Company transfer – is there really a risk from the SRS and everything is lost?

Especially in the conditions of today’s economic crisis, the entrepreneur has to think about how to restructure his commercial activity in order to be able to continue working as soon as the drastic impact of inflation on the economic processes in the economy ends and the economic upswing resumes. Often, entrepreneurs in such restructuring processes, which are often carried out even under objective circumstances, forget about one very important aspect – such a thing as “company transition”, do not understand it and do not consider the consequences it can cause.

Section 20 of the “Commercial Law” of the Republic of Latvia, which defines:

  • If an undertaking or an independent part thereof is transferred to the ownership or use of another person, the acquirer of the undertaking shall be liable for all the obligations of the undertaking or its independent part. However, in respect of those obligations which arose prior to the transfer of the undertaking or its independent part to the ownership or use of another person, and the terms or conditions for the fulfilment of which come into effect five years after the transfer of the undertaking, the transferor of the undertaking and the acquirer of the undertaking shall be solidarily liable.
  • In the case of the transfer of ownership or use of an undertaking or an independent part thereof, claims and other rights included in the undertaking or its part shall be transferred to the acquirer of the undertaking.
  • An agreement, which is in contradiction to the provisions of this Section, shall be void as to third parties.

In practice, the transfer of the company is detected and it is often used by the SRS to supplement the state treasury, especially in the context of a budget deficit, to collect unpaid taxes on the company from the acquiring company, and in most cases it is an unpleasant surprise for entrepreneurs, because the entrepreneurs have not previously evaluated it and taken it into account. We recommend that you take this very seriously, because in most cases, it is covered only after the SRS ascertains what happened. In practice, the transfer of the company can be detected in the following cases, if the following or a similar set of circumstances are met:

  • The acquiring company is registered at the same address as the previous company;
  • The acquiring company performs economic activity in the same premises and in the same sector where the company operated;
  • An acquiring company has the structure and board of the same owners or their close relatives;
  • For the acquiring company, the structure of the owners and the board after a period of half a year – up to three years is the same as that of the previous company, which means that the acquiring company has actually been registered on “nominees” and faces legal liability for it;
  • The former owner or member of the board moved into employment with the acquiring company, at first even in a non-influential position that does not make any decisions;
  • The acquiring company has kept the same identity, including the website, trademark – even when signing a lease agreement and publications in the public space, which were made by the previous company;
  • Most of the employees have transferred to the acquiring company;
  • The acquiring company cooperates with the same, or at least to a large extent, the same buyers and suppliers of goods;
  • The acquiring company shortly after the start of operations buys part of the assets – also at market prices, including goods warehouse balances from the previous company;
  • Sudden appearing arbitration judgments to justify various of the above-mentioned circumstances in favor of the acquiring company;

If you need advice on this type of issues in an objective risk assessment, or help in dealing with daily accounting issues, please place your order on to our website and you will receive a favorable cooperation offer from our team of accountants.

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