Forms of Business Organization

08.02.2013 ZF English

Individuals and legal entities may freely enter into partnerships and set up companies to develop business activities. According to the Company Law (Law 31/1990, as republished and subsequently amended) there are five types of companies:

• Limited liability company, "societate cu raspundere limitata" (S.R.L.) whose obligations are secured by the company's assets. Shareholders are liable only for the payment of their contributions to the share capital.
• Joint stock company, "societate pe actiuni" (S.
  A.) whose obligations are secured with the company's assets. Stockholders are liable only up to the value of their subscribed contribution to the share capital.
• General partnership, "societate în nume colectiv" (SNC), whose obligations are secured with the company's assets and the unlimited and joint liability of the partners.
• Limited partnership, "societate în comandita simpla" (SCS), whose obligations are secured with the company's assets and the unlimited and joint liability of the general partners. Limited partners are liable only up to the value of their subscribed contribution to the share capital.
• Limited partnership by shares, "societate în comandita pe actiuni" (SCA), whose share capital is divided into shares and whose obligations are secured with the company's assets and the unlimited and joint liability of the general partners. Limited partners are liable only up to the value of their subscribed contribution to the share capital.

The organisation of general partnerships and limited partnerships is governed by a contract of association while joint stock companies, limited partnerships by shares and limited liability companies are organized under a contract of association and by-laws (which may be concluded as a single document "Acts of Incorporation" or "Articles of Association”).

According to the Company Law, as republished and subsequently amended, the notarization of the Acts of Incorporation is compulsory only in the following instances: (i) when real estate is brought as contribution in kind upon incorporation of a company; (ii) when a general partnership or a limited partnership is set up and (iii) when a joint stock company is set up by public subscription.

All companies must be registered with the Romanian Trade Registry Office and they acquire a legal status as from their registration date. The registration procedure has been simplified under Law no. 359/2004, according to which all companies must be registered with the relevant Trade Registry Office, which grants the newly set up companies their registration certificate, specifying the individual registration code issued by the Ministry of Public Finance, and if all conditions have been met, the authorizations and permits necessary to start up their business activities (e.g., for health and safety conditions, environmental compliance, work protection as well as sanitary-veterinary conditions).

According to the Company Law, contributions to a company’s share capital may be in cash, in kind and in receivables. Cash contribution is compulsory upon the incorporation of any type of company.

The shareholders of each type of company must hold at least one ordinary meeting per year, within a maximum five month term after the end of the financial year. The resolutions adopted in a General Meeting must be registered with the Trade Registry within 15 days of their adoption in order to become opposable to third parties, with penalties being imposed for non-compliance with this term.

Companies, irrespective of type, are managed by one or several directors. In joint stock companies, the directors will form the Board of Directors. In limited liability companies, a Board of Directors will be organized only if the Acts of Incorporation so provide. Directors can be individuals or legal entities, appointed either under the Acts of Incorporation, or by the ordinary general meeting of shareholders. Generally, in joint stock companies, directors and members of the Management Board and Supervisory Board can have a 4-year term of office but they can be re-elected if the Acts of Incorporation do not provide otherwise. The mandate of the first members of the Board of Directors and Supervisory Board cannot exceed two years. Directors have the following main duties: (i) to ensure the timely payment of share capital contributions due by shareholders or partners; (ii) to comply with the rules on the distribution of dividends; (iii) to ensure that the company's statutory records are kept according to the law; (iv) to ensure the enforcement of the resolutions adopted by the meetings of shareholders; (v) to fulfil all the duties imposed by the law and by the Acts of Incorporation.

There are no special requirements with respect to the citizenship of a company's directors. However, individuals convicted of certain criminal offences, such as the offences listed under the Law for the prevention and penalization of money laundering as well as for the adoption of measures for preventing and fighting against financing of terrorist acts may not be directors, managers, members of the Supervisory Board or members of the Management Board or founders and where they have been appointed to such positions, they will forfeit these rights.

