News

Introduction

On 30 May 2024, the latest amendments to the Latvian Commercial Law were adopted and shall enter into force on 6 July 2024.

These latest set of amendments provide for much needed improvements concerning shareholder information disclosure, providing for greater transparency, legal certainty and all around better business practices in Latvia.

The amendments that entered into force on 1 July 2023 stipulate that the information concerning shareholders shall be made publicly available, similar to the existing information regarding members of SIA (sabiedrība ar ierobežotu atbildību) type companies. The information concerning shareholders shall be made publicly available online via the Latvian Enterprise Register.

Notably, the amendments also include changes concerning the categories of shares, renaming registered shares as registrable shares and bearer shares as dematerialised shares.

Furthermore, the amendments take into account the recent judgement of the Constitutional Court (dated, 26 January 2024), regarding the public availability of shareholder information. Further, the judgement indicates the future process in the Enterprise Register.

A step-by-step description of the shareholder registration process is now publicly available on the website of the Enterprise Register.

Previous legal requirements

Under the previous set of amendments (referred to above), AS (akciju sabiedrība) type companies were obligated to submit required shareholder information to the Latvian Enterprise Register, by no later than 30 June 2024.  The required shareholder information included: (i) shareholder register; (ii) or information on the central securities depository (where the shares are registered), pursuant to Paragraph 66 of the Transitional Provisions of the Latvian Commercial Law.

The shareholder register was required to be fully up-to-date, including all of the information required by law (i.e., full name, personal identification number and address, etc.).

If incomplete or inaccurate information was submitted, the Enterprise Register refused to accept the application and the company would face likely exclusion from the Enterprise Register.

Latest amendments

The latest amendments now allow for AS-type companies to submit an incomplete shareholder register to the Enterprise Register.

In this regard, there were two problems identified due to the previous amendments:

1. By 9 May 2024, approximately only 27% of the 900 AS-type companies (245) have complied (as of 30 May 2024) with the mandatory shareholder information requirements. As result the rest of the companies could face possible suspension of their activities and exclusion from the Enterprise Register.
2. It is understood some AS-type companies do not have all of the up-to-date shareholder information required. The latter issue is likely to have arisen for reasons beyond the control of the company. For example, at the time of the privatisation of the shares – whereby the shareholder’s address was not required to be entered into the initial shareholder register. If the AS-type company lacks the require shareholder information, failure to comply with this obligation may result in the company being excluded from the Enterprise Register.

Information gaps

In light of the aforementioned practical issues uncovered, the following three levels of missing information were distinguished:

1. missing unessential information about the shareholder (i.e., address);
2. missing essential information about the shareholder (i.e., full name and/or personal identification); and
3. unknown shareholder (i.e., no information is available at all).

In all of the aforementioned instances, the AS-type company must enter into the shareholder register the entirety of the information it has in its possession.

Shareholder limitations

In all three of the above instances, the shareholder register must be filed with the Enterprise Register. Notably, the missing information shall not produce any legal consequences for the shareholder. However, if no material information about the shareholder is entered into the shareholder register, the latest amendments impose restrictions on that shareholder. By way of example, if the shareholder is not fully identifiable, then until the full details of the shareholder are entered into the shareholder register, the following restrictions shall be imposed upon that shareholder:

• cannot sell or encumber the shares held by him;
• cannot exercise voting rights; and
• cannot be paid dividends.

These restrictions shall also apply if a shareholder is not known at all.

These limitations are also applied in the event one of the shareholders is unknown. Additionally, AS-type companies are obligated to sort out those rights of share ownership, whose ownership is unknown, by way of filing an application to the court with a request via invitation (Chapter 38 of the Civil Procedure Law) to extinguish the right to the shares for which the ownership is unknown. The shares whose ownership have been extinguished are transferred to the AS-type company and the company has to deal with them the same way they deal with their own shares in accordance with the Commercial Law.

If a shareholder, after reviewing the shareholders register submitted to the Enterprise Register, finds that not all the required information has been provided or is inaccurate, the shareholder must apply to the company and request for the information to be revised. In the event of a dispute between the shareholder and the company, concerning the information provided, the shareholder must apply to a court of general jurisdiction. The same procedure also applies if a person believes and can credibly prove the shares for which no ownership is indicated in the shareholder register belong to that person. Further, the shareholder may apply to the court for a declaration of the legal fact and for recognition of the ownership of the shares. On the basis of the court’s decision, the shareholder shall be entered into the shareholder register and the new entry into the shareholder register shall be submitted to the Enterprise Register.

In addition, if none of the relevant information has been entered in the shareholder register by 31 December 2024, the company shall, as from 1 January 2025, apply to the court for a summons and cancellation of the ownership of the shares.

Extension of the deadline

The amendments also amend the deadline for the AS-type company to submit to the Enterprise Register, the shareholder register or details of the depositary where the shares are registered.  The deadline has been moved to 30 September 2024 (previously 30 June 2024).

Conclusions

The amendments will hopefully have a positive impact on AS-type companies and their shareholders as they shall so be able to submit incomplete shareholder registers to the Enterprise Register, thus avoiding the risk of liquidation.

This much welcomed flexibility allows companies to adapt to the reality where not all of the necessary information on the shareholders is always available, for example due to historical data gaps or other external circumstances.

In addition, if the relevant information is not available concerning shareholders, those shareholders will be subject to the various restrictions outlined above.

These amendments therefore ensure companies can continue to operate while steps are taken to obtain and update all necessary information on their shareholders.

Please contact Reinis Sokolovs, Head of Corporate Practice at VILGERTS, regarding the amendments to the Commercial Law and the rights and obligations of the company and shareholders.