Latvian companies have successfully attracted funds by publicly selling company shares and debt securities – bonds and promissory notes, by means of public share offers in the Baltic securities market via NASDAQ OMX Riga exchange. The process of purchasing and selling shares must be legal and the shareholders must not have a conflict of interests as a result. An investor must be aware of the financial status and governance of the company he/she is investing in.
Any change to a company's capital structure is subject to the Latvian Commercial Law and Civil Law which regulates inheritance law, property law and liability law.
The Competition Council must be informed of mergers between players in a particular market sector and on the basis of the Law on Competition it will decide if the merger should be allowed or refused.
When taking over or merging banks market participants must consider not only the requirements set out in the aforementioned laws but also the Law on Bank Takeovers, which was enacted on the eve of the economic crisis.
Types of reorganisation
An enterprise may be reorganised by merger, division or restructuring. Companies involved in a reorganisation may be companies of the same type or of different types.
A company merger may take the form of an acquisition or a fusion. Acquisition is a process whereby the acquired company transfers all of its assets to another company. Whereas fusion is a process whereby two or more companies transfer all of their assets to a newly incorporated company. In the case of a merger, the acquired company ceases to exist without being dissolved. However, all the rights and obligations of the acquired company are transferred to the acquiring company.
Division is a process whereby a company transfers all of its assets to one or more other companies through a split-up or spin-off. In the case of a split-up, the dividing company transfers all of its assets to two or more acquiring companies and ceases to exist without being dissolved. In the case of a spin-off, the dividing company transfers part of its assets to one or more acquiring companies.
Restructuring is a process whereby one type of company is restructured into a different type of company. In the case of restructuring, all the rights and obligations of the restructured company are transferred to the acquiring company and the restructured company ceases to exist without being dissolved.
A cross-border merger is a merger of two or more companies, of which at least one is registered in Latvia, but the others have been incorporated in accordance with the legislation of a European Union Member State (European Union Member State, the Republic of Iceland, The Kingdom of Norway and the Principality of Liechtenstein). Cross-border mergers are subject to the company merger provisions of the Commercial Law.
Enterprise reorganisation are regulated by the Commercial Law.
Where two or more existing companies are involved in a reorganisation, they shall conclude 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 of 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 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, not earlier than three months after the day when the notice is published, submit an application to an 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.
Retiring business owners need to plan the transfer of their business in advance.
Some standard requirements to be completed when taking over a business are the same as when setting up a new business.
When buying shares in medium-sized and/or large companies, the buyer may request a due diligence report. You can find out by consulting the Commercial Charges Register whether a charge has been placed on the shares.
The buyer becomes the share owner when the contract is concluded unless the contract provides otherwise. A person becomes a shareholder when that person’s name is entered in the shareholders’ register. The company’s board is responsible for the shareholders’ register.