Selling SIA shares between shareholders in Latvia: bookkeeping treatment when the purchase price is paid into the company’s bank account

How to account for a share sale between SIA shareholders when the price is paid into the company’s account

Example situation

A board member owns 40% of the shares in a Latvian limited liability company (SIA) with a total nominal value of EUR 4,000. A new shareholder is admitted, and the board member sells half of his shares to a private individual for EUR 2,000. The buyer pays the purchase price into the company’s bank account. After the transaction, each person owns 20% of the company’s shares. How should the company account for this in bookkeeping?

Core concept: the company is not a party to the share sale

In this scenario, the share sale is a transaction between two individuals: the seller (transferor) and the buyer (transferee). The company does not sell its own shares and does not acquire them. Therefore, the company’s share capital and equity structure do not change as a result of the share transfer itself; only the shareholder composition changes in the shareholders register.

From a bookkeeping perspective this usually means:

• If the buyer pays the purchase price directly to the seller, there is typically nothing to record in the company’s accounts because there is no cash flow through the company.
• If the buyer pays the price into the company’s bank account, the company must treat the money as funds held on behalf of someone else (a liability), not as revenue. Bookkeeping entries must reflect the substance of the transaction and be supported by documents.

Documents and corporate formalities that should accompany the transaction

To keep the transaction defensible (internally, for external reviewers and for filings), it is good practice to maintain a complete documentation chain. At a minimum, prepare:

• A share purchase agreement (or equivalent document) that clearly shows the transfer of ownership: what is sold, at what price, on what date and how settlement is made.
• An updated shareholders register section. The Enterprise Register guidance notes that in a share transfer it is signed not only by the board (or authorised board member) but also by the sellers and buyers.
• Submission to the Enterprise Register within the stated deadline (the Enterprise Register guidance indicates 3 days from signing the shareholders register section).
• Bank evidence of the payment and, if the company receives the funds, evidence of onward payment to the seller or a refund to the buyer.

Bookkeeping treatment: two common scenarios

Scenario A: the buyer pays the seller directly

If the EUR 2,000 is paid directly to the seller, the company usually does not record any revenue or expense. The company’s task is administrative/legal: update the shareholders register and submit the change to the Enterprise Register according to the applicable procedure.

Scenario B: the buyer pays into the company’s bank account (as in the example)

If the price is paid into the company’s bank account, the company is effectively holding third-party money. It is not company income. In bookkeeping, the receipt should be recorded as a liability (payable) until the funds are transferred to the proper recipient (the seller) or refunded to the buyer. This approach aligns with the Accounting Law requirement that entries are based on supporting documents and reflect the true nature of the transaction.

Practical posting example (generic account names)

1) The funds are received into the company bank account (EUR 2,000):

• Debit: Bank - 2,000
• Credit: Other payables / settlement with shareholders (third‑party funds payable to the seller) - 2,000

2) The company transfers the funds to the seller (EUR 2,000):

• Debit: Other payables / settlement with shareholders - 2,000
• Credit: Bank - 2,000

Practical tip: if the share purchase agreement states that payment is due to the seller, but the buyer paid the company, add a short written confirmation from both parties that the company received the money only for onward transfer. This reduces the risk that the receipt is misinterpreted as a shareholder loan, a contribution, or company income.

What not to do (common errors)

Two frequent mistakes create unnecessary risk:

• Posting the EUR 2,000 as company revenue. The company is not the seller, so this does not reflect the transaction substance.
• Posting the EUR 2,000 as share capital increase or “equity contribution” without following the formal capital increase procedure. A capital increase is a different transaction with different documents and filings.

If the parties genuinely want the money to stay with the company, it must be documented as a separate transaction (for example, a shareholder loan agreement or a properly executed capital increase). Otherwise, the safe and transparent approach is to treat the receipt as a liability and settle it promptly.

Personal income tax angle for the seller: capital gains on share disposal

The seller may have personal income tax obligations on capital gains if the sale price exceeds the acquisition cost of the shares (and allowable related costs). VID explains the concept and the reporting via EDS, while the legal basis is in the Personal Income Tax law.

In practical terms:

• The seller should keep evidence of acquisition cost (initial contribution to share capital, purchase documents, etc.).
• VID notes that from 1 January 2025 the tax rate on capital gains is 25.5%.
• Reporting and payment steps are available through VID’s service guidance, including the EDS path and payment timing via the Single Tax Account.

This guide provides general guidance; for complex cases (multiple transactions, related parties, historical acquisition costs) it is prudent to obtain tailored tax advice.

Quick implementation checklist (audit-ready)

1. Make sure the share purchase agreement clearly states what is transferred and where the purchase price is due.
2. Prepare and sign the shareholders register section with the required signatories.
3. Submit the change to the Enterprise Register within the specified deadline.
4. If money hits the company’s bank account: post it as a payable (third‑party funds), keep supporting documents, and transfer/refund promptly.
5. Seller: assess capital gains and file/report if needed via VID EDS.

FAQ

Does the company record the share transfer as an equity movement?

Not in this scenario. Equity and share capital remain unchanged because the company is not buying or selling the shares. The company records only actual cash flows through its bank account, and only as liabilities if the funds belong to someone else.

If the money is already in the company account, what is the correct next step?

Record it as a payable (third-party funds) and transfer it to the seller or refund it to the buyer. Only keep it in the company if you document a separate legal basis (loan or capital increase).

Is there a filing deadline at the Enterprise Register?

Yes. The Enterprise Register guidance indicates a 3-day submission deadline from the signing of the shareholders register section for the relevant change scenario.

Official sources

• ‍Commercial Law (Komerclikums): SIA share transfer and shareholders register‍
• Enterprise Register: changes in shareholders register (submission deadline etc.)‍
• Enterprise Register: shareholders register section (who signs etc.)‍
• Accounting Law: supporting documents and bookkeeping entries‍
• Law “On Personal Income Tax”: capital gains‍
• VID: tax on capital gains (incl. shares/shares in companies)‍
• VID service: capital income declaration (EDS path and payment)