Possibility to extend the approaching deadline for filing annual reports with the State Revenue Service (SRS)

The Law on Annual Financial Statements and Consolidated Financial Statements requires all companies to file an annual report approved by the shareholders’ meeting with the SRS, no later than one month after approval and no later than four months after the end of the reporting year. This means that if a company’s reporting year is the same as the calendar year, the deadline is 30 April. An exception is made for:

  • medium and large companies that comply with the criteria set by the Law on Annual Financial Statements and Consolidated Financial Statements; and
  • parent companies of a group that prepare a consolidated annual group report.

These must file an annual report and consolidated annual report (if prepared) with the SRS within seven months of the end of a company’s reporting year.

As the COVID-19 pandemic is still continuing, the deadline for preparing and filing annual reports for 2020 can be prolonged at least to 31 July 2021 (i.e. three months later than under the ordinary procedure). There is no need to arrange this prolongation with the SRS.

In addition to the annual report and auditor’s statement on the annual report (for companies that meet the criteria listed in the Law on Annual Financial Statements and Consolidated Financial Statements, as well as companies whose articles of association or shareholders’ meeting require the annual report to be reviewed by an auditor), the Commercial Law requires a board proposal to be prepared before approval of the annual report on distribution of profit (or in the case of losses: a proposal on improving the company’s financial status) and, if the company has a council, a report from the council on the annual report. Moreover, under the Law on Groups of Companies, dependent companies must prepare a statement of dependence to be filed with the Commercial Register, unless a group agreement has been concluded.

The annual meeting of shareholders to approve the annual report must be held no later than the deadline mentioned above. A notice convening the meeting must be sent to shareholders of private limited liability companies at least two weeks before the meeting, while for joint-stock companies the deadline is at least 30 days before the meeting. Along with the notice convening the meeting, the following must be sent to shareholders: the annual report, a statement of dependence, an auditor’s statement, a report from the council and a board proposal. Joint-stock companies need not append these documents to the notice convening the meeting as long as the notice contains information about the place and time where the shareholder may access them at the registered address of the company. However, considering that at the moment due to the COVID-19 pandemic Latvia is encouraging social distancing, it would be advisable to post (mail) the documents to shareholders.

Please note that the Commercial Law allows the board to convene a shareholders’ meeting, enabling the shareholders to participate and vote at the meeting by electronic means of communication.

The annual report must be filed only with the SRS, along with the details of the  approval of the annual report by the shareholders’ meeting.

The annual report must be signed not only by the board or an authorised member of the board but also by the company’s in-house or outsourced accountant (criteria are listed in the Law on Annual Financial Statements and Consolidated Financial Statements and the co-signing duty of the accountant applies to the financial statements and consolidated financial statements).

In relation to the requirement to draft a statement of dependence under the Law on Groups of Companies, we would like to draw your attention to the fact that noncompliance with this requirement formally exposes the board members to the risk that their liability is evaluated. This is especially important for companies which are entering into agreements with related parties and which have several shareholders. We have noticed that companies sometimes ignore  the requirement to prepare a dependency statement. For reasons of risk management, we ask boards to comply with this requirement and prepare dependency statements.

What to consider when convening a shareholders’ meeting

When you send invitations to shareholders’ meetings, do not forget to indicate a procedure whereby the shareholder can use his/her statutory rights, as well as deadlines:

  • to vote before the shareholders’ meeting
  • to participate and vote at the shareholders’ meeting by electronic means of communication

We advise supplementing the invitation with a voting ballot, accompanied by instructions on how to sign and return it to the company. In this case, it is important to clearly state the requirements for identification of the shareholders. The shareholder sends the vote to the company, keeping in mind the shipment time: the company should receive the voting ballot at least one day before the meeting.

To ensure shareholders’ ability to participate and vote at the meeting with the help of electronic means of communication, the board has to stipulate how it intends to identify the shareholders.

Verify registered information about the company’s beneficial owner

Recently, the Commercial Register has changed its approach to matters related to registering beneficial owners, and this shift affects those companies whose chain of shareholders (control) ends in a listed company.

Previously in this situation, the Commercial Register confined itself to recording that it was not possible to identify the beneficial owner. However, now it has to be stated that the beneficial owner cannot be identified because it is a shareholder in a public limited company whose shares are listed in a regulated market, and control over the legal entity is exercised only through the shareholder’s status.

In practice, this means that the board has to mark another explanation in the application that varies from the previous notification about the beneficial owner. This at first seems to be a trivial nuance; however, if the board forgets to substantiate the information on  the beneficial owner and to update information on the UBO correspondingly, this minor inconvenience may cause significant delays to, for example, the registration of changes to the shareholders or composition of the board. In certain cases, the company may have to submit additional supporting documents.

Another situation that could potentially arise is a refusal from the Commercial Register, which is quite possible if you registered the beneficial owner before mid-2019, because substantiation documents for a chain of shareholders were not required until then. In this situation, the solution is to check and assess what additional documents are needed for submission to the Commercial Register.