Business in Latvia: Types of legal entities
For business purposes usually one of three legal forms is chosen for setting up a company in Latvia:
- Limited Liability Company (LLC);
- Joint Stock Company (JSC);
- Branch of a Foreign Merchant.
The most popular merchant form in Latvia is Limited Liability Company (LLC). It attracts entrepreneurs because it is comprehensive and transparent, easy to incorporate, permits the scope of activity for family business and large capital investment projects, and has limited accountability. It is an entrepreneurial company with the rights of a separate legal person. Its share capital consists of the property invested by the founders. The shares entitle the founders to participate in the administration of the company, to a dividend, to a part of the company’s income, to the liquidation quota, and such other rights provided in the Articles of Association. An LLC is entirely distinct from its shareholders. It has the capacity for continuous existence, it may take, hold, and convey property, and it may sue and be sued. Liability of the founders of an LLC is restricted by the property held and its share capital constituted by the material and monetary assets necessary to commence and further develop the activities of the LLC.
The current minimum share capital is generally LVL 2,000. If the “small” LLC meet the requisite conditions, the minimum share capital of the “small” LLC can be from LVL 1 to LVL 1999. A “small” LLC may be founded only if the following conditions are met:
- The founders (and later, the shareholders) of the company are natural persons not exceeding five in number;
- The Management Board consists of one or more board members and all of them are the shareholders of the company; and
- Every shareholder of the “small” LLC cannot be a shareholder of another “small” LLC.
The founders of an LLC company can be natural or legal persons, but the founders and shareholders of a “small” LLC can only be natural persons. It is possible for a company to be formed by a sole founder, either a natural or legal person. There are no restrictions regarding citizenship or residency of the shareholders or board members.
The structure of a Latvian LLC consists of the meeting of the shareholders, the Council, and the Management Board. The highest supervisory body of the company is the meeting of the shareholders. The Management Board is an executive body, and its members represent the company in dealings with third parties. It is possible to provide in the Articles of Association that such members represent the company jointly or severally.
Dividends are determined by a decision of the shareholders, and these could be calculated and paid out once a year only in money and only for fully paid-up shares. Dividends are paid to shareholders in proportion to the total par value of the shares owned by them. It is prohibited to determine, calculate, and pay out dividends where the company’s funds is less than the total amount of the equity according to the annual report of the company.
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The name “Latvia” originates from the ancient Latgalians which was one of the four Indo-European tribes that together with Semigallians, Couronians and Selonians was involved in the ethnogenesis of Latvians.Read more