Joint-Stock Company Reform: Fulfill the Obligation by 01.07.26 or Risk Liquidation

On May 30, 2024, the Saeima adopted amendments to the Commercial Law, which established an obligation for joint-stock companies (AS) to specify the type of shares in their articles of association—registered or dematerialized shares—by July 1, 2026.

Why the Reform is Happening

The joint-stock company reform is part of broader amendments to the Commercial Law aimed at making ownership structures transparent and aligning Latvian practice with international Anti-Money Laundering (AML) standards. Historically, bearer shares allowed the concealment of true shareholders, but this no longer meets modern requirements for the traceability of financial flows and the disclosure of ultimate beneficial owners. Therefore, the reform provides for clear, unified accounting: every company must have a single transparent register of shareholders.

What Exactly is Expected from an AS

Firstly, the company must choose one type of share. Existing registered shares become “registered shares” (reģistrētās akcijas), while bearer shares become “dematerialized shares.” In the future, a joint-stock company may only have one type of share; it will no longer be possible to emit both types of shares simultaneously. The types of shares differ based on where and how information about their owners is stored.

Registered shares (formerly name-specific shares) are recorded in a shareholder register maintained by the company itself. The company knows and records each shareholder, the transfer of shares occurs via an entry in the register, and intermediaries are not required. This means lower maintenance costs and full control over who becomes a shareholder. Therefore, registered shares are intended for smaller, closed companies with a stable, small circle of owners—family businesses and companies that do not want shares to change owners freely. Registered shares are meant for control and simplicity within a narrow circle of shareholders.

Dematerialized shares (formerly bearer shares) are recorded in a central securities depository—in Latvia, this is Nasdaq CSD—and are not entered into the company’s shareholder register. Ownership is evidenced by an entry in a depository account, and the transfer of shares occurs through the securities accounts of financial institutions. This method is more convenient if there are many shareholders or if they change frequently; it ensures faster and standardized share circulation and is a prerequisite if the company plans to attract investors or list shares on the stock exchange. In return, there are depository service costs and greater dependence on external infrastructure. Dematerialized shares are intended for higher circulation, growth, and capital attraction.

Secondly, based on the choice made, amendments to the articles of association must be drafted and approved at a shareholders’ meeting.

Thirdly, these amendments must be submitted and registered with the Register of Enterprises by July 1, 2026.

In parallel with the changes to the articles of association, there is an obligation to disclose shareholders and submit a properly formatted shareholder register to the Register of Enterprises and, in the case of dematerialized shares, to notify the depository and major shareholders. It is precisely this requirement for the public disclosure of shareholders that has proven to be the most complex and frequently delayed part for many.

Consequences of Missing the Deadline

For failure to comply with the requirements, an AS may be subject to simplified liquidation, similar to cases where the ultimate beneficial owner is not disclosed. This means that a company that does not arrange the share type and shareholder disclosure in a timely manner risks being struck from the register. For a company that is actually operating and generating revenue, this would be a disproportionately severe sanction that could follow solely due to administrative negligence.

Furthermore, the consequences also affect the shareholders themselves. If a shareholder has not provided the company with the necessary information, they may lose voting rights and the right to receive dividends, and in extreme cases, may even be excluded from the company, with their shares passing into the company’s ownership. This is a strong incentive to put things in order on time, as the price for inaction can be not only the liquidation of the company but also personal financial and ownership loss.

What to Do Now

The recommendation for boards is simple: evaluate which type of share fits the goals of the AS, convene a shareholders’ meeting, approve the amendments to the articles of association, and register them in a timely manner. If you have doubts about the choice of share type or the shareholder disclosure procedure, we will be happy to help!

Make informed decisions!