Code Eases Regulation of Charters of Incorporation

At present, two separate laws regulate the establishment and operation of these types of company, which are the most commonly used in Latvia. The Law on Limited Liability Companies provides that the following information must be included in the charter of incorporation:

• the name and legal address of the company;
  
  
• the objective, duration (if applicable) and prospective areas of the company's activities;
  
  
• the names of its shareholders;
  
  
• information on the company's shares, including (i) the amount of the share capital, (ii) the nominal value of each share, (iii) the number of shares, (iv) the manner in which shares are transferred, and (iv) the procedure for increases and decrease of share capital;
  
  
• the legal relationship between the company and its shareholders;
  
  
• the structure of the administration, the number of members in the executive bodies and their rights and obligations, as well as the manner in which the executive bodies are appointed or elected;
  
  
• the legality of shareholders meetings;
  
  
• procedures for the preparation, review and approval of annual reports;
  
  
• profit distribution regulation;
  
  
• formation of reserve and other funds;
  
  
• procedures for changing shareholders;
  
  
• procedures for reorganization and liquidation; and
  
  
• any other necessary provisions.

The Law on Joint Stock Companies provides that the charters of incorporation of joint stock companies must contain the following additional information:

• the types and amount of each category and class of share, as well as the number of shares reserved for each member of the board of directors, the nominal value of the shares and the rights of shareholders;
  
  
• the amount of the registered share capital;
  
  
• the procedure for calling general meetings of shareholders, the competence of the general meeting and the decision-making process;
  
  
• the dates of the company's financial year;
  
  
• publication of annual reports and other documents;
  
  
• the division of profit and payment of dividends; and
  
  
• any restrictions on the amount of shares that may be held by one owner.

However, the Commercial Code will take a simpler approach in its regulation of this matter. The chapter of the new code entitled "General Provisions Relating to Capital Companies" provides that the following information should be included in the charters of incorporation of both limited liability companies and joint stock companies:

• the firm name (trade name);
  
  
• the types of commercial activities which the company will carry out;
  
  
• the duration or objective of its activities (if applicable);
  
  
• the amount of the share capital, the number of shares and their nominal value;
  
  
• the amount of the obligatory reserve fund, and details on its formation and use;
  
  
• the number of members on the board of directors, as well as the rights of board members to represent the company jointly or individually;
  
  
• the number of members on the supervisory council (if applicable);
  
  
• particular provisions for the transfer of shares (if provided); and
  
  
• other essential provisions in accordance with the code.

The following provisions should additionally be included in the charters of incorporation of joint stock companies:

• the types and amount of each category and class of share, as well as their nominal value (if provided);
  
  
• whether the shares are registered shares or bearer shares, and the conversion rules if conversion is provided for; and
  
  
• whether the shares are dematerialized or in paper form, and the conversion rules if conversion is provided for.

The new Commercial Code brings Latvian company law into line with EU legislation, and fills in the gaps and shortcomings that have been identified in the current company law. It also simplifies and clarifies the duties of entrepreneurs in obeying the corporate legislative rules. Once the code takes effect, charters of incorporation will become more concise and will not repeat provisions which are provided for in the law itself.

For further information on this topic please contact Filip Klavins or Dagnija Libane at Klavins & Slaidins by telephone (+371 703 5222) or by fax (+371 703 5252) or by email ([email protected] or [email protected]).