On June 1 2000 an important legal amendment was adopted which modifies the Latvian Law on Joint Stock Companies of May 18 1993.
The most significant amendment is made to Article 41.1. It provides for the pre-emptive rights of a company's existing shareholders if the share capital is increased by means of capitalization of debts. Until now, if the share capital of the joint stock company was increased in this manner, the existing shareholders did not have pre-emptive rights to acquire the newly issued shares, and all such newly issued shares could have been transferred to the chosen creditor(s).
Now, if the share capital of the joint stock company is increased by substituting the debts of the joint stock company with its shares, those debts which are chosen by the joint stock company are transformed into share capital upon the selected creditors' written approval. The joint stock company then issues additional shares through closed issue, which are transferred to the respective creditors after the existing shareholders of the joint stock company have exercised (or waived the exercise of) their pre-emptive rights in proportion to the number of shares owned by each. The shareholders must exercise their pre-emptive rights within the term stated in the term of share issue, which may not be less than one month. The joint stock company may only increase the share capital, substituting the debts of the joint stock company with its shares, after any previous share issue has been fully paid up. The share capital increase may not be more than five times the company's equity capital.
The amendments to the Law on Joint Stock Companies expand the definition of the term 'registered share capital', stating that the registered share capital may not be less than the paid-up share capital of the company. This supplements Part 6 of Article 20 of the Law on Joint Stock Companies, which now states that if the initially determined registered share capital is attained, the joint stock company, upon further increase of its share capital, must also determine the corresponding amount of the new registered share capital (which may not be less that the paid-up share capital of the company). It therefore follows that if the paid-up share capital has equalled the amount of the registered share capital which is determined in the charter of the company, then at further share capital increase a respective amendment must be made to the charter of the joint stock company changing the amount of the registered share capital stated therein.
Amendments are also made to Article 87 of the Law on Joint Stock Companies. This previously stated that sworn auditors are elected annually by the general meeting of shareholders, inspect the activities of the current year and operate until the next ordinary general meeting of shareholders. The amendments provide that the sworn auditor inspects the annual report corresponding to each reported period. They state that the general meeting of shareholders has the exclusive capacity to decide on replacement of the sworn auditor, pursuant to a request of the board of directors or the supervisory board, or at the request of the shareholders. Therefore, the previous legal requirement to re-elect the sworn auditor annually at the ordinary general meeting of shareholders is no longer necessary. The amendments to this article also oblige the joint stock company to notify the Republic of Latvia Register of Enterprises of the election or replacement of the sworn auditor within 15 days of the general meeting at which the relevant resolution was adopted. The notice to the Register of Enterprises must state the name and certificate number of the newly elected sworn auditor.
Several further amendments are made to articles of the law which apply to banks, credit institutions, insurance joint stock companies and pension funds.
For further information on this topic please contact Laine Skopina at Klavins & Slaidins by telephone (+371 703 5222) or by fax (+371 703 5252) or by e-mail ([email protected]).
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