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Corporate law

Provided by D&B David si Baias, correspondent law firm of PricewaterhouseCoopers in Romania.

    *      Legislation allows for the establishment of a wide range of business entities, including wholly foreign owned subsidiaries and branches
    *     The most common type of company is the limited liability company (SRL), largely because it is the easiest to operate and can have a sole shareholder
    *     Expert legal and tax advice should be sought in the early stages of operation
    *     A new Emergency Ordinance regulating credit institutions was published at the end of 2006.

Legal Framework

Romanian legislation governing domestic and foreign investment has undergone radical changes since the 1989 Revolution, particularly with the introduction of the Company Law in 1990 (republished in November 2004, modified again in October 2005, May 2006, July 2006 and substantially amended in December 2006). The current legislative basis for investment and business operations in Romania are described below.

Company Law

Company Law governs certain forms of business organisation. The Law covers registration procedures and documentation, capital and shares, administration and shareholders, mergers and spin-offs, dissolution and liquidation.

Commercial Register Law

Commercial Register Law regulates the organisation and functioning of the Trade Register, stipulates the obligation of business entities to register their entry into operation and any subsequent changes in status (e.g. management, shareholding structure), operation, or nature of business, and details the registration procedure.

Competition Law

Competition Law seeks to maintain a competitive market. Its provisions should be observed by all companies when establishing their business terms or acquiring other businesses. Clearance requirements, depending mainly on the parties' turnover or market shares, are set for mergers and acquisitions, as well as for certain agreements (e.g. agreements including exclusivity clauses).

Direct Investment Legislation

The only legislation in force that stipulates certain incentives for investors in Romania is the Law on the Promotion of Direct Investments with Major Economic Impact (Law no. 332/2001). This law was passed in July 2001 and prescribes the procedures and conditions for the performance of large-scale investments in Romania (investments over USD 1 million). Investments that qualify as significant investments can benefit from a number of incentives as provided by the Fiscal Code.

Forms of Business Organisation

Romanian legislation lists the following types of business organisation:

   1.      Limited liability company (societate cu raspundere limitata - SRL);
   2.      Joint stock company (societate pe actiuni - SA);
   3.      General partnership (societate în nume colectiv - SNC);
   4.      Limited partnership (societate în comandita simpla - SCS);
   5.      Limited partnership on shares (societate în comandita pe actiuni - SCA);
   6.      Branch of a foreign company;
   7.      Silent partnership (asocatie în participatiune - not a legal entity);
   8.      Sole proprietorship;
   9.      Family association.

All such entities (except for the silent partnership), if registered in Romania, are considered as resident in Romania for tax and currency regulation purposes and must comply with statutory requirements in Romanian legislation for book and record keeping. The silent partnership is considered as resident in Romania for tax purposes, while for currency regulation purposes it will have the Leader’s status. Dividends / net profits are to be distributed according to the approved annual accounts.

The family association and sole proprietorship are types of businesses generally not available to foreign investors with the exception of EU citizens and European Economic Area citizens.

The forms of business most commonly used by foreign investors are the limited liability company (SRL) with one to 50 shareholders, the joint stock company (SA) with a minimum of two shareholders and the branch (of a foreign parent company). Banks, non–banking financial institutions (e.g. leasing companies performing financial leasing operations) and insurance companies can only be organised in the form of joint stock companies (SA).

Representative offices are often used as a market entry technique, allowing for an assessment of existing opportunities before making a more substantial commitment to Romania.

Registration Procedure

The registration procedures for limited liability companies and joint stock companies are quite similar and consist of the following main steps:

    *      The constitutive documents (by-laws) must be signed by the shareholders; certain other documents must be signed in front of a public notary or a lawyer,
    *      As a rule, the subscribed capital must be paid upon submission of the incorporation documents. However, in the case of a joint stock company (SA), the shareholders are only obliged to pay at least 30% of the subscribed capital upon submission of the incorporation documents. The balance of 70% of the subscribed capital must be paid within 12 months of the incorporation of joint stock companies if shares are issued in exchange for cash contributions or within 2 years of the incorporation of joint stock companies if shares are issued in exchange for in kind contributions,
    *      In the case of SRL companies, full payment of the subscribed share capital is required upon incorporation,
    *      Capital in cash is required for all types of companies,
    *      The company is registered with the Trade Register by issuance of a Registration Certificate. This provides a Registration Code (Rom. “cod unic de inregistrare”, abridged as “CUI”) valid for both the Trade Register and the tax authorities. A separate VAT registration is required,
    *      The Registration Certificate also includes in the appendix a certificate of status, certifying the registration of the statements that the company meets all the requirements for engaging in the activities listed as the company’s objectives. The relevant authorities would subsequently conduct investigations at the registered head-offices of the company, or at other locations where activity might be carried out, in order to assess the fulfillment of the operating requirements. Likewise, specific authorizations / permits should be obtained if carrying out certain activities provided by the law,
    *      The company legally exists and has the right to start and run its activities commencing with the date of its registration with the Trade Register.

During the registration procedure, the company would have a limited legal capacity - i.e. only for registration purposes. The incorporation procedure takes between three and five days from when the relevant file is submitted with the Trade Registry.

Companies and branches whose names contain the words “national, Romanian, institute” and / or their derivations or words commonly used in connection with central public authorities and institutions, have the obligation to seek a supplementary approval from the General Secretariat of the Government prior to submitting the incorporation file with the Trade Registry. If the trade name includes words commonly used in connection with local public authorities and institutions, the approval of the County Hall should be obtained.

Capital and Shares

The minimum capital required for an SRL is RON 200, about EUR 55. Capital contributions can either be in cash or in kind, but cannot be entirely in kind. SRL company capital is divided into shares (Rom. "parti sociale") that cannot have a value of less than RON 10. Shares can be freely transferred between existing shareholders. Transfer of the shares to third parties can only be done with the approval of shareholders representing at least 75% of the capital. The transfer of shares must be registered with the Trade Register and entered in the company's Shareholders Register.

A SA-type company must have a minimum share capital of RON 90,000, in cash or in kind contributions. The Romanian Government may amend the above minimum value of the SA’s share capital, not more frequently than once every 2 years, in order to maintain the minimum value of the share capital close to the equivalent of EUR 25,000.

SA capital is divided into shares and the nominal value of a share must be at least RON 0.1. Shares can either be nominative or bearer shares, as established in the company’s constitutive documents. However, shares that are not fully paid up can only be nominative shares.

In general, shares must have equal value and grant equal rights to the shareholders. Company Law, however, lists the conditions under which preferential shares can be issued (such shares may be issued only in case of a company organised as SA). Such shares give their holders the right to a preferential dividend and all the other rights granted to the ordinary shareholders (including the right to attend the general meeting of shareholders), but they do not confer any voting rights. However, the holders of the preferential shares acquire the voting rights corresponding to the relevant shares in case of (i) the late payment of the dividends, starting with the due payment date of the dividends and (ii) the general meeting of shareholders deciding on non-distribution of the dividends, starting with the publication of the relevant resolution of the general meeting of shareholders; until the effective payment of the dividends

For SAs, Company Law states that, upon finding that, due to losses incurred determined under the annual financial statements approved in accordance with the legal provisions, the net asset value, determined as the difference between the total assets and the company's debts, amounts to less than half of the share capital, the Board of Directors or the Directorate have to convene the Extraordinary General Meeting of Shareholders to decide whether the company should be dissolved. Should the Extraordinary General Meeting of Shareholders not decide on the company’s dissolution, the company is required to reduce its share capital with a value representing at least the equivalent of the losses that could not be recovered from reserves, except where the company’s net asset is replenished up to a value representing at least 50% of the company’s share capital. Should the Extraordinary General Meeting of Shareholders fail to convene or to decide on the company’s dissolution at the second meeting convened or should the company fail to reduce its share capital as mentioned above, any interested person is entitled to seek the dissolution of the company in court.

Administration of the Company

Both SRLs and SAs must have one or more directors (administrators), each appointed by the general meeting of shareholders and responsible for the management of the company.

