a legal entity in order to allocate the liability of shareholders, and inasmuch as the liability of shareholders of a partnership is unlimited, there is no need for such status.

Such Companies do not pay the income tax. Instead, each shareholder of the Company pays his own income tax based on the income obtained through holding shares in the Company.

General partnership – Pilnsabiedrība (PS)

  • Legal entity: no.
  • Liability: all members of the company are fully liable to creditors to the extent of all their property.
  • Founders / shareholders: Two or more individuals or legal entities, including non-residents of Latvia.
  • Board: all decisions are taken by mutual consent of the company’s shareholders.
  • Minimum equity capital: not required.

A general partnership is a company incorporated for the purpose of carrying out joint business operations using a common firm.

Limited partnership – Komandītsabiedrība (KS)

  • Legal entity: no.
  • Liability: at least one member of a limited partnership (the complementary shareholder) is fully liable to creditors, whereas the liability of other shareholders is limited to the extent of their investment into the Company.
  • Founders / shareholders: Two or more individuals or legal entities, including non-residents of Latvia.
  • Board: limited partners (members of a limited partnership) may not take decisions or represent the company in relations with third parties.
  • Minimum equity capital: not required.

A limited partnership is a lot like a general partnership, the difference being that one member thereof must bear unlimited liability. Only the members of the Partnership bearing full liability may take decisions and represent the company.

Natural persons

Individual merchant – Individuālais komersants (IK)

  • Legal entity: no.
  • Liability: full liability to the extent of all property.
  • Founders / shareholders: just 1 person only.
  • Board: all decisions are taken by the merchant him/herself.
  • Minimum equity capital: not required.

A natural person carrying out economic operations. Is entitled to hire personnel.

A natural person must register him/herself as an individual merchant in case the yearly turnover resulting from economic operations exceeds 284 600 EUR or in case both of the following conditions are met:

  • Yearly turnover exceeds 28 500 EUR
  • More than 5 employees are hired for carrying out business operations

In other circumstances, registration as an individual merchant is not required (see below).

Self-employed person – Pašnodarbināta persona

  • Legal entity: no.
  • Liability: full liability to the extent of all property.
  • Founders / shareholders: just 1 person only.
  • Board: all decisions are taken by the merchant him/herself.
  • Minimum equity capital: not required.

Suitable for natural persons willing to carry out individual commercial activities in small amounts within the territory of Latvia. If the yearly turnover exceeds 284 600 EUR or in case the turnover exceeds 28 500 EUR and the company has 5 or more employees, the person must register him/herself as an individual merchant.

There are specialized types of individual enterprises for natural persons carrying out agricultural or fishing operations.

Forms of incorporation for registering the operations of foreign companies

Foreign companies and merchants doing business otherwise than on behalf of a local enterprise must register a representative office or a branch of their company in Latvia.

Representative office of a foreign company in Latvia

Any foreign commercial or non-commercial organization may open a representative office within the territory of Latvia. Such office will not be a legal entity and will not be permitted to carry out any form of commercial activities within the territory of the country. The purpose of such representative office is to carry out auxiliary functions not associated directly with the receipt of profit (e.g. search for partners, market research, marketing, etc.). 

Branch office of a foreign company in Latvia

In order to do business in Latvia, a foreign company can register a branch office, which is a standalone part of the merchant. A branch office is not a legal entity, and the parent company thereof shall bear full liability for its debts. A branch office acts to the benefit of the parent enterprise, but operates as an independent structure. Unlike a representative office, a branch office may receive income and has to pay the profit tax.

Having determined the most adequate company type, we suggest you also read our article on how to register a company in Latvia.

Baltic Business Consulting offers consulting services for helping you choose the most appropriate company type for your business. Apart from that, we also provide turnkey company incorporation services in Lativa and sell firms of any kind, aside from providing further support and maintenance thereof. In addition, we can help you carry out any operations with Latvian companies, such as company restructuring, merger, dissolution and bankruptcy.

Please fell free to contact our experts for more information on companies in Latvia.

Our Address

Krāsotāju iela 5
Latgales priekšpilsēta,
Rīga, LV-1009, Latvia

Contacts

Follow us