Company formation and accounting in Latvia
Last updated: 2015-12-15
According to the part 1 of the article 334 of the Commercial law, Latvian enterprise may reorganize by merging, division or transformation.
If the share capital of a limited liability company is less than 2800 euros, then such an enterprise can not be reorganized.
The authorized capital of the acquiring enterprise must be at least 2800 euros.

Merging of enterprises.

You can merge enterprises adding one enterprise to another (so called acquisition) or consolidating two or more enterprises.

Adding one enterprise to another, acquired enterprise transfers all its assets to an acquirer.
During the process of consolidation two or more enterprises (acquired enterprises) transfers whole property to a newly established (registered) enterprise (an acquirer).
Shareholders need to establish the new enterprise mainly according to the provisions (rules) for the corresponding type of an enterprise (for example, if shareholders establish a limited liability company, then need to comply with the registration requirements for a limited liability company).

As a result of merging, acquired enterprises cease to exist without liquidation process and the rights and obligations of the acquired enterprises receives an acquirer. Shareholders of the acquired enterprises become shareholders of the acquirer.
For example, shareholders of "Acquired enterprise 1" Ltd. and "Acquired enterprise 2" Ltd. have decided to merge the two enterprises by consolidation. During process of consolidation, the shareholders incorporates a new enterprise "An enterprise - acquirer" Ltd. "An enterprise - acquirer" Ltd. receives whole property, all rights and obligation of the acquired enterprises. "Acquired enterprise 1" Ltd. and "Acquired enterprise 2" Ltd. cease to exist and shareholders of the enterprises become shareholders of "An enterprise - acquirer" Ltd.

In the case of cross-border merger (if one enterprise is registered in Latvia and other registered according to legislation of another EU country) need to apply special (other) rules.

Division of enterprises.

During the process of division a dividing enterprise transfers its assets to one or several enterprises (acquiring enterprises). An acquiring enterprise can be either existing enterprise or newly establish enterprise.
Division occurs by splitting up or allocation (divesting).

In case of splitting up, a dividing enterprise transfers all its assets to one or several enterprises and ceases to exist without liquidation process. Shareholders of the dividing enterprise become shareholders of acquiring enterprises.

In case of allocation (divesting), a dividing enterprise transfers part of its assets to one or several enterprises. The dividing enterprise continues to exist. Shareholders (or part of the shareholders) of the dividing enterprise become shareholders of acquiring enterprises.

Transformation of enterprises.

In case of transformation, an enterprise of certain type/form ("the old enterprise") transforms to an enterprise of another type/form (an acquiring enterprise).
For example a limited liability company transforms to a joint stock company.

Rights and obligations of "the old enterprise" are transferred to the acquiring enterprise and "the old enterprise" ceases to exist without process of liquidation. Shareholders or "the old enterprise" become shareholders of the acquiring enterprise.

Process of reorganization.

The reorganization process may vary depending on the type of reorganization and other circumstances.
In general the process is following:
  • Preparation of the draft of a reorganization agreement.
  • Submission of a special application and documents to the Register of enterprises. Each of enterprises (involved in the reorganization) must submit a separate application and documents.
  • The Register of enterprises publishes information about the draft of the reorganization agreement in the official newspaper "Latvijas Vēstnesis".
  • Preparation of the prospectus of reorganization. All shareholders can decide not to prepare the prospectus and in such case the prospectus do not need to prepare. The prospectus do not need to prepare also if all shares of a dividing enterprise owns an acquiring enterprise.
  • A sworn auditor examines the draft of the reorganization agreement. All shareholders can decide that examination of a sworn auditor is not necessary. Examination of a sworn auditor is not necessary also if all shares of a dividing enterprise owns an acquiring enterprise.
  • Not sooner than a month after publication about the draft of the reorganization agreement, shareholders of each enterprise consider (examine) the agreement and takes a decision on reorganization.
    If necessary the shareholders changes the articles of association.
    If an acquiring enterprise owns all the shares of a dividing enterprise, then a board of directors takes the decision on reorganization.
  • During 15 days after the decision on reorganization, an enterprise informs all known creditors about reorganization.
  • Also an enterprise publishes in official newspaper "Latvijas Vēstnesis" information that shareholders decided to reorganize the enterprise.
  • A dividing enterprise provides a security for creditors (for example, deposit of appropriate amount of money).
  • Not sooner than 3 months after the enterprises published the information about the decision on reorganization, each enterprise submits special application and other necessary documents to the Register of enterprises.
  • The Register of enterprises (a governmental register) takes a decision on reorganization. The process is completed.

Documents, related with reorganization.

Depending on the type of reorganization and other factors, some of the below mentioned documents may not be required.
The below mentioned documents are related with all types of reorganization.
  • A reorganization agreement.
  • A report on reorganization for the Register of enterprises.
  • A prospectus on reorganization.
  • An application (of certain form) to the Register of enterprises.
  • A decision of a shareholder or minutes of the meeting of shareholders.
  • A list of shareholders that voted against reorganization.
  • A conclusion of A sworn auditor.
  • If during process of reorganization need to establish a new enterprise, then need to prepare articles of association, a compartment of the register of shareholders and other documents, required for registration of a new enterprise.
  • documents confirming payment of the state duty and publication.

A reorganization agreement.

If in the process of reorganization are involved two or more already registered enterprises, then the enterprises must conclude a written reorganization agreement.
The agreement must contain:
  • Name (firm), legal address and registration number of all enterprises involved in the reorganization.
  • The exchange ratio of shares and the amount of additional payments (if additional payments are specified).
  • Distribution of shares among owners of acquiring enterprise (must specify how many shares will be owned by each shareholder.
  • Rules of the transfer of shares of acquiring enterprise to shareholders of acquired, divided or transformed enterprise.
  • The time, from which the transferred shares give the right to receive dividends and part of the profit in the acquiring enterprise, and conditions affecting the time (if such conditions exist).
  • Rights that the acquiring enterprise gives to shareholders of each class of shares and to holders of convertible bonds of acquired, divided or transformed enterprise.
  • Rights that the acquiring enterprise gives to members of supervisory and executive bodies of acquired, divided or transformed enterprise.
  • A day, starting from which the transactions of acquired, divided or transformed enterprise in the accounting of acquiring enterprise will be considered as transactions of the acquiring enterprise.
  • The consequences of the reorganization for employees of acquired, divided or transformed enterprise.
  • Actions (activities) that will be committed in the course of the reorganization and the deadlines for performing the actions (activities).

A prospectus of reorganization.

Each enterprise that is involved in the reorganization must prepare a written prospectus, in which need to specify and explain:
  • Provisions of the reorganization agreement.
  • Legal and economic aspects of the reorganization.
  • The exchange ratio of shares and the amount of additional payments (if additional payments are specified).
  • The methods that were used to determine (establish) the exchange ratio of shares and the amount of the surcharges, as well as the problems that arise by using these methods.

Enterprises can prepare a joint prospectus. All shareholders can decide not to prepare the prospectus.

Liability related with reorganization.

A sworn auditor is responsible for losses incurred due to his fault.

An acquiring enterprise is responsible for all obligations of acquired and transformed enterprise.

All involved enterprises are jointly and severally liable for those obligations of divided enterprise, that arose before the effective date of the reorganization.

Members of a council and a board of directors are jointly and severally liable for losses, that, due to their fault, during a process of reorganization, caused to enterprises, shareholders and creditors of the enterprises.



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