Registration Obligations for joint stock companies until 30 June 2024

09.05.2024 Registration Obligations for joint stock companies until 30 June 2024

The Commercial law imposes new registration obligations for joint stock companies, part of which must be completed by 30 June 2024. Compliance with these obligations may take time (e.g., obtaining detailed information on shareholders and convening a shareholders' meeting) and should therefore be started early.  

If a joint-stock company fails to complete the necessary registrations by the deadline, the Enterprise Register may terminate the company (Article 314.1 of the Commercial Law and Clause 70 of the Transitional Provisions of the Commercial Law). In the event of shareholders' inaction, the company shall be deleted from the commercial register, and its assets will be automatically transferred to the State (Article 317 of the Commercial Law). Several hundreds of companies were wound up this way during the last 4 (four) years because they failed to declare their beneficial owners by the set deadline.

 

  1. Information to be registered

To reduce the risk of illegal transactions and ensure transparency in joint stock companies' activities, all joint stock companies must submit information on their shareholders to the Enterprise Register by 30 June 2024.

The information and documents to be submitted depend on the type of shares in the company. From 1 July 2023, the historical classification of shares in registered shares and bearer shares has been replaced by new share types (Article 228(1) of the Commercial Law):

  • registered – listed in the register of shareholders kept by the company's management board or
  • dematerialised – recorded in the central securities depository.

As of 1 July 2023, registered shares (in Latvian: vārda akcijas) are considered registered shares (in Latvian: reģistrētās akcijas) and bearer shares – dematerialised shares (clause 75 of the Transitional Provisions of the Commercial Law).

 

  • Companies with registered shares

In companies with registered shares, shareholders will be recorded the same way the shareholders are registered in private limited companies (Ltd.). The company's management board keeps the shareholders' register in separate folios. Each folio contains up-to-date information on the shareholders. If the owner of shares or information about any of the shareholders changes, the management board prepares a new folio and adds it to the shareholders' register (Articles 234 and 235.1 of the Commercial Law).

The current shareholders' register folio must be submitted to the Enterprise Register by 30 June 2024.

(!!!) The amendments indicated in this paragraph are currently not in force, the provided terms and deadlines may change during the draft law approval process: Given that several joint stock companies cannot objectively obtain all the legally required details on their shareholders by the deadline, Saeima (the Latvian Parliament) is currently considering a draft law on the possibility of filing a partially completed 'shareholders' register by 30 June 2024. The draft law provides that shareholders with incomplete information in the shareholders’ register will not be entitled to exercise voting rights, receive dividends, and dispose of shares. However, shares whose owners are not identified after 30 June 2026 upon the company’s application to the court may be transferred to the State, but after 30 June 2028 will be cancelled automatically.

 

  • Companies with dematerialised shares

Companies whose shares are registered in the central securities depository (previously – bearer shares) must submit the following documents to the Enterprise Register:

  • application with information on the central securities depository in which the shares are recorded (Article 1(4) of the Commercial Law and clause 66 of the Transitional Provisions of the Commercial Law);
  • certification from the depository on the recording of shares (Article 1(4) of the Commercial Law and clause 66 of the Transitional Provisions of the Commercial Law);
  • if the company's shares are not listed on a regulated market, it must also submit notices on the number of shares held and voting rights from shareholders holding more than 5% of the total number of shares in the company (Article 236.3 of the Commercial Law and Paragraph 68 of the Transitional Provisions)

 

  • Companies with two types of shares

Hereafter, a joint stock company may have only one type of shares (Article 228(1) of the Commercial Law). Accordingly, companies currently having both – registered and bearer shares must adopt amendments to the articles of association stipulating that all shares will be registered or dematerialised (paragraph 1 of clause 66 of the Transitional Provisions of the Commercial Law). The amendments must be registered with the Enterprise Register by 30 June 2024.

Until the mentioned date, the shareholders' meeting can approve the chosen type of shares in the articles of association with a simple majority of the votes present, instead of the usually required 3/4 votes for amendments to the articles of association. (Paragraph 67 of the Transitional Provisions of the Commercial Law). The shareholders' meeting is convened by giving the shareholders at least 21 days' notice (Article 273(1) of the Commercial Law).

Depending on the chosen type of shares, in addition to the amendments to the articles of association, the company shall also submit to the Enterprise Register the documents listed in No. 1.1 or 1.2 above regarding its shareholders.

 

  • Change of shares type

Companies with only one type of shares shall also amend their articles of association to specify the new share type. A longer deadline has been given for registering these changes – until 1 July 2026 (clause 75 of the Transitional Provisions of the Commercial Law).

From now on, shares will no longer be divided by form (previously shares in paper form and dematerialised), so the form of the shares and the conversion provisions, if any, shall also be excluded from the articles of association (clause 76 of the Transitional Provisions of the Commercial Law).

The shareholders' meeting shall make the necessary changes to the articles of association, with a 3/4 majority of the shareholders' votes present (Article 284(2) of the Commercial Law). The shareholders' meeting is convened by giving the shareholders at least 21 days' notice (Article 273(1) of the Commercial Law).

 

  1. Further regular obligation for joint stock companies to inform the Enterprise Register of changes in the shareholding structure

 

In the case of registered shares, the new folio of the shareholders' register must be filed with the Enterprise Register after any changes in the ownership of the shares or information about any of the shareholders (Article 235.1(8) of the Commercial Law).

 

In the case of dematerialised shares that are not admitted for trading on a regulated market (Article 236.3(5) of the Commercial Law and clause 68 of the Transitional Provisions of the Commercial Law):

  • a shareholder must inform the company's management board of every 5% of the total number of stocks in the company acquired or disposed of by the shareholder;
  • the company shall notify the Enterprise Register of any changes in the composition of shareholders of +/- 5%;
  • Otherwise, the shareholders concerned will have no voting rights.

 

  1. New procedure for pledging registered shares with a commercial pledge

 

On 1 July 2024, the amendments to the Commercial Pledge Law will enter into force. These amendments will unify the procedure for pledging registered shares of joint stock companies with those of private limited companies by providing that registered shares of joint stock companies will be pledged as properties subject to the registration (Article 1(3) of the Commercial Pledge Law). Accordingly, persons pledging their shares, properties or assets should note that from now on:

  • a commercial pledge can be registered on specific shares, indicating the name of the joint stock company, the registration number, the number of shares pledged, and their serial numbers, i.e. a shareholder can pledge only part of the shares owned;
  • when registering a commercial pledge on the aggregate of properties or the entirety of the assets of a company or another person, the shares must be identified separately as the properties subject to the registration in the application for registration of the commercial pledge; otherwise, the commercial pledge on the shares will not be valid against third parties.

Information on registered commercial pledges on shares will also be available in the Commercial Register, thus providing additional security for commercial pledgees and, in the case of share acquisitions, for the acquirers of the shares.

On the other hand, dematerialised stocks, just like before, will be pledged as financial collateral (Article 4(1) of the Commercial Pledge Law, Article 1(1) of the Financial Collateral Law).

Until 30 June 2024, only shareholders of joint stock companies that have filed the register of shareholders with the Enterprise Register will be able to pledge registered stocks as properties subject to registration. Shareholders of other joint stock companies will by then continue to pledge registered shares according to the general procedure.

 

To ensure the continuity of your business, send your chosen type of shares and the list of shareholders of your company to your TGS Baltic contact person, and we will assist you in arranging the necessary registrations. We recommend starting the process as soon as possible. If the company's shareholders and/or management board members are located abroad, it may take longer than expected to have the documents circulated and signed before a notary.