Company formation and accounting in Latvia
Last updated: 2018-03-03
In the Commercial law there is no direct explanation of liquidation, but from several articles of the Commercial law I can make conclusion that liquidation of a company is a process during which a company ceases business activities, receives payments from debtors, fully pays debts to creditors and fulfills other obligations and fully distributes the property. As a result of the process of liquidation, a company is excluded from commercial register and legally ceases to exist.
If a company can not fully pay debts to creditors, then it is impossible to complete the process of liquidation and the company may need to start the insolvency process.

Compared with company registration, the liquidation takes longer time and the liquidation process can be much more complicated than registration process.

As a limited liability company is the most common form of doing business in Latvia, this page is related with liquidation of a limited liability company.

What might be the reasons for liquidation?

  • A decision of shareholders. For example, the company is not engaged in commercial activities and in the future and the owners do not plan to use this company for doing business.
  • A decision of the governmental institutions (the court, the State revenue service, the Register of enterprises).
    If certain documents or situation, related with a company, does not comply with legislation, governmental institutions may start a process of forced liquidation of the company. For example, in case if a company is not available at a registered office (a legal address).
    If the Register of enterprises stated that the company does not comply with certain requirements of the law, then the Register of enterprises sends to a legal address special warning. If the company does not respond to the warning and does not fulfill certain requirements of the legislation, then the Register of enterprises has the right to to file a lawsuit demanding to start liquidation of the company.
  • Expiration of term, specified in the articles of association of a company (if the company was established for a certain period). A company has reached aims, specified in the articles of association (if the company has been established to achieve certain goals). Such cases are very rare.

Liquidation or a sale of shares.

Instead of liquidation owners may also consider to sell shares (sale of a company / sale of a business). In the case of a sale, owners can receive some payment for the shares. In case of liquidation there are only costs and no income.
If you have decided to sell shares, it is important to sell to a person, you can trust. Because, during a process of a sale and after a sale, dishonest persons may do some illegal activities and as a result of such illegal activities you may get certain problems.
So my conclusion is: if you can not find a buyer, you can trust, better liquidate a company.

The liquidation process.

Before the liquidation need to stop the activities of the company. Bases for termination of the activities specified in the article 312 of the Commercial Law.
In a typical case, the owners of the company (meeting of shareholders) decide to terminate of activities.
According to part 1 of article 218 of the Commercial law, for the termination of activities must vote for at least 2/3 of the votes present at the meeting, if the charter does not provide for a greater number of votes.

If a government institution ceased activities of a company, and the Register of enterprises or the court has not received from a particular concerned person an application for appointment of a liquidator, and the company is not declared insolvent, then the Register of enterprises excludes the company from the commercial register without special liquidation process. In such case liquidation consists from two parts:
  • A decision of a governmental authority to stop activities of a company.
  • Exclusion of a company from the commercial register. The company legally ceases to exist and the government becomes an owner of all the property of the company.

After the decision to stop activities, the company has no right to engage in commercial activities. The company can only take actions that are necessary for liquidation.

If shareholders take a decision on the termination and liquidation, then:
  • Shareholders can appoint liquidators. If shareholders have not appointed some persons as liquidators, then members of the board of directors performs liquidation.
  • A liquidator (a member of the board of directors) fills an application of special form. If a liquidator is not a member of the board, then the liquidator must sign a consent to be a liquidator. The signature on such consent must be certified by a sworn notary.
  • Within three days after the day of the decision about termination of the activities, a liquidator (or other authorized person) pays the state duty and submits the decision and other documents for entry into the commercial register (the Register of Enterprises).
    In application for the Register of Enterprises need to specify where creditors can submit their claims, the term for submission of claims of creditors and other information. If there are no known creditors of the company, then the minimum period of submission of claims of creditors is one month. In other cases, the minimum term for submission of claims of creditors is three months. The term begins to run after the publication of corresponding announcement.
  • Register of Enterprises publishes an announcement of termination and start of liquidation in the official newspaper. In the publication also indicates the place and deadline for submission of the claims of creditors (usually a period of 3 months from the date of publication).
  • It is necessary to wait for the time specified in the publication. During this period it is necessary to fulfill all the obligations (eg, to pay debts, to submit all reports). The liquidator also must recover recoverable debts.
    If during the process of liquidation liquidator discovered that the company's assets are insufficient to meet/clear all legitimate claims of creditors then the liquidator is obliged to submit an application for insolvency proceedings.
    If a known creditor does not submit a claim, does not accept a fulfillment of an obligation or an obligation is not yet enforceable, then the liquidator must deposit in the court the amount due to the creditor.
    If there is a controversial claim of the creditor, the property of the company can be divided/distributed between the shareholders only in case, if for the particular creditor is provided guaranty (security).
  • After the expiry of the term for submission of claims of creditors, the liquidator prepares financial statements of the beginning of liquidation. The liquidator also prepares a plan of distribution of assets of the company, and determines liquidation quota. Liquidation quota is a capital gain (the cost of acquired assets, less the cost of acquisition of shares), and liquidation quota is subject to personal income tax (15%).
  • A sworn auditor need to examine financial statements and a plan of distribution of assets if the articles of association requires such examination or shareholders decided that such examination is necessary.
  • The liquidator sends the financial statements and an asset distribution plan to all shareholders of the company.
  • Liquidator ensures the safety and availability of company documents. The liquidator, for a fee may hand over the documents to the National Archives of Latvia.
  • The property of the company (after payment of all expenses and debt repayment to creditors) need to distribute among the shareholders.
  • After distribution of property, preparation of documents and fulfillment of all obligations of the company (including the filing of reports, payment of taxes), the liquidator submits an application and required documents to the Register of enterprises.
  • If the company has fulfilled all the obligations and all the documents comply with the legislation, the Register of enterprises excludes the company from the commercial register. Liquidation process is completed.
If the company has no assets, debtors and creditors, then the liquidation process easier and shorter than the above mentioned process.

Documents, related with liquidation.

  • An application (of certain form) for the Register of enterprises.
  • A decision of a shareholder or minutes of the meeting of shareholders.
  • A report of the board of directors for the previous year and a report about the company's activity in the current year. In the report must specify the period during which the company can pay all debts to all creditors.
  • A consent of the liquidator if the liquidator is not a member of the board of directors.
  • A financial report of beginning of liquidation and a financial report of completion of liquidation (a final financial report).
  • Documents confirming payment of the state duty.
  • Reports submitted to the State revenue service.
  • A plan of distribution of assets.
  • In certain cases need a conclusion of a sworn auditor.
  • The original of a registration certificate (if the Register of enterprises has issued a registration certificate).

Consequences of liquidation.

After completing of the liquidation process, a company legally does not exist (a company is excluded from the commercial register).
It is not possible to resume commercial activities of liquidated company.

Taxes and tax reports during the process of liquidation.

To complete the liquidation process, it is necessary to submit all tax reports and pay all taxes.
Before exclusion from the commercial register, the Register of Enterprises sends a request to the State Revenue Service.
If the company has not fulfilled its obligations to the State Revenue Service, then the State Revenue Service does not give consent to exclude the company from the commercial register.

A company has obligation to submit to the State Revenue final financial statements (balance sheet, profit and loss, etc.), and also must submit the declaration on the company (corporate) income tax.

Payment of company income tax./> Profit is not taxed. In relation to liquidation, tax must apply, for example, to liquidation quota and bad / lost debts. For more information click here.

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

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