FOUNDING COMPANIES IN ROMANIA

    By courtesy of the National Trade Register

   I. The General Legal Framework

   II. Types of Commercial Companies

The establishment, functioning, dissolution, merge, division and liquidation of the commercial companies are regulated by Company Law No. 31/1990, republished.

In order to develop trading activities, legal and natural persons may associate and establish commercial companies. Commercial companies with the head office in Romania are legal Romanian persons.

The commercial companies may be established in one of the following forms:

General Partnerships

A general partnership can involve two or more partners. The partnership relationship is based upon a contract and any person who is capable of entering a binding contract may enter a partnership. Following this agreement, the parties must register their partnership with the National Trade Register Office.

In a general partnership, partners are jointly liable for the debts and obligations of the partnership and each partner can be personally liable for the overall debts and liabilities, which are not satisfied by assets of the partnership.

The capital of the partnership is formed of the partners’ contributions. These contributions can include cash, real estate, equipment, or other property. Contributions become assets of the partnership and comprise its registered capital. Romanian laws do not set maximum or minimum limits on capital, nor does it indicate how much must be in cash or assets. These decisions are left with the partners.

A general partnership must select a name for itself, included in this name must be the name of one individual partner, the nature of the partnership, and disclosure of the general partnership status of the enterprise (Societate in nume colectiv – SNC). If a person who is not a partner permits his or her name to be used in the name of the partnership, that person then becomes liable for the debts and obligations of the partnership in the same fashion as general partners.

General partnership matters are determined under a written partnership agreement. Where the agreement is silent or unclear, decisions are made by partners on the basis of their relative capital contributions. If a partnership seeks to have a formal management, perhaps because of its large size, a vote of the partners representing a majority of the registered capital is required.

Limited Partnerships

A limited partnership consists of one or more general partners who manage the business of a partnership and one or more limited partners who contribute capital (money or other property) to a partnership but do not participate in its management. Generally, limited partners are not liable for the debts and obligations of the partnership beyond their contributions, to the registered capital. The liability of the general partner is the same as the liability of partners in a general partnership. For an investor, therefore, being a limited partner is similar to have an investment in a corporation.

Limited partners share the profits or other compensation by way of income in proportion to their partnership contributions. However, no such income or other distribution can be made if it would reduce the assets of the limited partnership to an amount insufficient to discharge its liabilities to persons who are not partners.

While the limited partners cannot manage the business, they may examine the state and progress of the partnership business and advise on its management. A limited partner may also act as a contractor for, or an employee of, the limited partnership.

Company Law No. 31/1990 generally sets out the rights, powers and obligations of limited partners. For example, a limited partner may be held liable as a general partner if the limited partnership legislation is not strictly complied with; when a limited partner participates in the management of the partnership’s business without having been mandated to that effect by company’s representatives, by means of a special power-off attorney, registered with the trade register, or allows his or her name to be used in the name of the limited partnership.

A limited partnership is a practical form of organization for a pooled investment where the investors would not normally participate in the control of the investment. Investors are limited partners while the general partner provides the professional management of the investment. In this way, investors share the profits but, as limited partners, their financial risk is limited to the capital they have contributed.

A limited partnership must use in its name the words “limited partnership”  (Societate in comandita simpla, S.C.S.). 

Limited Liability Companies

A limited liability company is a company formed by a limited number of partners (no more than 50). It is based on the constitutive documents. The registered capital of a limited liability company cannot be less than 200 RON (Romanian LEU). The registered share capital of a limited liability company is normally divided  into social parts/shares with a registered value of not less than 10 RON. Shares cannot be freely traded, making limited liability companies similar to what are known as private companies in other legal systems. Shares of these companies cannot be pledged as collateral for loans.

The articles of incorporation of the limited liability company will include:

Decisions are made by majority vote in the General Meeting of the Shareholders (1 share = 1 vote). Decisions involving changes in the constitutive documents must be agreed by all shareholders if these documents do not state otherwise. One or more Directors/Managers are appointed in the constitutive documents or by the General Meeting and are put in charge f the management of the company.

Limited liability companies may also be formed by a sole associate.

Currently, the majority of companies registered in Romania, whether domestic or foreign-owned, are limited liability companies.     A limited liability company is known as a SRL (Societate cu raspundere limitata).

 Joint Stock Companies

A joint stock company is a limited liability corporation with registered capital of a minimum of 25.000 EURO, equivalent RON and with at least five shareholders. When an SA is established, at least 30% of the share capital, or 100% in respect of contributions in kind, must be immediately contributed upon formation of the company and all registered share capital must be fully paid up within twelve months of formation.