All types of companies must file their financial statements, on paper and in electronic format, or only in electronic format, with the local offices of the Ministry of Public Finance within a maximum of 15 days after the General Meeting has approved them. Companies with an annual turnover exceeding RON 10,000,000, representing the equivalent of approximately EUR 2,257,336 at an exchange rate of EUR 1= RON 4.43, are required to publish in the Official Journal of Romania, part IV, a notice confirming the registration of their financial statements as mentioned above. Companies with an annual turnover that does not exceed RON 10,000,000 should publish, for free, a notice of the registration of their financial statements on the website of the National Trade Registry Office. Listed companies must also file their financial statements with the National Securities Commission, as well as reports by their directors, censors and financial auditors.

Limited liability companies and joint stock companies are the most common types of companies and therefore we will present the characteristics of these two.

Limited Liability Companies

A limited liability company (S.R.L.) may be set up by not more than 50 shareholders. The Company Law allows for the incorporation of a company with one shareholder. However, an individual or a legal entity cannot be a sole shareholder in more than one S.R.L. (proof in this respect must be presented prior to registration). Furthermore, an S.R.L. with one shareholder may not be the sole shareholder of another S.R.L.

The share capital of an S.R.L. may not be less than RON 200, representing the equivalent of approximately EUR 45 at an exchange rate of  EUR 1 = RON 4.43 and it is divided into shares ("parti sociale") with a registered value of at least RON 10 each. Shares are not marketable titles but they can be traded among shareholders and transferred to third parties as well.

The general meeting of shareholders is the main decision-making body of the company. The main obligations of the general meeting of shareholders are: (i) to approve the annual financial statements and the distribution of profits; (ii) to appoint the Directors and censors or, as applicable, the internal auditors, and to revoke them and to decide upon contracting a financial audit where such an audit is not compulsory according to the law; (iii) to decide upon the liability of Directors and censors or, as applicable, of the internal auditors, for any prejudice caused to the company; (iv) to amend the Acts of Incorporation.

Directors may undertake any operations required for the business of the company, except for the restrictions or limitations provided by the Acts of Incorporation or by the general meeting of shareholders.

The Acts of Incorporation may provide for the election by the shareholders of one or several censors or of a financial auditor, but the appointment of censors or of a financial auditor is mandatory only if the company has more than fifteen shareholders.

According to the Company Law, an S.R.L. must keep a shareholders register, where the identity of shareholders, the number of shares held by each of them and the transfer of shares are recorded.

Joint Stock Companies

A joint stock company (S.A.) can be set up by at least two shareholders. The share capital of an S.A. may not be less than RON 90,000. Every 2 years, the Government can change the minimum value of the share capital by reference to the exchange rate, so as to keep this amount at the RON equivalent of EUR 25,000. The share capital is divided into shares ("actiuni"), each with a value of at least RON 0.1. The initial capital paid by each shareholder may not be lower than 30% of the subscribed capital. The remaining 70% of the subscribed share capital must be paid over a period which must not exceed 12 months from the incorporation date, where the shares have been issued in exchange for contribution in cash and 2 years where the shares have been issued in exchange for contribution in kind.

The shares are marketable titles and they can be nominal or bearer shares. Unless otherwise specifically provided by the Acts of Incorporation, shares are considered nominal. Ownership of nominal shares can be transferred under a statement made in the shareholders' corporate register, with this transfer to be registered in the share certificate, whereas ownership of bearer shares can be transferred by simple remittance.

The General Meeting of Shareholders may be ordinary or extraordinary. The ordinary meeting is called at least once every year within a maximum five month term after the end of the financial year in order to: (i) discuss, approve and modify the annual financial statements after presentation of the report by the Board of Directors, or by the Management Board or Supervisory Board, by the censors or, as applicable, by the financial auditors and to establish the distribution of dividends; (ii) appoint and revoke the members of the Board of Directors, or, as applicable, members of the Supervisory Board, and of the censors ; (iii) set the remuneration of the Board of Directors’ members, or, as applicable of the Supervisory Board‘s members and of the censors; (iv) evaluate the performance of the Board of Directors, or of the Management Board, as applicable; (v) establish the budget and business plan for the next fiscal year; (vi) decide with regard to the pledge, lease or dissolution of one or several of the company's branches; (vii) discuss any other issues on the agenda. In the ordinary general meeting, resolutions are adopted if the shareholders attending the meeting represent a quarter of the share capital, and if supported by an absolute majority of the share capital represented in the meeting.

