Types of companies

Types of companies

The general legal framework with respect to Romanian Companies is provided by Companies’ Law no. 31/1990.

Under the law there are five types of companies described below as follows:

• Partnerships;

• Limited partnerships;

• Partnership limited by shares ;

• Joint Stock Companies;

• Limited Liability Companies;

Basically any person can participate to the creation of companies provided that was not condemned for specific criminal offences stipulated in the law.

Partnerships, limited partnerships and partnerships limited by shares forms a separate corporate entity from their shareholders but all of the shareholders in case of a partnership or only some of them in case of limited partnerships and partnerships limited by shares, are liable for the company’s debts.

In case of the joint stock companies and the limited liability companies, the shareholders’ liability is limited to the amount they had invested, i.e. the subscribed share capital.

Due to the advantages they offer, joint stock and limited liability companies are most common types of company used in Romania.

Limited Liability Companies

Shareholder structure

Companies Law provides that this type of company may be established by at least two shareholders. The maximum number of shareholders allowed by law for a limited liability company is 50. As an exception from the said rule, the law stipulates the possibility to establish a limited liability company having only one shareholder, named sole shareholder limited liability company. The formation of sole shareholder limited liability company is subject to some legal restrictions, such as:

• a natural or legal entity cannot be sole shareholder in more than one limited liability company.

• a sole shareholder limited liability company cannot be sole shareholder in another limited liability company.

The shareholders of a limited liability company are liable for the debts of the company but their liability is capped to the subscribed share capital.

Share capital

The minimum share capital is 200 RON and may be divided into shares having a minimum value of 10 RON. The shares issued by a limited liability company are incorporable assets and cannot be represented by negotiable financial instruments. The shareholders must entirely pay the subscribed capital upon the moment of the incorporation of a limited liability company A limited liability company is a close corporation, cannot be formed by public subscription or be registered on the stock exchange markets and cannot issue bonds.

 

Transfer of shares

The shares issued by a limited liability company may be transferred between the shareholders without restrictions. The transfer of shares to third parties is subject to the approval of the shareholders holding three quarters from the share capital. The shareholders may not derogate from the above mentioned restriction by inserting a contrary provision in the articles of association or by any other agreement. The transfer of shares must be registered in the Trade Registry and in the shareholder register of the company.

Corporate Bodies

The corporate bodies of a limited liability company are the general meeting of shareholders and the administrator/administrators. Appointing internal auditors is mandatory in case the shareholders’ number exceed 15.

General meeting of shareholders

The shareholders take their decision regarding the company in the general meeting. One share gives the right to one vote. The vote can be also be exercised by correspondence, if the articles of association stipulates in this respect.

According to the law the shareholders decide by the absolute majority of the shares and shareholders, or by the unanimity of shareholders in respect to the amendments of the articles of association, but the articles can stipulates a different majority, e.g.: absolute majority of the shares or a simple majority of the shares.

The general meeting is convoked by the administrator at least once a year or at the request of the shareholders holding more than a quarter from the share capital. The convocation must be made with at least with 10 days before the meeting. In case a sole shareholder limited liability company the sole shareholder shall exercise the attributions of the general meeting, all the decisions being recorded in writing.

Administrators

The limited liability company may be managed by one or more administrators that may be appointed from the shareholders or other persons. A company can be also an administrator. When is more than one administrator they may be organized by the article of association as an administration board. The administrators are the person that conduct the daily business operations of the company and represent it in relation with the third parties. The right of representing the company belong to all administrators, excepting the case when the article of association provides to the contrary. The name and the signature sample of the administrators that have representation powers must be registered with the Trade Registry.

 

Joint stock companies

Shareholder structure

The minimum number of shareholders required by law to set up this kind of company is 2. In case that the company has only one shareholder for a duration exceeding 9 months, then any interested person may claim the dissolution of that respective company. Similar with the provisions established for limited liability companies, the liability of the shareholders is capped to the subscribed share capital. In case of a joint stock companies the law does not impose a maximum limit regarding the number of shareholders.

Share capital

In case of joint stock companies, the minimum share capital required by law is 90,000 RON. The said amount may be modified by the government so that the minimum share capital to always remain at least at the level of RON equivalent of EUR 25,000. Joint stock companies may issue bearer shares or nominative shares. The shares issued may be preferential shares or regular ones, and they can be converted one into another. However preferential shares cannot exceed one quarter of the share capital. Generally the preferential shares do not allow the holder to vote in the general meeting. For raising capital, joint stock companies may also issue bonds. Upon the moment of the incorporation of a joint stock company the shareholders must pay at least 30% of the subscribed capital. The difference may be paid in 12 months from the incorporation date, in case of cash contribution or 2 years in case of in kind contribution.

The shares issued by a joint stock company may be acquired by a public subscription. In this case the shareholders must pay in cash 50 % of the subscribed capital and the other half in 12 months from the incorporation date of the company.

Transfer of shares

Generally the shares of a joint stock company are freely transferable between the shareholders or to a third party. However the shareholders may restrict the transfer of the sharers by inserting some limitations in to the article of association.