The directors can be Romanian or foreign citizens, in any proportion.

For the administration of SAs, Company Law provides a specific legal status for the SA’s directors. Thus, the SA’s shareholders may choose between two different administration systems: (i) unitary system; and (ii) dualist system.

Under the unitary system, the management of the Company is entrusted to a single corporate body – either a sole director or a Board of Directors (should the general meeting of shareholders appoint more than one director). The Board of Directors (or the sole director) is entitled to take all necessary and appropriate actions towards performing the company’s statutory objects, save for any actions specifically entrusted to the general meeting of shareholders.

The Board of Directors may delegate the management of the company to one or more executive officers, appointed either from among the members of the Board of Directors or from outside the Board of Directors. The executive officers are entitled to take all necessary and appropriate actions regarding the company’s management, by observing the company’s statutory objects and the exclusive competence of the general meeting of shareholders and / or the Board of Directors. Delegation of responsibilities is mandatory for companies submitted to the financial audit by effect of the law.

Under the dualist system, the management of the company is entrusted exclusively to a Directorate, having the competence to take all necessary and appropriate actions towards performing the company’s statutory objects, by observing the exclusive competence of the general meeting of shareholders and / or the Supervisory Board.

The Supervisory Board is entitled only to supervise and control the activity of the Directorate. The members of the Supervisory Board are appointed by the general meeting of shareholders. The members of the Directorate are appointed by the Supervisory Board from persons outside the Supervisory Board.

Censors

If a limited liability company has more than 15 shareholders, it is obliged to appoint company censors.

As explicitly stated in the Company law, SAs are under an obligation to appoint either censors or auditors, depending on the specific situation of the company. However, appointment of the financial auditor is mandatory for joint stock companies which have implemented the dualist system of administration.

General Meeting of Shareholders

The General Meeting of Shareholders decides on all major issues concerning the company, in accordance with provisions in the company's constitutive documents and in Romanian Company Law. Among other things, the General Meeting of Shareholders decides on:

    *      Change of the head office,
    *      Opening branches, subsidiaries or working units,
    *      Changes in the object of activity,
    *      Increases and decreases of the share capital,
    *      Appointment and revocation of directors (administrators) and censors,
    *      Approval of annual accounts (including dividend distribution),
    *      Merger and spin–off,
    *      Dissolution and liquidation.

Branches

The branch registration procedure is technically similar to the procedures for the incorporation of SRLs and SAs. The foundation of a branch mainly requires the following documentation:

    *      Records of the existence of the parent company (i.e. company memorandum and articles of association, Trade Registry excerpt, letter of reference from bank, latest financial statements),
    *      Decision of the Board of Directors to establish a branch in Romania, listing the activities of the branch and nominating a

General Manager.

Branches must have a General Manager appointed by the Board of Directors of the parent company, who will represent the branch in dealings with third parties in Romania. The General Manager can be a Romanian or foreign citizen. Branches can only operate in the same field of activity as their parent companies and they are not allowed to include in their objectives more or other activities than the parent company.

Representative Offices

Representative Offices are often established as a first step in committing to Romania. Legally speaking, a Representative Office cannot commit to any contractual engagements in its own name but can perform the following activities for its parent company:

    *  Using facilities only for the purpose of storage or display of goods or merchandise belonging to its parent,
    *  Maintenance of a stock of goods or merchandise belonging to its parent only for the purpose of storage or display,
    *  Maintenance of a stock of goods or merchandise belonging to its parent only for the purpose of being processed by a third party,
    *  The sale of goods or merchandise belonging to its parent displayed at exhibitions or trade fairs which are not permanent or are occasional, if the merchandise or goods are not sold later than within a month after the closing of the trade fair or exhibition,
    *  Maintenance of a fixed place of business solely for the purpose of acquiring products or goods or collecting information for its parent,
    *  Maintenance of a fixed place of business solely for the purpose of carrying out activities of a preparatory or auxiliary nature by its parent,
    *  Maintenance of a fixed place of business solely for a combination of the activities mentioned above, under the condition that the whole activity carried out through the fixed place of business is of a preparatory or auxiliary nature.