An Extraordinary General Meeting of Shareholders is called whenever it is necessary to adopt a resolution for the amendment of the company’s Acts of Incorporation or to debate any resolution which requires the approval of an extraordinary general meeting. 

A resolution to amend the company’s main object of activity, to decrease or increase the share capital, to change the company’s legal structure or to merge, de-merge or dissolve the company is taken with a majority of at least 2/3 of the voting rights held by the present or represented shareholders, where a higher majority is not stipulated in the Acts of Incorporation.

The Company Law provides certain protective measures for shareholders such as:

i) The right to challenge in Court the resolutions of the General Meeting of Shareholders if these involve irregularities (e.g. non-compliance with the procedures for the calling of the General Meeting of Shareholders, resolutions adopted without meeting the quorum requirements etc.).

ii) The right of the shareholders who vote against a resolution of the General Meeting of Shareholders to withdraw from the Company and to require the purchase of their shares by the company, where the object of such a resolution is related to the amendment of the company's main object of activity, relocation of the company's registered office abroad, change of the company's legal structure, merger or de-merger of the company.

iii) The right to consult, at the company’s registered office, the annual financial statements, the Board of Directors’ annual report, or, as applicable, the report of the Management Board and of the Supervisory Board, and also a proposal concerning the distribution of dividends, starting with the calling date of the General Meeting. On request, shareholders can obtain copies of these documents.

iv) Shareholders holding at least 10% of the share capital may apply to the Court for the appointment of an expert to analyze certain activities of the Company and to present the conclusions to the Board of Directors, the Management Board or Supervisory Board, as well as to the censors or the internal auditors of the company, as applicable, in order to propose corresponding measures.

v) Shareholders holding at least 5% of the share capital may raise complaints to the censors or internal auditors about facts which, they believe, need to be checked. If the complaint is well founded, the censors, the Board of Directors, or the Supervisory Board, must call a General Meeting.

vi) Shareholders who, individually or together, represent at least 5% of the share capital may lodge a compensation claim with the Court in their own name, but on behalf of the company, against the founders, directors, and managers, or against the members of the Management Board and Supervisory Board, for any prejudice caused to the company.

Management systems

Joint stock companies may now choose between two alternative management systems, i.e. the one-tier or the two-tier management system, according to which best serves their interests.

A) The one-tier management system

The company’s management is made up of a sole director or a board of directors who can delegate the company’s management to Managers and/or the General Manager. The board of directors may be formed of non-executive members, i.e. those who have not been appointed as managers, as well as executive members, who thus combine two offices; that of a director with that of a manager of a company.

B) The two-tier management system

Management is ensured by a supervisory board and a management board.  The management board bears exclusive responsibility for the management of the company and is formed of one or several members, with a minimum of 3 members for companies subject to a mandatory financial audit.

Where a director has been designated to hold such a position from among the company’s employees, the employment contract will be suspended during the director’s term of office.

The employment contracts under which directors/managers were appointed to these positions were de jure and de facto terminated as from July 2007 according to the latest amendments.

The directors and the members of the Management Board or of the Supervisory Board must conclude professional liability insurance agreements.

The managers of joint stock companies in the one-tier management system and the members of the Management Board in the two-tier management system must be individuals. Legal entities can be appointed as directors or members of the Supervisory Board of joint stock companies, but in this case they must appoint a permanent individual representative.

The Board of Directors may delegate the executive management of the company to one or several managers, with one of them appointed as general manager. Where the actual management of a joint stock company is delegated to one or several managers, most of the Board of Directors members will be non-executive members.

The delegation of a company’s management is compulsory for companies whose annual financial statements must be subject to financial audit. Managers are responsible for the day-to-day operations of the company within the limits of the company’s object of activity.

The Supervisory Board may set up advisory committees formed of at least two members of the Supervisory Board who are in charge of making investigations and recommendations in areas such as audit, the remuneration of the Management Board and Supervisory Board members and of employees, or the nomination of candidates to management positions. At least one member of the Audit Committee should be an independent director and at least one member should have accounting-financial experience.

Joint stock companies whose annual financial statements are not subject to a financial audit by law or by resolution of the shareholders must appoint at least three censors and one deputy. Censors must certify the annual financial statements and present a report to the annual general meeting of shareholders.