A joint stock company cannot acquire its own shares or grant financial assistance (e.g.: loans or security), for the acquisition of its shares, excepting in some limited cases, expressly provided by the law. The transfer of shares property takes place by executing an assignment agreement and by its registration in the shareholders’ register.

Corporate bodies

The corporate bodies of a joint stock company are the general meeting of shareholders, the administrator/s and the internal/external auditors.

General meeting of the shareholders

The general meetings of shareholders are ordinary and extraordinary. Different quorums and vote majorities are regulated by the law depending of the meeting type.

The ordinary meeting must be convoked at least one time per year, in five months from the ending of the previous financial year in order to approve the yearly financial statements.

The meetings are convoked by the administrators by publishing the convocation letter in the Official Gazette and in an wide spread newspaper from their headquarter.

Management of the company

The Companies’ Law regulates two management systems of a joint stock company: the unitary system and the dual system.

A person can be appointed as an administrator, director, member of the directorate or supervisory council for a maximum 4 years period. They must conclude insurance for professional liability and they are prohibited to conclude with the company a employment agreement.

Also, the Companies Law strictly regulates the financial assistance that the company may grant to its management personnel (administrators, directors, members of the directorate or supervisory council) or the operations that can be concluded between them and the company.

Management unitary system

The company’s management is provided by one or more administrators. In case there are more administrators they must be organized in board and their number must be odd at all time. The joint stock companies which, according to the law, are subject of external audit, must be managed by a board of administrators.

The administrator of a joint stock company may be also a legal person. Once named as administrator the legal person must appoint a natural person as its representative.

The sole administrator/board of administrators conducts the daily business operations of the company and represents it in relation with the third parties. The board of administrators represents the company through its president. The president is choosen by the board from its members.

The board’s meeting must be held at least one time every three months. The meeting is validly held in the presence of the absolute majority of the board’s members. The board of administrators decides by the majority of its members present to the meeting.

The board of administrators may delegate its power to one or more directors of the company. The directors must be only natural person. The delegation of powers is mandatory in case the company is subject, under the law, to external audit. When the board appoints more than one directors one of them shall be named general director. The manner in which the directors will be work may be decided either by the articles of association or by the board of administrators.

In case of such delegation of powers, the directors will be the persons that will conduct the daily business activity and the company will be represented by the general director.

The board of administrators supervises the activity of the directors and also keeps some powers that can not be transferred to the directors like: setting the key directions of the company’s activity, preparing the annual report, organizing the general meetings of the shareholders and implementing their decisions.

The name and the signature sample of the administrators or directors must be registered with the Trade Registry.

Dual Management system

In the dual system, the company is managed by a directorate under the supervision of a supervisory council.

The directorate may be formed from one, named sole general director, or more members, natural persons. In case of more members their number must be always odd. Similar to the unitary system, the directorate must have minimum three members when the company is subject, under the law, to external audit.

The members of the directorate are appointed and removed by the supervisory council. The directorate conducts the daily business operations of the company and represents it in relation with the third parties. Unless otherwise provided by the articles of association the members of the directorate represent the company only acting together. But by their unanimously agreement they can appoint one of them to conclude some commercial operations.

The supervisory council has the role of supervising the activity of the directorate and reporting to the general meeting of the shareholders. Its members are appointed and removed by the articles of association and then by the general meeting of shareholders. Their number can not be less than 3 but can not exceed 11. Also they ca not be members of the directorate in the same time.

The council’s meeting must be held at least one time every three months, when the directorate is obliged to draft and present a report to the council regarding the activity of the company.

Auditors

Each joint stock company must have at least 3 internal auditors if the article of associations does not stipulate a higher number. Their number must be always odd. They are appointed by the general meeting of shareholders for a term of 3 years.

The joint stock companies which contracts external audit services are not bound to appoint internal auditors.

Corporate name

The corporate name is the name under which a company signs and carries out its trade or business.

The law recognizes to a company the exclusive right to use its corporate name after its registration in the trade registry.

Generally the corporate name must be in Romanian but in practice there are often accepted names in other language of international circulation.

Any new corporate name must be different from the existent ones in order to make a distinction between the companies and their trade operations.

The law does not allow the use in a corporate name of the following words and their derivatives: “scientific”, “academy”, “academic”, “university”, “school”. Also, for using in the corporate name the words“national”, “Romania”, “institute” a company must obtain the approval of the General Secretary of the Government.

Contributions to the share capital

Under the provisions of the law, there are three types of contributions when establishing a Romanian Company: in cash, in kind, and in receivables.

Note that the contributions in cash are mandatory for every form of company provided by the Romanian law.

With respect to the contributions in kind, note that they are also allowed for every form of company and they must be priorly evaluated from an economical point of view.

Contributions in receivables are not allowed when establishing joint stock companies by public subscription, and also in case of partnership limited by shares and limited liability companies.

Headquarters

As a general rule, two companies can not have their registered seat at the same establishment/address. However, Companies’ Law provides three exceptions when it is allowed to have more than one company registered in the same establishment/address, as follows:

• The structure of the immovable allows that several companies to function in different rooms / offices;

• At least one person is shareholder in each of the company registered at that establishment;

• At least one of the shareholders is the owner of the immovable where the registered office shall be located.

