Corporate governance in Latvia was influenced by two factors. The first factor goes back in 1991, when Latvia obtained its independence by not adhering to the Soviet Union’s legal and economic organization forms. Confusion reigned among companies’ owners who were struggling to obtain a different management structure than the Soviet one for Latvian companies. The second factor was the creation of a whole new market and economy for which Latvia had no model to rely on. This is when the Latvia Privatization Program was set up. Many Latvian companies are based on this model nowadays.
Considering the Privatization Program, corporations in Latvia were created by privatization or by registration of new private companies. The most common types of companies in Latvia have become the limited liability company and the joint stock corporation. The main purpose of corporate governance in Latvia is to enhance a company’s value by keeping in mind the best interests of the shareholders.
In Latvia, good corporate governance also relies on the balance between the council and the management board of a company. The balance is provisioned by the experience, skills, honesty, accountability and compliance with the management’s requirements from the board members. The council must usually abide by the same standards.
The recommendations for good corporate governance in Latvia are based on the OCED (Organization for Economic Cooperation and Development) regulations. The shareholders of a company in Latvia should have the right to participate in the company’s management and it is required to have one annual meeting.
However, extraordinary meetings can be held as well. All shareholders should benefit from equal treatment. Polices for the distribution of profits must be drafted and it should ensure the benefit of the shareholders by the issuance of dividends. Any type of information must be conveyed in a timely manner to shareholders. The shareholders’ meeting must be announced with at least 14 days before and the shareholders must be given all the information that will be discussed during the meeting.
The management board has the executive role in the company’s management in Latvia and it also represents the shareholders in relation to third parties. The board has the duty of conducting day-to-day business activities, must make the right decisions for the benefit of the shareholders by enhancing the company’s value. The board will be held accountable for the compliance with all the regulations stated by the Commercial Law in Latvia.
The management board must draft corporate business plans, ensure those plans and the company’s goals are achieved, create risk control proceedings and the annual budget. The management board of a Latvian company will be formed by highly educated and experienced persons.
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