JSc Latvijas kuģniecība                            04.04.2005 





LASCO Board Receives Another Professional Opinion on the Legal 

Status of the Company’s Management 



The Board of Joint Stock Company Latvijas kuģniecība (Latvian 

Shipping Company or LASCO) asked Aivars Lošmanis, the recognized  

specialist in commercial law, who is lecturing on Civil Law at 

the Latvian University  School of Law to clear the situation in 

regard to the change of management of the Latvian Shipping Company. 

This is the conclusion made by A.Lošmanis:



Translated from Latvian

CONCLUSION



	I, Aivars Lošmanis, a lecturer of the Civil Law Department 

of the Faculty of Law of Latvian University, LL.M., on the grounds 

of a request of the Joint Stock Company "Latvijas kuģniecība", 

provide my conclusions in relation to the following issues:



I. At what moment does a person acquire a status of a member of the 

Supervisory Board/Management Board of a Joint Stock Company and shall 

be entitled to take up the duties of a member of the Supervisory 

Board/Management Board: a) from the moment of election, or b) from 

the moment of registering the corresponding data with the Commercial 

Register?

II. Is the Management Board entitled to revoke the extraordinary 

meeting of shareholders, if the meeting has been already convoked 

on the grounds of the shareholders' request?



Taking into account that the regulations of Latvian Commercial Law 

concerned can be compared to the analogous norms of the Commercial 

Law and companies rights applicable in Germany, German literary 

sources on law issues are used in this conclusion.



I. In accordance with the part 1 of the Article 305 of the Commercial 

Law (hereinafter referred as the CL) members of the Management Board 

are elected by the Supervisory Board. The Supervisory Board is elected 

by the meeting of shareholders (the clause 3 of the part 1 of the Article 

268 of the CL, the Article 296 of the CL). In accordance with the 

clauses 3 and 4 of the part 3 of the Article 8 of the CL the data on 

members of the Management Board and Supervisory Board of a capital 

company as well as the other data regarding the capital company shall 

be registered with the Commercial Register. Rights of members of the 

Management Board to represent a company individually or jointly shall 

be registered as well. The Management Board submits an application for 

registering changes in the structure of the Management Board and rights 

of representation to the Commercial Register, submitting a list of 

members of the Management Board and the corresponding resolution of 

the Supervisory Board or statement of a member of the Management Board 

(the Article 307 of the CL). In its turn, in accordance with the part 

10 of the Article 296 of the CL the Management Board shall inform the 

Commercial Register about changes in the structure of the Supervisory 

Board by submission of a list of members of the Supervisory Board and 

the corresponding resolution of the meeting of shareholders or statement 

of the corresponding member of the Supervisory Board.

In this connection there arises a question related to real practice – 

at what point does the Management Board and Supervisory Board become 

entitled to commence fulfilling their functions and what meaning does 

have the corresponding entry in the Commercial Register and publication 

in the newspaper "Latvijas Vēstnesis". There is an opinion sted in 

public that the entry in these cases has the meaning creating the right, 

i.e. only the Management Board, about which one may find data in the 

Commercial Register, is entitled to fulfill its functions on the grounds 

of the fact that third persons acquire information in the Register of 

Enterprises in accordance with the Article 12 of the CL . The 

aforementioned opinion is based on the incorrect norm of the CL, on the 

interpretation of the Article 12, in particular.

First of all, an entry in the Commercial Register can have legal 

consequences of two kinds: constitutive or declarative. An entry will 

have constitutive consequences, if founding of the legal relationship, 

which has not existed previously, or establishing of a legal fact depends 

on making the entry in the Commercial Register . For example, it is the 

entry in the Commercial Register that sets up a status of an individual 

merchant for a physical person  and makes a capital company the subject 

of law . Moreover, entries about the firm name , increase  or reduction  

of the equity capital, reorganization  and concern contract (contract 

which establishes a group of companies)  can have constitutive consequences. 

As it can be seen from the aforementioned examples the corresponding norms 

of the law include references to the entry as a mandatory pre-condition of 

existence of a legal relationship or legal fact. A declarative entry, in 

its turn, is the entry, which does not found or create a legal relationship, 

but informs only about the existing legal situation . Therefore these 

entries can be characterized as informative only and they do not create 

any rights. For example, an entry about a procura [commercial Power of 

Attorney] and the end of its validity has declarative consequences. In 

accordance with the part 1 of the Article 35 of the CL only a merchant 

or its lawful representative can issue a procura expressly stating the 

will. It follows that it is the issue of a procura as a unilateral legal 

deed grants a proctor authorization to represent the merchant in its 

relations with third persons within the scope determined in the law . 