Incorporation of companies

The incorporation of a Romanian company requires the completion of several stages:

• Obtaining a reservation for the corporate name of the new company. The name reservation is valid 3 months from its issuance;

• Concluding the articles of association of the new company. The law provides the minimum provisions that the articles of association must contain;

• Paying the share capital of the new company;

• Concluding an agreement for the establishment of the headquarters of the new company;

• Filling with the Trade Registry the documents prescribed by the law e.g.: the articles of association, proof of the share capital payment, different statements of the shareholders and administrators, documents regarding the headquarters (ownership title, rental agreement, etc.).

• Checking of the documentation, in a public hearing, by the judge appointed to the Trade Registry;

From a timeline perspective, the Trade Registry issues the certificate of registration of a new company within 5 to 7 days since all the required documents were filled.

Subsidiaries, branches and other secondary offices

Subsidiaries

Subsidiaries are entities with legal personality established in one of the forms provided by law and mentioned above. Consequently, the legal regime applicable to the said entities is that provided for the form of company under which is established.

Branches

Branches represent a dismemberment of an established company. A branch does not have a legal identity of its own and should be registered with the Trade Registry where that branch will function.

Working outlets

Working outlets represent any location which in a company carries out its trade activities (e.g.: a factory, a warehouse, a store). Working outlets are treated by the law in the same manner as a branch, excepting their registration which must be made in the Trade Registry where the company is registered.

Representative Offices

Foreign companies have the possibility to establish in Romania representative offices based on licenses issued by the Ministry for small and medium enterprises. The representative office shall perform in behalf of the company only those activities allowed in the license issued by the aforesaid authority. The licenses are issued for a period of one year and may be renewed afterwards. After the license is issued, the representative office shall be registered within maximum 15 days with the Romanian Chamber of Commerce and Industry and with the tax authorities as well.

Corporate changes

Amendments to the article of association

In all cases a corporate change implies the amendment of the articles of association of the company.

Amendments to the article of association can be made only based on a decision of the General Meeting of the Shareholders taken in this respect, in accordance with quorum provided by the law or the articles of association.

Corporate changes must be registered with the Trade Registry where the company is registered. Upon the registration of the changes the company must fill with the Trade Registry a consolidated version of the articles of association.

The amendment of the article of association does not lead to the creation of a new company.

Share capital changes

The share capital of a company may be increased by new contributions subscribed either by the existing shareholders or by new shareholders.

The new contributions may be performed either in cash or in kind, by incorporating the reserves, except for the legal reserves, as well as the benefits or issue premiums or by compensating certain due and accrued debts of the company with its shares.

The share capital may be increased either by increasing the value of the existing shares or by issuing new shares.

However, note that the share capital may be increased by raising the value of the existing shares only if all the shareholders agree on this matter, excepting the case when such increase is made by incorporating the reserves or the benefits or by issuing premiums.

The decrease of the share capital of a company can be made in several ways such, but not limited to: decreasing the number of shares, reducing their nominal value, company’s purchase of its own shares followed by their cancellation, partially restitution of the contribution towards the shareholders.

The decrease shall be made only after two months from the date when the decision approving the decrease was published in the Official Gazette. The creditors of the company can oppose to such decrease and have the right to ask the company to issue guarantees regarding their receivables.

Changing of corporate name

A company may change its corporate name. Changing of the name is subject to a prior reservation for the new name. The registration certificate will be changed accordingly.

Dissolution & liquidation of a company

Under the provisions of Companies’ Law, a company shall be dissolved in the following situations:

• After the expiration of the term for which the company was established;

• The impossibility of accomplishing the business activity of the company;

• The annulment of the company;

• The decision of the general meeting of shareholders;

• The decision of the court at the request of any of the shareholders for just reasons such as serious misunderstandings between the shareholders which can not allow the company to function;

• The bankruptcy of the company;

• Other cases provided by law or by the Company’s Article of Association.

Limited liability companies shall be also dissolved in case of bankruptcy, incapacity, exclusion, withdrawal or death of any of the shareholders when from the said reasons the number of shareholders reaches one.

However, the company may continue to exist and function if the remaining shareholder decides to change the form of the company into a sole shareholder limited liability company.

As a result of the dissolution, the company shall enter into liquidation when a judicial liquidator shall be appointed in order that the liabilities and assets. However, in case of limited liability companies, Companies’ Law provides an exception from this general rule where the shareholders may (with unanimity of votes) voluntary decide the dissolution of the company and arrange the ways under which the debts of the Company shall be paid.

Merger and De-merger companies

Mergers and de-mergers are often used by companies in order to restructure their business activities. Companies Law represents the general legal framework for mergers and de-mergers in Romania, but besides the Companies Law, there are certain other legal documents regulating mergers and acquisitions from an accountancy perspective. Mergers and de-mergers involving credit institutions, banks, insurance companies are being applicable, in addition to the general provisions in Companies Law, different special regulations.