Shares could be nominative shares or bearer shares and can be freely traded or pledged. A joint stock company may be set up privately or by public subscription. In the case of a company established on a private basis, the Memorandum of Association must indicate:

When a joint stock company is established by public subscription, a notarized prospectus must be drawn –up and filled with the Trade Register in the district where the head office of the company will be located. The Register’s office will certify compliance with Romanian legislation and will authorize issuance of the prospectus. A joint stock company formation by prospectus is only possible if only possible if the entire registered capital outlined in the prospectus has been subscribed and half of the prices of the shares subscribed for has been paid up into a bank account. If public subscriptions exceed the registered capital, as outlined in the prospectus, or are less than the amount sought in the prospectus, a meeting of the shareholders should be held to approve any revisions of the capital structure.

Within 15 days at the very most of the closing of the subscription, a founding meeting must be held. This meeting, which must be advertised in the Official Gazette, receives evidence that capital has been subscribed, determines the value of any contributions in kind, approves the basis for profit- sharing among founders of the company and other shareholders and appoints directors and auditors.

Decisions are made by a majority vote in the General Meeting of the Shareholders (each share represents one vote). General Meetings can be ordinary meeting, called at least once a year or extraordinary, called when needed to make decisions involving changes in the Memorandum of Association. Meetings require a quorum of ¾ of the shareholders and a simple majority vote of the quorum is required to approve changes in the Memorandum of Association. Unless the Memorandum of Association stipulates otherwise, shareholders can exercise their right to vote in proportion to the stake they hold. Shareholders may be represented under proxy agreement only by other shareholder, if by-laws do not provide otherwise.

The management of a joint-stock company is assumed by a Council of Administration (Board of Directors), although it is possible to have only one Administrator. At least half of the Administrators must be Romanian citizens unless the articles of incorporation and corporate by-laws provide otherwise. The Directors do not necessarily need to be shareholders. The Directors are appointed by the General Meeting of shareholders, which establishes their powers, for a maximum mandate of four years. They may be re-elected. Before starting their activity, the Directors must deposit a guarantee, representing at least the value of ten shares or double the amount of their monthly remuneration.

A joint stock corporation is normally recognized by the use of the words limited incorporated or corporation in its name (Societate pe Actiuni, S.A.).

Limited Joint Stock Companies

A limited joint stock company is a rare form of limited partnership. It has characteristics of both a joint stock company and a limited partnership. At the same as in a limited partnership there are general and limited partners. Similarly to a joint stock company, the registered capital of the limited joint stock company is represented by shares. Similarly to a partnership, the general partners may be liable for the debts and obligations of the company beyond amounts they have contributed. The limited partners, not active in the management of the company, have their liability limited to their share stake. A limited joint stock corporation is normally recognized by use of the words SCA in its name (Societate in Comandita pe Actiuni).

   III. Setting up Commercial Companies

General partnerships and limited liability partnerships are set up through a contract of company. Joint-stock company, limited partnerships with shares or limited liability company are set through a contract of company and a statute, which might be concluded as a sole document called Articles of Incorporation.

The Articles of Incorporation shall be signed by all associates or in case of public subscription, by the founders and will be concluded in authentic form. The signatories of the articles of incorporation are considered founders.

In general, the incorporation articles should contain:

   IV. Registration of Commercial Companies

Within 15 days from the date of authentication of the Articles of Incorporation, the founders or the administrators of the company or an attorney-in-fact of theirs will request the incorporation of the company in the Commercial Register in the area where the head office of the company will be located. 

The incorporation application shall be accompanied by:

The judiciary, through a delegated judge, exercises the control over the legality of the documents and of the deeds which, according to the law, are going to be registered with the trade register, including the request for registration of the companies.

In cases where the legal requirements are fulfilled, the delegated judge shall authorize, by way of decision, the setting up of the company and will order its incorporation with the trade register.

The registration period provided by the law for registering companies is 3 days from the day the request has been submitted. In the same period the trade register office issues the registration certificate containing the unique registration code.

The court may declare nullity of the company register with the Trade Register when:

    V. Operation of Commercial Companies

The assets representing contribution in kind to the company become its property when the company is incorporated at the Trade Register. Interest is not paid for the contribution of the associates.

The benefit quota, which will be paid to each associate, represents the dividend. Dividends will be paid to the associates proportional with their participation to the paid social capital. Dividends will be distributed only from real benefits, in the contrary they will be given back. The returning of the dividends is prescribed in a period of 3 years from the date they were distributed.

If a reduction of the social capital is noticed, it has to be completed or reduced prior to distributing any benefit.

