When starting a business, it’s important to determine which business entity to register as. There are a variety of legal business structures in Latvia, including the Limited Liability Company (SIA in Latvian) and Sole Trading (IK). The SIA and Sole Trading are contrasted in this article.
Limited Liability Company (SIA)
In Latvian, a limited liability company is “Sabiedriba ar Ierobezotu Atbildibu” i.e SIA. Any individual with the legal right to participate in commercial operations can be the SIA’s founder. An SIA must have at least one founder, and the maximum number of founders is unlimited. This business entity functions as a separate legal entity. The minimum share capital is €2,800 which might be provided in cash or via a contribution of real estate. In most cases, you’ll need to open a temporary bank account to pay the share capital. At least half of the subscribed share capital must be paid before registration documents can be filed. The following documents must be prepared to register an SIA: a registration form, memorandum of association, articles of association, board member permission, shareholders register, evidence of share capital payment, legal address, and evidence of state duty and publishing fee payment.
The SIA is represented by the board of directors, which is also in charge of day-to-day operations. Shareholders have complete control over an SIA, including appointing or removing board members, approving the annual report, and allocating profits. Shareholders can form a council, which acts as a supervisory body over the board of directors. However, a council is not compulsory, and an SIA can function without one. Shareholders’ and the SIA’s responsibilities are separated by law. An SIA is not liable for shareholder obligations. Furthermore, unless all shareholders agree differently, shareholders are not liable for the SIA’s duties. A state charge of €150 and a payment for publishing of €27 are required to register an SIA. According to figures from the register of enterprises, there are roughly 106,000 SIAs in Latvia with a minimum equity capital of €2,800 (54% of total business entities in Latvia).
Sole Trader (IK)
In Latvian, the sole trader is “individuālais Kommersant” i.e IK. Anyone with the legal right to do business can become an IK. Only one individual can register as an IK; one IK cannot have plenty of co-founders. An IK can hire personnel and participate in most business operations. You can register an IK without share capital. However, you must keep in mind that you will be accountable for all of your property if you fail to meet your IK requirements. The registration procedure is straightforward. The application form must be completed and signed. If you want to register a legal address in real estate that belongs to someone else, you’ll need their permission. You must pay a state levy of €30 and a publication fee of €18.5. Members of the board of directors of an IK cannot be recorded in the enterprise registration (the legislation does not provide such an option). An individual (IK) is a person who speaks for himself or herself. In the enterprise registry, you can add a procurator (an authorized person). An IK can also grant other people power of attorney, allowing them to act on the IK’s behalf in specific situations. IK has the option of paying either microenterprise tax (15%) or personal income tax (20 percent to 31.4 percent of profit, with the rate depending on the amount of profit). If you want to participate in business activities on your own and are willing to be liable with all of your property for liabilities deriving from such activities, IK may be a suitable form. There are roughly 11,000 lone traders in Latvia, accounting for approximately 6 percent of all registered business entities.