Although issue of a procura must be registered with the Commercial 

Register (the part 1 of the Article 38 of the CL), representative powers 

obtained on the grounds of the procura come to effect prior to making 

of the corresponding entry in the Commercial Register. Therefore the 

entry in the Commercial Register is not a pre-condition of establishing 

of the proctor's powers to represent a company. Revocation of a procure 

is governed in the similar manner – validity of a procura ends not from 

the moment of making the entry, but when the proctor's powers to represent 

a company have expired (for example, from the moment of revocation of 

the procura or the proctor's death, see the parts 1 and 3 of the article 

39 of the CL). In the same manner election of members of the Management 

Board and Supervisory Board (as well as their revocation) shall be deemed 

a corporative act, which forms a legal status of members of the Management 

Board and Supervisory Board . Consequently the Management Board and 

Supervisory Board begin fulfilling their functions stipulated in the law 

and in the Articles of Association from the moment when the corresponding 

resolution of the meeting of shareholders and Supervisory Board comes in 

force (see the part 4 of the Article 284, the Article 296, 299 of the CL). 

As to the entries in the Commercial Register about members of the Management 

Board and Supervisory Board, they have only declarative consequences . 

Therefore the legal status of members of the Management Board and Supervisory 

Board does not depend on making the entry in the Commercial Register. 

A restraining order issued by the court in relation to making the 

corresponding entries in the Commercial Register doe not have any 

impact on the same as well.

Secondly, the Article 12 of the CL does not govern legal consequences or 

third persons' rights to get acquainted with entries of the Commercial 

Register (see the Article 7 of the CL), instead, it governs their publicity 

(public credibility), i.e. validity in relation to third persons. One of 

the purposes of regulation of public credibility is protection of third 

persons acting in good faith. If the data, which must be registered with 

the Commercial Register, is not registered or registered but not announced, 

the person in whose interests these data should have been registered 

cannot use them against a third person, excluding the case when the 

third person had known the mentioned information (the part 2 of the 

Article 12 of the CL). It means that third persons can rely on the legal 

status registered in the Commercial Register. A pre-condition of such 

legal protection is the fact that these persons act in good faith, i.e. 

that they do not have information about the actual legal status. If the 

third person has obviously known the actual legal status, it shall be 

considered ill-intentioned in the interpretation of the aforementioned 

norm and is not a subject of protection. The third person is considered 

as ill-intentioned especially in case if this person had already been 

notified about it. Moreover, the persons who know about the real legal 

status must respect it . It means that third persons cannot doubt 

legality of the elected management bodies of a company only on the 

grounds of non-existence of the entry. Non-existence of the entry and 

the corresponding publication in the newspaper "Latvijas Vēstnesis" 

about newly elected Management Board or Supervisory Board does not 

mean that there is no "other Management Board or Supervisory Board" . 

The court's restriction to make entries about elected members of the 

Management Board and Supervisory Board only does not allow making this 

information known to third persons by means of the Commercial Register. 

In this case it is in the interests of the corresponding company to 

inform the third persons about the real legal status making this persons 

ill-intentioned in the interpretation of the part 2 of the Article 

12 of the CL.

Conclusion. In accordance with conditions of the CL regarding establishing 

of a status of members of the Management Board and Supervisory Board it 

is deemed that the legal grounds are the corresponding resolution of 

the meeting of shareholders and Supervisory Board, but not the entry 

in the Commercial Register. Although the law stipulates that changes 

in the structure of the Management Board and Supervisory Board must 

be registered with the Commercial Register, such entry has only 

declarative consequences, but not the constitutive ones. In this 

case public credibility of the Commercial Register ensures only 

protection of the third persons acting in good faith.

II. The part 1 of the Article 270 of the CL envisages shareholders' 

rights to convoke an extraordinary general meeting, if they jointly 

represent no less than one twentieth of the equity capital of a 

company (if bigger representation quorum is not envisaged in the 

Articles of Association). According to the part 3 of the Article 

270 of the CL the Management Board must announce convocation of 

an extraordinary meeting no later than within two weeks after the 

day of receipt of the request. Convocation of the meeting of 

shareholders is a special component of the competence of the 

Management Board, which is clearly stipulated in the law, and 

cannot be deemed as a measure taken by management of a company 

in the interpretation of the part 2 of the Article 301 of the CL. 

Therefore there is no responsibility, nor the right of the Management 

Board to evaluate, for example, whether convocation of the meeting 

of shareholders is expedient. Although it is not clearly defined 

in the law that it forbids the Management Board to create legal 

and actual obstacles for convocation of the extraordinary meeting 

of shareholders, however, such restriction follows from the 

Management Board's responsibility to be loyal to the interests 

of participants (shareholders) of a company . Therefore the 

Management Board is not entitled to carry out anything, which 

may hinder realization of shareholders' lawful rights to convoke 

and hold the extraordinary meeting of shareholders, including 

their right to announce convocation of the meeting of shareholders. 

The extraordinary meeting of shareholders can be revoked only by 

the body or subject, on initiative of which the meeting has been 

convoked .

Conclusion. The Management Board of a Joint Stock Company does 

not have the right to revoke the extraordinary meeting of 

shareholders convoked by a shareholder.



Additional information:

Marita Ozolina-Tumanovska

Head of PR Departament

Phone: +371 7020120, 9287169

Fax: +371 7820239

E-mail : ozolina@lsc.riga.lv