Administrators may perform all necessary activities in order to fulfill the activity of the company, besides the restrictions stipulated by the articles of incorporation. They are obliged to attend the company’s meetings, administration councils, and other similar bodies. Administrators that have the right to represent the company cannot transmit it only if they were enabled expressly to do so.

Administrators are jointly liable to the company for:

The right to sue the administrators may also be exercised by the creditors but only upon the bankruptcy of the company.

Any document, letter or publication issued by the company must indicate the name, legal form, and head office, recording number in the Trade Register and the fiscal code.

   VI. Dissolution of Commercial Companies

 The company shall be dissolved through:

If the dissolution of the company is based on the decision of the associates, they can change this decision with the requested majority for the modification of the Articles of Incorporation as long as no asset was distributed.

The dissolution of the commercial company has to be recorded at the Trade Register and published in the Official Journal of Romania. The effect of the dissolution of the company is the beginning of the liquidation procedure. The dissolution takes place without liquidation in the case of merger or total division of the company or in other cases stipulated by the law. From the moment of the dissolution, administrators cannot undertake new operations.

The court may pronounce the dissolution of the company, based on the request of the National Trade register Office or any other interested person, in the cases when:

    VII. Merger and Division of Commercial Companies

The merger represents the absorption of a company by another company or by merging of two or more companies to form a new company.

The division represents the division of the entire patrimony of a company, which ceased to exist, between two or more existing companies or which are thus set up.

Merger and division are decided by each company, under the terms stipulated for the modification of the Articles of Incorporation.

Based on the decision of the General Meeting of the Shareholders of each company, which participates, to the merger or division, their administrators prepare a merger or division project. This project, signed by the representatives of those respective companies, shall be submitted to the Trade Register where each company is registered, accompanied by a statement of the company which ceases to exist as a result of the merger or division regarding the modality in which its liabilities will be paid off.

Merger and division takes place at the following moments in time:

   VIII. Liquidation of Commercial Companies

The liquidation of the company must be finished within maximum 3 months from the date of dissolution. For founded reasons, the court may extend this period with maximum 2 years. After completing the liquidation, the liquidators have to ask the deletion of the company from the Trade Register. The Trade Register could make the deletion also automatically. The liquidation does not operate a release for the associates and does not impede the commencement of the bankruptcy proceedings of the company.

   IX. The bankruptcy procedure

Beginning with 21 of June 2006 will enter into force Law no. 85/2006 regarding bankruptcy procedure.

Persons submitted to bankruptcy procedure 

The bankruptcy modes

 The minimum quantum of debts through which one can demand the beginning of the insolvency procedure is:                   

The parts at the procedure

 Official gazette of the insolvency procedure:

The introductive petition:

Unwinding of the procedure

The unwinding of the procedure is reflected also in the register in which the debtor is registrated through mentions made according by law.

   X. Trade Register

The activity of the Trade Register and of the Office of the Trade Register is regulated by Law No. 26/1990, republished.

The Trade Register is a specific institution of the market economy and operates on two levels:

The businessperson have the obligation that, prior starting the activity, to apply for registration with the county or Bucharest Trade Register where they have the head office, and during the carrying out and the end of trading activities to apply for the registration in the same register of the mentions regarding the acts and deeds whose registration is stipulated by the law.

The incorporation deeds and mentions are opposable to third parties from the date of their registration with the Trade Register or from their publication in the Official Journal of Romania. The registrations in the Trade Register are made by the delegated judge, on the basis of a conclusion or as the case may be, of the court final decision, which will control also the legality of the operations performed by the Trade Register.

   XI. Procedure of the Registration with the Trade Register 

The registration application of a trader, natural person, will be personally or through an authorized representative, with special authentic mandate and will be accompanied by proving documents. This operation will be carried out within 15 days from the date of the authentication of the constitutive act, for commercial companies, if the law does not otherwise stipulates, and the registration date with the Trade Register is the date when the registration has effectively been performed.

The commercial company is a legal person from the date of its registration with the Trade Register.

   XII. Simplification of Administrative Formalities

In November 2004, entered into force Law no 359/2004, on the simplification of formalities regarding the registration in the trade register of natural persons, family associations and legal persons, their fiscal registration and authorization for functioning.

Through this law, significant progress was made, with special focus on simplifying administrative procedures at the start up and development of the business. In this respect, the registration period for starting-up companies decreased from 20 days (according to former legislative framework) to 3 days from the day the request has been submitted. Moreover, the authorization for functioning is granted based on the statement by own will (self responsibility statement) of the entrepreneur, on the fact that the legal conditions for functioning are known and complied. 

