When Two Roles Converge in One Person

In Latvian commercial law practice, it is not uncommon for the sole member of an LLC to also be its sole board member. However, this combined role often leads to one of the most frequent misunderstandings when discussing liability.

Member and Board Member – Two Distinct Legal Entities

The Commercial Law regulates these two statuses with different logic. A member is the owner of capital shares with the right to freely alienate them – this is a matter of private property, regulated by Article 188 of the Commercial Law. A board member is the executive body of the company, which manages and represents the company, and whose actions are measured against the standard of a diligent and careful manager in the sense of Article 169 of the Commercial Law. When one person combines both statuses, they make decisions daily in both roles – and legal analysis requires each of them to be considered separately. They should not be merged into one mass of liability simply because both statuses belong to the same person.

What the Senate Ruled on This Matter

In April of this year, the Senate of the Republic of Latvia, in case SKC-39/2026, resolved this very issue with clear legal argumentation. A woman was the sole member and board member of an LLC. The company had received EU support funding on the condition that the owner must meet the “young farmer” criterion throughout the monitoring period. Several years later, she sold 100% of the capital shares to another company whose owners did not meet this criterion. The support provider demanded repayment of the received funds. The company filed a claim against the former owner, arguing that as a board member, she had not acted as a diligent and careful manager. The appellate court granted the claim, combining both roles into a single liability.

The Senate overturned the judgment and pointed out a fundamental error: the alienation of capital shares falls within the exclusive competence of the member, not the board. The fact that this same person was simultaneously a board member does not change the legal nature of the transaction. By selling her capital shares, she acted as a member, and therefore Article 169 of the Commercial Law, which regulates the liability of a board member to the company, does not apply to this action.

Additionally, the Senate noted that after selling the capital shares, the former member could no longer influence the actions of either the new member or the company’s new board member. The fact that no reports were submitted and fixed assets were alienated after the transaction is outside her sphere of responsibility – and a court that would punish the former member for this would be holding her accountable for the actions of other persons.

Finally, the Senate also reviewed the appellate court’s argument regarding a clause in the purchase agreement where the seller had personally undertaken to be responsible for the project’s obligations. This clause regulated the mutual relations between the buyer and the seller – it did not create any independent right of claim for the company against the former member.

What This Means When a Company Is Sold

Anyone in a situation where they have simultaneously been both a member and a board member and are planning to sell or have already sold a company should ask themselves two completely separate questions.

First: what is my liability as a member – the seller of shares? What did I know at the time of the transaction, what obligations have I undertaken towards the buyer, and do the terms of the purchase agreement correspond to what I can actually control even after the transaction is concluded?

Second: what is my liability as a board member for the management of the company during my tenure in this position? For what actions or inactions in the capacity of a board member might I incur liability towards the company – and do these actions truly fall within the board’s competence?

Both questions have their own answers, and they may differ. However, one question remains, which this case only highlights but does not answer: if the liability of a member and a board member is so clearly separated, does this mean that a seller of shares, when selling a company with a known risk, is in principle always protected from liability towards the company itself? The answer is not as obvious as it might seem.