Latvia aims to protect the shareholders of LLC companies

Shareholders' interests are protected in Latvia through the introduction of mandatory notarial form of documents on the transfer of company shares.

Amendments to the Commercial Code of Latvia adopted on 07/01/2013 introduce a significant reform of share transferability in Latvia. The changes relate to the changes in the legal structure of the company in Latvia, as well as the changes in the board (change of director of the company, appointment/dismissal of board members) and changes in the articles of incorporation (statutes).

Transfer of shares
The shares were freely transferable until June 30, 2013 and it was not mandatory to conclude and sign a contract for the purchase of shares. It was sufficient for the previous shareholder to sign the new shareholders' register, thereby confirming that the shares had been transferred.

The latest amendments to the Commercial Code as of July 1, 2013 determine the form of the agreement to be concluded between the previous shareholder and the new shareholder, as well as the procedure for drawing up the list of shareholders of the company (shareholder register). . Commercial law in Latvia requires that the agreement between the previous and the new shareholder must be in writing (share purchase agreement, share transfer agreement, share donation agreement, swap or other type of agreement). At this stage the notary is not involved.

If the shares are transferred on the basis of a gift, exchange or other type of contract than a purchase, the approval of the general meeting is required, unless the articles of association provide otherwise. Therefore, all transactions involving shares other than purchases are subject to shareholder approval. Such a regulation is intended to protect the current shareholders if one of the shareholders intends to evade the statutory subscription right.

If the shares are transferred as part of the Share Purchase Agreement (SPA), more detailed regulations apply. To protect the current shareholders, the seller will inform all other shareholders and the company's board of directors about the proposed share transaction. In this case, the other shareholders can exercise their subscription rights. Therefore, the seller or the buyer will submit the Share Purchase Agreement with the essential terms and the Shareholder will decide within one month whether to proceed or allow the sale of the Shares to the proposed buyer. The declaration and the purchase agreement are to be sent to the address given by the shareholder in accordance with the details in the share register.

According to the Latvian Commercial Code, shareholders are entered in the register of shareholders (list of shareholders), which is usually signed and sealed in two copies, one for the board of directors and the other for filing with the commercial register. According to recent changes, the shareholders' register is required to be signed by the chairman of the board (director), the seller and the buyer. All signatures must be certified in front of the notary.

Increase in share capital
The increase in share capital can affect the legal form of the company. According to the Latvian Commercial Code, the decision to increase the share capital is taken at the general meeting. According to the new regulation, such a resolution should be signed by the shareholders in the presence of the notary.

Second, the increase in share capital relates to the changes in the Articles of Incorporation (the Articles of Incorporation). The decision to increase the share capital is made by the shareholders at the shareholders' meeting (shareholders' resolution), but the articles of association must be signed by the company's board of directors (all board members). According to the July 1st changes, signatures on articles of incorporation should be notarized. Thus, shareholder protection was maintained at the highest level.