Getting Ready for the New Commercial Law

Since the Commercial Law makes many material changes to the regulation of business activities, a draft bill on the procedure through which it will be implemented has been prepared. It is anticipated that this draft act will also become effective on January 1 2001.

This update reviews the key basic principles set out in both the draft act and the Commercial Law. Businesspersons should familiarize themselves with them in order to ensure that they are fully prepared for the new conditions which will take effect next year. However, the authors of the draft act are continuing to work on it and it is possible that several changes may yet be made to the text.

In accordance with the Commercial Law and the draft act, the types of commercial activity that may be pursued will be reduced. The Commercial Law defines 'commercial activity' as an open economic activity which is performed by a merchant in his own name in order to gain profit. The the term 'merchant' may be designated to the following persons:

• an individual merchant;
  
  
• general partnerships;
  
  
• limited partnerships; and
  
  
• capital companies (limited liability companies and joint stock companies).

Individual enterprises, farms, state and municipal enterprises, enterprises of public and religious organizations, share companies and enterprises of charter companies are excluded from the definition of 'merchant'. Cooperative companies will not fall under the definition of 'capital companies' and their activity will be regulated by a separate Cooperative Company Act. If cooperative companies intend to engage in commercial activity, they will need to establish a separate commercial company.

The Commercial Register will register and maintain records of merchants and commercial activity.

In order to ensure that companies which have already been registered with the Republic of Latvia Register of Enterprises comply with the provisions specified in the draft act, a transition period has been established during which the following actions must be taken:

• Limited liability companies, joint stock companies and additional liability companies must re-register by December 31 2001, and secure compliance of their charters and management structure with the Commercial Law. If these companies fail to re-register by this date, they will be liquidated in the manner set out in the draft act;
  
  
• Partnerships must submit all information specified in the draft act to the Commercial Register by December 31 2000. This includes the name of the partnership, the amount of investment, its participants and other information. If the information is not submitted in a timely manner, the partnership will be liquidated in the manner set out in the draft act;
  
  
• Share companies must be reorganized into capital companies or liquidated, according to the owner's decision, by December 31 2002;
  
  
• State and municipal enterprises must be reorganized into capital companies or liquidated, according to the owner's decision, by December 31 2002;
  
  
• Enterprises run by public and religious organizations must be reorganized into capital companies or liquidated, according to the owner's decision, by December 31 2002;
  
  
• Enterprises run by companies that do not have the status of a legal entity will be deleted from the Republic of Latvia Register of Enterprises after January 1 2001;
  
  
• Enterprises run by companies that have the status of a legal entity but are not reorganized into capital companies or liquidated before the specified date will be liquidated in the manner set out in the draft act;
  
  
• Affiliates and representative offices must be closed or the required information submitted by December 31 2001;
  
  
• Permanent representative offices of a foreign merchant intending to engage in commercial activity must be reorganized into affiliates or capital companies, or must be liquidated, by December 31 2002. If these actions are not performed in a timely manner, the representative office will be liquidated in the manner set out in the act; and
  
  
• Individual (family) enterprises, farms and fishing farms must be reorganized as individual merchants by December 31 2002.

Companies with foreign investment which are entitled to earlier profit tax allowances will continue benefit from them in the manner specified in the draft act. However, these allowances will only remain effective until December 31 2004.

Certain amendments and additions will be made to the draft act in the future, including provisions regarding companies with foreign investment and representative offices established by foreign companies, which will be subject to review by the group that is drafting the act. The act will be submitted to the government for review, on its way to the Parliament, in the near future.

For further information on this topic please contact Filip Klavins or Anita Tamberga-Salmane at Klavins & Slaidins by telephone (+371 703 5222) or by fax (+371 703 5252) or by email ([email protected] or [email protected]).
The materials contained on this web site are for general information purposes only and are subject to the disclaimer.