Company formation and accounting in Latvia
Last updated: 2018-03-03
Partnership in Latvia - it is commercial society, created with aim to do business (to get profit).
Partnership is not a legal entity, but partnership can get rights and to make commitments (partnership is legally capable).

Types of partnerships.

In Latvia exists two types of partnerships:
  • General partnership (Pilnsabiedrība). Liability of members (partners) to creditors of such partnership is unlimited.
    Partners of the partnership are responsible with all their assets for obligations of the partnership.
  • Limited partnership (Komandītsabiedrība). Liability of at least one partner (limited partner) is limited to his contributions. Liability of other partners (complementaries) is unlimited.

Who has rights to establish a partnership?

Any private (natural), legal person or legally capable partnership has rights to establish a partnership in Latvia, concluding special partnership agreement.
Minimum number of founders (partners) is two persons.

For what purposes you can use a partnership?

A partnership is a less common form of business in Latvia and such a society is usually established for realization of certain activities (for a particular purpose). For example, to build a large object, several construction companies may establish a partnership.
A partnership can obtain the rights (including the right to property and other assets) and to make a commitment, as well as sue and be sued in court.

How to create a partnership in Latvia?

Founders conclude contract of partnership and make an investment (contribution) to the partnership. Founders may invest money, things (goods), claims and work.
The founders also:
  • Sign the application for the state register.
    In the application must specify the name, type, address of the partnership, duration of operation and other data.
    Signatures on the the application must certify before a sworn notary or in the Register of Enterprises. The founders also have rights to sign the application with a secure electronic signature.
  • Get a written consent from the property owner to use the property as a legal address of a partnership.
  • Pay the state duty and payment for the publication.
  • Submit all the necessary documents to the state register.
If a partnership has entered into a transaction before the date of registration in the commercial register, then it is considered that the partnership exists from the moment of the transaction.

Taxation of a partnership.

For most taxes, the taxation of a partnership is the same as for the limited liability company.
  • If a partnership is registered in the register of persons subject to value added tax (VAT), then the partnership pays VAT according to the legislation.
  • If a partnership hires employees (is an employer), then the partnership must pay taxes on salaries (personal income tax, mandatory payments of the state social insurance and business risk fee).
  • Company income tax.
    In general if partnership pays (part of) profit to partners, then such payment is the payment equal to dividends and taxed with company income tax.

    For period, that ends on 31st December, 2017.

Management of a partnership.

Every partner of a partnership has right and obligation to participate in the management of the partnership. However, if under the contract of partnership, management is entrusted to one or more partners, then other partners do not participate in clerical work (do not manage affairs of a partnership).

If management is entrusted all or several partners, then each of them has the right to act unilaterally (individually) if the other managers do not mind.

A manager has rights to perform any acts (operations) that are associated with ordinary (usual) commercial activities of a partnership. But if the action goes beyond the ordinary course of business, then, for such an action requires the consent of all partners of a partnership.

With a court decision a partner (manager) can be deprived of the rights to manage a partnership. Other partners can file corresponding lawsuit if the partner made gross (serious) violation, related with performance of duties, or the partner is not able properly to manage business of a partnership.

The relationship between the partners and decision-making.

Each partner at any time has the right to receive information about activities of a partnership, to obtain information from the accounting and other documents.

If in course of management of a partnership, a manager (partner) used personal funds to pay for the costs of a partnership, or a partner has suffered losses, arising directly from management of a partnership, then the partnership has obligation to compensate to the partner such costs and losses.

In general, to make a decision, consent of all those partners that have rights to make such a decision is required. But partners in the partnership contract can provide that for a decision the majority of votes is necessary.

Based of the approved annual report, at the end of each financial year, partners of a partnership determine the result of economic activities (profit or loss).

Appropriation of profit or loss.

Profit or losses are distributed between the partners in proportion to the contribution to the partnership. In case of profit, to the contribution of a partner a portion of the profit is added. In case of loss, amount of contribution of a partner need to reduce by portion of loss.

A partner has the right to demand payment of his share of the profit, if such payment does not make damages to the partnership and if the proportion of the contribution of the partner has not decreased in relation to the certain (initial) amount of the contribution.

Termination of activities and liquidation of a partnership.

Bases for termination of activities are following:
  • Expiration of the term for which the partnership was established.
  • The corresponding decision of partners.
  • Start of the bankruptcy procedure.
  • The decision of a court. Any of the partners has the right to file appropriate lawsuit in court if there is an important reason. An important reason is considered, for example, if another partner of the partnership willfully or negligently violates the important duties, defined in the partnership contract or performance of the duties is impossible.

Partners must inform commercial register (public register) about termination of activities of a partnership.

In case of termination of economic activities need to start process of liquidation, except if the partnership contract requires different kind of the final settlement or the partnership is recognized (declared) insolvent.

In case of liquidation, partners of a partnership submit an application and other documents to the governmental register (commercial register).

In the process of liquidation, a partnership fulfills its obligations to creditors. The property, which remains after the fulfillment of the obligations, is divided among the partners proportionally to their contribution to the partnership.

After the end of the liquidation process, the liquidators submit an application to the governmental register to exclude the partnership from the commercial register.

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