  XIII. Branches, Subsidiaries and Agencies of Foreign Companies

A foreign company can do business in Romania through a subsidiary, agency or a branch. While a subsidiary has a legal personality and is considered a Romanian entity, the branch is just an extension of the parent company and therefore has no legal personality and no independence. Agencies are established and operate in accordance with the provisions of Decree Law No. 122/1990, are authorized by Ministry of Foreign Affairs and undertakes on behalf of the parent companies only transactions and activities which are consistent to its authorized object.

Law No. 105/1992 on the Regulation of the Private International Law Relationship adopts the accepted international practice by which a branch is governed by the national law of its parents company.

Legally, the branch has no separate status from the foreign company itself. It is merely carrying on business in Romania. The foreign company will be liable to the employees and creditors of the branch for the actions of, and debts contracted by, its managers and agents on behalf of the branch. On the contrary, according to the Law No. 31/1990, a Romanian subsidiary of a foreign company is a Romanian legal person and, consequently, it is subject to Romanian laws. It is liable, on its own behalf, for the actions assumed. Subsidiaries and branches can carry out only the activities to which the parent company is authorized.

In practice, subsidiaries are commissioned following the same steps as the registration of companies, i.e. notarizing the statutes, and registering the subsidiary with the National Trade Register Office.

The formation of a branch follows the same steps as that of a subsidiary, but they do not need to establish incorporation statutes.

Assuming the branch is accepted, it must then be registered with the local office of the National Trade Register Office. The formation of a subsidiary must comply with the minimum capital requirements under the Romanian Company Law.

NEW

The Law No. 31/1990 regarding the trade companies, republished, was modified by Law No. 441/2006 (published in The Official Gazette No. 955/2006) as follows:

  1. The number of the shareholders of the joint stock company was reduced from five to two. In case the company has less than two shareholders for a period longer than nine months, any person can request before the court the dissolution of the company. The dissolution may be annihilated if, until the date when the decision of the court becomes irrevocable, the number of the shareholders requested by the law in this company’s case is reconstituted.

  2. There was an extension of the situations in which several trade companies are allowed to perform their activity in the same premises. Thus, the performance of the activity at the same premises is allowed also if the building, by its structure allows the activities of several companies in separate rooms.

  3. The registered capital was settled for joint stock companies at minimum 90,000 RON. This value could be modified, by Government Decision, not sooner than two years, in order to represent the equivalent of 25,000 EURO.

  4. The conditions required by the law for the quorum and majority in the general assembly have been changed. The modification aims at avoiding any blockage in the company’s structure: which appeared under the former regulation, as a result of the impossibility of to take decisions within the general assembly.
    For the ordinary general assembly:
    · The first convocation, it is necessary to have the presence of the shareholders who have at least the fourth part of the total number of rights to vote; the decisions shall be taken with the majority of the expressed votes. The constitutive act may however establish higher conditions for quorum and majority.
    · The second convocation: if the ordinary general assembly can not work because of the non-fulfillment of the above-mentioned conditions, in the second general assembly, the shareholders may take decisions regarding the items on the agenda, without regardless of the quorum; these decisions shall be taken with the majority of expressed votes. In this case, the constitutive act can not provide for a minimal quorum or a higher majority.
    For the extraordinary general assembly:
    · The first convocation: it is necessary to have the presence of the shareholders who have at least the fourth part of the total number of rights to vote; the decisions shall be taken with the majority of the votes hold by the present or represented shareholders.
    · The second convocation, it is necessary to have the presence of the shareholders who have at least the fifth part of the total number of the rights to vote; the decision shall be taken with the majority of the votes hold by the present or represented shareholders . The decision to amend the main object of activity of the company, to decrease or to increase the registered capital, to change the legal form, to perform a fusion, division or dissolution of the company shall be taken with a majority of at least two thirds of the rights to vote hold by the present or represented shareholders. Regardless of the object of the vote passed in the extraordinary general assembly, the constitutive act may establish higher conditions for quorum and majority.

  5. Another important modification refers to the setting-up of two systems of management of the joint stock company: the unitary system and the dualistic system. The unitary system involves the management of a company by one or several directors (board of directors); their number is always an odd number. The dualistic system involves the management of a company by a directorship and by a committee of supervisors.

  6. The annual financial reports and the documents attached to them (the report of the administrator or of the directorship, the report of censors or of the financial auditors, as well as the official report of the general assembly) will be submitted only to the Trade Registry, starting with the 1st of January 2007. The information from these annual reports will be transferred in an electronic format by the Trade Registry offices to the Minister of Public Finance. The amended Law entered into force on the 1st of December 2006.

For more information: http://www.onrc.ro

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