Company mergers are governed by the Commercial Law, the Law on Competition and the relevant Regulations of the Cabinet of Ministers. The Law on Competition provides for fines for illegal mergers, for which financial penalties may be imposed by the Competition Council. If the offender does not comply with the Competition Council's rules the offender becomes subject to the Latvian Code of Administrative Offences and in some cases subject to the Criminal Law.
Types of merger
The Commercial Law of the Republic of Latvia provides that companies may merge by acquisition or fusion processes. The law qualifies these processes as reorganisation. In the event of a merger, the shareholders or members of the acquired company shall become shareholders of the acquiring company.
Merger by acquisition
Acquisition is a process whereby the acquired company transfers all of its assets to another company.
Merger by fusion
As a result of fusion the companies that have decided to merge transfer all of their assets to a newly incorporated company.
A merger is considered to be a cross-border merger where at least one of the merging companies is registered in Latvia while the others are registered in the European Union or the European Economic Area.
A merger shall not be considered as a cross-border merger where there is a company involved that intends to manage the collective capital investments of individuals in accordance with the principle of division of risk and whose share capital is redeemable on shareholder demand directly or indirectly from its own assets.
Before entering into one of the types of merger sanctioned by the Law On Competition, the merging companies must give notice to the Competition Council of the planned transaction where one of the following conditions applies:
- the total turnover of the companies involved was at least LVL 25 million in the preceding year;
- the total market share of the companies involved in their particular market segment is over 40%.
In the course of the merger the companies enter into a reorganisation agreement. This should be a written agreement.
Each company involved in the reorganisation shall draw up a prospectus in writing where it states and explains:
- the terms of the draft agreement,
- the legal and economic aspects of the reorganisation,
- the share exchange ratio and the amount of premiums,
- the methods used to determine the share exchange ratio and the amount of premiums, as well as problems arising from the use of these methods.
The draft agreement between the companies involved in the reorganisation shall be reviewed by an auditor appearing on the list approved by an office of the Commercial Register. Companies involved in the reorganisation may appoint a joint auditor.
The auditor shall prepare a written opinion following examination of the draft agreement and shall submit it to the company. If the same auditor has been appointed for all the companies, he or she shall submit the opinion to all those companies.
The board of directors of the acquired or dividing company has a duty to inform the general meeting and the acquiring company regarding all substantial changes in the material situation of the acquired or dividing company which have occurred up to the date of expiry of the powers of the board of directors or up to the time the reorganisation takes effect.
Within fifteen days of the date on which the reorganisation resolution is adopted, each of the companies involved in the reorganisation shall give notice in writing to all of its known creditors who have claims against the company up to the date on which the reorganisation resolution is adopted.
On the basis of a request from a shareholder or from a member of the executive or supervisory board of a company involved in the reorganisation, the court may declare the resolution regarding reorganisation as void, if it was taken in breach of the law, the company’s articles of association or a partnership agreement, and it is not possible to rectify these breaches or they are not rectified within the time period specified by the court.
Each of the companies involved in the reorganisation shall, no earlier than three months after the day when the notice is published, submit an application to the office of the Commercial Register in order that the reorganisation be recorded in the Commercial Register.
Shareholders of the acquired, dividing or restructured company, who did not agree to the reorganisation, are entitled, within two months of the date on which the reorganisation takes effect, to request the acquiring company to redeem their shares for cash.
Special provisions for cross-border mergers are contained in Part XIX of the Commercial Law.
Buying an existing company, with an already established structure, can be a good way of expanding your business.
In the event of a merger, the acquired company ceases to exist without being dissolved, whereas in the event of a merger involving the incorporation of a new company registration takes place according to general procedures.
The new company must be registered with the Commercial Register. Traders are registered according to their location in the relevant local office of the Enterprise Register. You can find application forms at branch offices and on the Enterprise Register website.
Enterprises are registered as taxpayers in the Enterprise Register (UR) provided under the Law On the Enterprise Register. The Enterprise Register (UR) shall allocate a unified registration number to the legal person and issue a registration certificate, which also serves as a taxpayer certificate.
The Enterprise Register shall forward information electronically on the registered legal person to the State Revenue Service (VID).
Legal persons who are not required by law to register with the Enterprise Register, shall be registered as taxpayers with the VID.
Taxable persons in the sense of the Law on Value Added Tax shall be registered with the VID as prescribed by law.
Under Cabinet regulations taxpayer registration deadlines are as follows:
- advocates’ practices - within 10 days of the date of their establishment;
- notarial practices - within 10 days of starting in practice;
- the permanent establishments of foreign traders according to the location of their activities in Latvia - within 10 days of commencing activity in Latvia.
In order to register with the local VID office the taxpayer must submit an application containing information about the taxpayer himself, the taxpayer’s bank accounts, the founders, officers who have the authority to sign documents; the nature of the taxpayer’s activities and the passport of the person submitting the application and that person’s authority to do so.
The VID shall, within 10 days, examine the documents submitted by the taxpayer, register the taxpayer in the taxpayers’ register and issue the taxpayer registration certificate. The main enterprise shall receive the registration certificate of any of its subsidiary divisions.
Where registration has been refused, the taxpayer may correct the documents and submit them again for registration.