Before starting a company in Latvia it is crucial to assess and choose the most appropriate type of an undertaking in terms of law and economics. This choice will affect not only the amount of necessary equity capital, but also the legal status of the enterprise and other business related issues.
There are several legal forms for running business in Latvia. Entrepreneurs usually register the following types of undertakings:
Limited Liability Company (SIA)
SIA is abbreviation from “sabiedrība ar ierobežotu atbildību” (company with limited liability). It is a closed commercial company (legal person) with equity (share) capital that consists from shareholders investments (shares). SIA is the most common business form in Latvia
Below you can find a list of important terms to keep in mind if you want to found a SIA:
Closed company: It means that shares cannot be publicly traded. If a shareholder wants to sell his shares, the shareholder at first must offer the shares to other shareholders of the company.
Commercial company: A SIA is a merchant which aim is to make a profit. Concept of merchant in Latvia includes concepts: “sole trader” and “commercial company”. Merchant is person that is recorded in commercial register.
Legal person: A limited liability company is able to have rights and obligations. Legal person is an independent person who is registered according to certain rules. Legal person can own property, can get rights and undertake obligations, be plaintiff and defendant in the court. Property of Latvian Limited Liability Company initially consists from investments (contributions) of shareholders (owners of the company).
Joint Stock Company (AS)
Joint Stock Company is very similar to a SIA. JSC is Public Limited Company and its stocks (shares) can be the subject of public trade. There are different minimum share capital amount for Joint Stock Companies in Latvia and it depend on JSC activity – for instance, insurance companies, banks, non-bank lending.
Here you can find a list of terms to keep in mind if you want to found a JSC:
Founder: The founder may be a resident or nonresident of the Republic of Latvia. It can be one or more persons, and they can be both natural persons and legal entities.
Equity capital: The equity capital contribution can be made only in the form of a cash investment. The minimum equity capital for Joint Stock Company is much higher than the one needed to found a SIA.
Management body: A Joint Stock Company is managed by a shareholders’ meeting, council and board. One or more natural persons can become members of the board, and they may be residents or non-residents of the Republic of Latvia.
Status: A Joint Stock Company can do all allowed economical activities according to laws in Latvia, for some business activities it is necessary to get license.
Liabilities: The Company is liable to its obligations not more than its own property. This means shareholders of Latvian Joint Stock Company never take responsibility for company obligations and reversely (company never takes any responsibility for shareholders obligations)
Latvia is popular for founding branches since the country is well located for company expansion between Northern and Eastern Europe and the Baltic market is developing rapidly. Foreign investment is encouraged into the country through financial incentives and foreign investors are generally treated equally with local investors, this means a branch can be registered in Latvia can be represented by someone who is not a Latvian resident.
A foreign company may open a branch if it decides to offer its goods and services in Latvia. The branches are not considered to be legal entities that is why the responsibilities for its actions are taken by the foreign company. The branch’s assets are not apart from the parent company’s assets and in case of closing, are subject to seizure.
The branches established in Latvia cannot operate business before being registered in the Commercial Registry and it takes almost 15 days to finish the whole process of incorporation of branch in Latvia.
If the branch want to hire employees is also required to apply for the social insurance contribution, process regulated also by the State Revenue Service.
Representative office of a foreign undertaking
Foreign undertakings or organizations can set representative offices or register official representatives in the Republic of Latvia. Representative offices cannot conduct business. The goal and main task of a representative offices is basically the promotion of a foreign undertaking or organization in the Republic of Latvia or the Baltic region as a whole. The foreign undertaking being the parent enterprise is fully liable for the activities and obligations of its branch.
The representative office is a part of a foreign undertaking or organization, which is situated in the territory of the Republic of Latvia and is not considered an independent legal entity. The registration at State Registry takes only four business days from the moment all incorporation documents are drafted and submitted with Commercial Registry of Republic of Latvia.