Company formation and accounting in Latvia
Last updated: 2016-11-16

What is commercial activity?

According to the Latvian Commercial Law, commercial activity is an open economic activity, performed by a merchant (individual/sole trader, a partnership and a commercial company) with aim to get profit.

Signs of commercial activities are:
  • commercial activities are open activities (public, legal activities);
  • direct (main) aim is making a profit;
  • in Latvia only a merchant can engage in commercial activities (a merchant is a person, registered/recorded in the commercial register). And economic activity of a person, registered in the commercial register and using the registered firm/name can be only a commercial activity;
  • a merchant does business in his own name and is financially responsible for results of the commercial activities.
Commercial activity is one of economic activities (long-term and systematic economic activity and investment, aimed at the production and sale of goods, doing of work, trading and rendering services for remuneration). Economic activities, besides commercial activity includes also professional activity and cooperative activity. Direct aim of economic activity may not be getting profit. But aim of commercial activity always is to get profit.

Regulation of commercial activities.

Commercial activities mainly regulates the Commercial law.
The Commercial law defines:
  • what is commercial activity,
  • several questions, related with the commercial register,
  • types of merchants,
  • how to register commercial activities,
  • rights and obligations of persons, involved in commercial activities.
Business support control act. Aim of the law is to ensure lawfulness of the realization of business support, to minimize negative impact of the support on competition.

Several rules of the Cabinet of ministers about licensing of certain commercial activities.
The rules usually defines procedure of getting and revoking of a licence, authority that manages a licence, state duty for a licence.

Other rules of the Cabinet of ministers. For example, rules about mandatory insurance of civil liability in certain commercial activities.

Legal forms for commercial activities.

In the Commercial law are defined following legal forms:
  • Sole trader (Individuālais komersants, or IK).
  • Unlimited partnership (Pilnsabiedrība or PS).
  • Limited partnership (Komandītsabiedrība or KS).
  • Company with limited liability (Sabiedrība ar ierobežotu atbildību or SIA).
  • Joint Stock Company (Akciju sabiedrība or AS). Also exists such form as European commercial company (Societas Europaea). You can register Societas Europaea through reorganization of joint stock companies or limited liability companies, that are registered in the European Union.
Legal form
Advantages
Disadvantages
Sole trader
  • simple registration,
  • do not need to pay equity capital,
  • fast and simple making of decisions,
  • all money belongs to a natural person - sole trader, so do not need to distribute profit,
  • usually do not need to create annual report (balance, profit / loss statement and other documents).
  • unlimited liability (with all property of a natural person) for obligations,
  • owner can be only one natural person,
  • harder (complicated) to receive investments.
Commercial partnership
  • can accumulate more funds,
  • in commandite partnerships some partners can limit liability,
  • partners can be both natural and legal persons,
  • partnership itself does not pay taxes from profit (taxes must pay partners; legal persons pay company income tax and natural persons pay personal income tax).
  • in general partnership liability of all partners is unlimited,
  • profit must distribute among all partners,
  • must coordinate decision with all partners and commandites can not take part in management of a partnership.
Commercial company with capital
  • can attract large funds,
  • limited liability company is most used and well known form in Latvia,
  • if certain conditions are true, then founders can register limited liability company with small equity capital (in such case registration is quite simple and cheap),
  • owners can be both natural and legal persons,
  • minimum number of founders of a limited liability company and joint stock company is one,
  • limited liability of shareholders / stockholders (in usual cases).
  • more complication foundation and rather high equity capital (for Joint stock company),
  • if more than one shareholder / stockholder, then may be problems to make decisions (process of making decisions is relatively complicated),
  • profit must distribute among all shareholders (stockholders).

To start commercial activities.

To engage in commercial activities in Latvia a merchant must choose one of available legal forms of business and register in the commercial register (the Register of enterprises). Only persons, registered in the commercial register, can do commercial activities.
During process of registration (preparing documents, necessary for registration) in the Commercial register, a merchant can define main types of commercial activities. If types of commercial activities are not defined during the process of registration, then merchant defines them while registers with tax authority or submits annual return. List of commercial activities is available on the website of the Register of enterprises. A merchant can do any type of commercial activity that is not prohibited by law.

There are multiple types of commercial activities that requires special license (for example, credit institution, insurance, security activities, transport services). For some activities a merchant must submit special application to governmental institution (for example, tourism company must submit an application to the Ministry of Economics).

To engage in certain types of commercial activities a merchant must chose certain type of legal form (for example, must register Joint Stock Company to engage in insurance).

Limitations for certain types of persons.

A judge in criminal proceedings can make a decision to prohibit a natural person to be a shareholder / stockholder or member of a board of directors of a company. A judge can set other prohibitions related with commercial activities.

A governmental authority also can set prohibitions (restrictions) in proceedings of administrative violation.



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