Company formation and accounting in Latvia
Last updated: 2012-07-10
According to article 18 of the Commercial law of Latvia an enterprise is organizationally economic entity. In the enterprise are included tangible and intangible things owned by a businessman, as well as other economic benefits (values) that the businessman uses in business operations.

Within the meaning of Latvian commercial law an enterprise is legal object and not subject. Legal subject is the merchant - holder of the enterprise.

An enterprise as if contains three parts:
1) Assets. Includes tangible things that are used for economic activities (equipment, raw materials, office furniture, money, goods for sale, etc.) and also includes intangible objects or rights (for example, claims against debtors).
2) Liabilities (for example debts to suppliers, salaries to employees, etc.).
3) Actual relations that has no legal form (goodwill) or positive future prospects, that are based on confidence of (potential) consumers to goods or services of the enterprise. Includes, for example, trade secrets, market share of an enterprise, reputation, clients, business partners, management of an enterprise, qualification of employees. Components of goodwill may be without individual value, but each component affect the value of the enterprise.

An enterprise is a subject that operates independently and performs economic activities with an aim to get profit.

Founders / incorporators of Latvian enterprise can be individuals (natural persons) and legal persons (companies). Minimum number of founders is one.

Why an enterprise is necessary? Why not to perform economic activities without an enterprise? One of the reasons to incorporate enterprise is to separate property of founders from property of an enterprise. Founders of an enterprise gives to the enterprise part of property of the founders. So from moment of incorporation of the enterprise, the property belongs to the enterprise, not the founders. From moment of incorporation the founders own shares of the enterprise. And the shares give rights to the founders to manage / guide the enterprise.

To incorporate / create an enterprise, founders must prepare and sign certain documents and submit the documents to the governmental register - commercial register (the Register of enterprises of the Republic of Latvia). Most widespread form of an enterprise in Latvia is the limited liability company (in Latvian, - sabiedrība ar ierobežotu atbildību or abbreviation, - SIA). Other forms are Sole trader, Joint Stock Company and Partnership.

An enterprise is a separate person. Incorporating an enterprise, founders as if creates a new person. So an enterprise can exist independently from its founders. For example, founders can transfer/sell their shares to other persons. In such case the enterprise continues to perform business activities and remains the same (the same status, the same rights and obligations), but the founders that have transfered / sold their shares have no rights related to the enterprise.

If an enterprise or an independent part of it moves / passes to another owner, then the new owner in general (with some exceptions) is responsible for obligations of the enterprise or independent part of it. The rights and claims of an enterprise also passes to the new owner of the enterprise.



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