Nature of business
The decision depends on planned business activities.
The amount of available capital
When establishing legal entities of certain types, the founder of a legal entity must have certain amount of the authorised capital.
The amount of taxes directly depends on the form of activities a person has chosen.
The degree of personal liability
If a person intends to limit his liability for business failures with his personal or family property, he or she should choose a legal entity of limited civil liability.
The number of founders
If there are several or more interested persons wishing to jointly conduct business activities, they should establish a legal entity for these business activities.
The degree of complexity of business activities
For example, conducting individual activities is easier than having a company, because there is no management structure or need to perform other formalities necessary for legal entities.
Types of companies available in Latvia
Limited liability companies (LLC) or SIA are closed business entities whose equity capital consists of the total amount of the par value of the shares, which cannot be traded publicly. Limited liability companies may be established by one or more natural or legal entities. Shareholders may simultaneously be the only member of the Board and the only employee. The permanent presence of shareholders in Latvia is not required, although the board must be reachable at the address of the registered office. The capital of a SIA is divided into shares and the liability of shareholders is limited to their investment in share capital. The minimum share capital of a SIA is EUR 2 800. Share capital can also be paid in the form of tangible or intangible property. The executive body of a LLC is the board of directors whose main duty is to submit quarterly reports to the council on the activities and financial status of the LLC.
It usually takes about one week to incorporate an LLC and it costs about EUR 170.
In order to create a small business in Latvia, one can incorporate the aforementioned SIA with reduced equity capital (1 to 2799 EUR). Such Company may be incorporated provided that all the following criteria are met:
- All shareholders are natural persons and the number thereof does not exceed five (may be non-residents);
- Only the founders of the company can be appointed as Board members;
- No shareholder can be a member of any other company with reduced equity capital.
Joint-stock Companies (JSC) are business entities whose equity capital consists of the total amount of the par value of shares in the company’s stock. Joint-stock companies can be closed or open with shares in public circulation.
The minimum statutory capital for JSCs is EUR 35 000. JSCs performing the activities of banks, insurance companies or currency exchange require a higher amount of statutory capital. JSCs can issue ordinary and preference shares which can grant shareholders rights to receive dividends, rights to receive a liquidation quota, and voting rights at shareholders’ meetings.
JSCs are managed by shareholders’ meetings, supervisory councils, and boards of directors. Only shareholders’ meetings may make decisions concerning: annual accounts, use of the profit from the previous year’s activities, election and recall of council members, auditors, JSC controllers and liquidators, and perform other activities as per the Commercial Law.
The supervisory council represents the interests of shareholders between shareholders’ meetings; it appoints the board of directors and supervises its activities. The board of directors is the executive institution of JSCs which supervises and manages their activities. Boards of directors consist of one or more members, but if a JSC is publicly traded, the board of directors must have at least three members.
An individual merchant is a natural person, who is registered in the commercial register of the Register of Enterprises. The owner or Individual merchant who is registered in the commercial register of enterprises is the same person.
Natural persons are obliged to register as individual merchants with the Commercial Register if the annual turnover from their economic activities exceeds EUR 284 600 or the economic activities performed to conform to those of a commercial agent or a broker, or the yearly turnover from performed activities exceeds EUR 28 500 and the natural person provides employment for more than five employees. The whole of individual merchants’ property is liable in terms of meeting their obligations.
According to the Commercial Law, local and foreign companies may establish branch offices in Latvia. A branch is an organizationally independent part of a company that can carry out economic activities but is not treated as a legal entity. A branch is subject to the same reporting obligations as registered companies, and the head office of the branch is fully liable for activities carried out by the branch.
Representative offices, similar to branches, are not independent legal entities. Representative offices cannot perform economic activities and their functions are limited to market research, promotion of the parent company, and other limited marketing activities.
A partnership is a business entity in which two or more persons (members) have united, on the basis of a partnership agreement to perform commercial activities utilizing a joint company name.
The Commercial Law provides for two forms of partnership: general and limited partnerships. Both can be established by two or more persons.
The main difference between the two forms is that all persons establishing a general partnership have unlimited liability for the partnership’s debts. On the other hand, limited partnerships are established by limited and unlimited partners, where the liability of limited partners is limited to the amount of capital contributed.
Partnerships are established by partnership agreements and there are no requirements for minimum capital. Partnerships’ profit or losses are distributed at the end of the year in proportion to the amount of capital contributed by partners.
|Limited liability company (SIA)||Limited liability company (SIA) with reduced equity||Joint stock company (JSC)||Individual merchant (IK)|
|Number of owners||1+||1-5||1+||1 physical person|
|Annual turnover||-||<40 000 EUR||-||≥284 600 or ≥28 500 and ≥5 employees|
|The owner is liable with own property||-||-||-||+|
|Non-residents may be the owners||+||+||+||+|
|Management||Shareholders’ meeting and the board||Shareholders’ meeting and the board||Shareholders’ meeting, the council and the board||The owner takes decisions unilaterally|
|State fee for registration||150,00 EUR||20,00 EUR||350,00 EUR||30,00 EUR|
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Companies must be registered with the Enterprise Register (ER) to start a business. Company registration cost varies from 162,03 to 481,03 EUR and it can be done online in one to three working days.
Employment procedure must be done according to the labour code. You need to take into account:
- Types of employment contracts
- Documents required for employment
- Content of an employment contract
- Termination/expiry of employment contract
- Working time (balance between rest time and working time)
- Wage (at least minimum wage)
Other relevant points that you can find in the labour code.