The financial statements of companies subject to a financial audit must be verified and certified by financial auditors registered with the Romanian Chamber of Financial Auditors, and in this case the provisions on censors' activity will no longer be applicable.

Self-employed individuals, individual undertakings or family–owned enterprises

A self-employed individual is merely an individual doing business independently. Such an individual is entitled to all the profits deriving from his or her business and is personally liable for all related debts and liabilities. The individual's liability to the business is therefore not limited to the assets used for carrying out his or her business, but also includes the personal assets of the self-employed individual.

Government Emergency Ordinance no. 44/2008, (“the Ordinance”) sets out the conditions under which individuals - Romanian citizens or citizens of EU member states and the member states of the European Economic Area - can carry out business activities in Romania, either as self-employed individuals, individual undertakings or family-owned enterprises. The Ordinance does not apply to individuals performing their activity under a special law (e.g.: lawyers, public notaries, etc).

In order to carry out business activities, self-employed individuals who act independently as well as family-owned enterprises must register with the Trade Registry Office and the relevant tax authorities.

The performance of activities in the absence of the relevant registration with the Trade Registry Office or prior to obtaining such registration is deemed as an offence and is penalized according to the law.

Representative Offices

According to Decree-Law 122/1990, foreign companies may set up representative offices in Romania. A Representative Office is not distinct from the parent company it represents, but rather acts in the parent company's name and on its behalf with a specific mandate to do so.

The legal status of a Representative Office prevents it from having its own turnover, its revenues representing only the amounts transferred to Romania by the parent company to cover its local expenses.

Authorizations issued by the Ministry of the Economy limit the activities of Representative Offices to the promotion and technical support of the parent company's business activities, without having the right to carry out these activities.

Thus, in practice, a Representative Office is allowed to perform the following activities:

• Business operations such as: issuance and receipt of offers and orders, or participation in negotiations, without being allowed to conclude contracts
• Marketing and advertising
• Promotion
• Supervision of dealers' activities
• Any other economic and commercial activities meant to develop international exchanges, but without having the authority to issue invoices directly.

In order to obtain an operating license, a Representative Office must pay a yearly tax of USD 1,200.

In addition, they must pay an annual tax of EUR 4,000. If the license is issued during the year, the tax to be paid is proportional to the period remaining until the year end.

Branches and Subsidiaries of Foreign Companies

A foreign company may do business in Romania through either a subsidiary or a branch. While a subsidiary has a legal status and is considered as a Romanian entity, the branch is just an extension of the parent company and therefore has no legal status and no financial independence.

The new Romanian Civil Code approved under Law no. 71/2011, in line with generally accepted international practice, states that a corporation is governed by its incorporation law.

Therefore, in Romania, a branch of a foreign company is subject to the national law of the parent company. Legally, the branch has no separate status from the foreign company itself, but it merely does its business in Romania. The foreign company will be held liable to any creditors of the branch, employees included, as well as for any debts and obligations undertaken by its managers and agents on behalf of the branch. Branches can only carry out the activities for which the parent company has been authorized.

Unlike branches, a Romanian subsidiary of a foreign company is a Romanian legal entity and, consequently, subject to Romanian law.

In practice, subsidiaries must fulfill the same registration formalities as companies, i.e. registration of the Acts of Incorporation with the appropriate office within the Romanian Trade Registry. A subsidiary must comply with the minimum capital requirements imposed under the Romanian Company Law.

Joint Ventures

Under the Romanian Civil Code approved by Law no. 71/2011, a joint venture (in Romanian "Asocierea în participaţie") is defined as an agreement under which an individual or legal entity grants to one or several other individuals or legal entities a participation share in the profit and losses generated from one or more operations that he/she/it is carrying out. In accordance with the law, a joint venture cannot have legal status and, before third parties, it may not be deemed as an entity distinct from its partners. Partners (even when acting on behalf of the joint venture) execute contracts and undertake obligations on their own behalf before third parties.  The term "joint venture" is a common term used to describe any forms of economic activity involving foreign investment, including:

• A joint stock or limited liability company whose shares are held by both Romanian and foreign investors.
• A partnership of two or more companies or individuals, including foreign investors.
• Cooperation agreements.

Economic Interest Group (E.I.G. and E.E.I.G.)

Law no. 161/2003 on measures to ensure transparency of public office, public positions and of the business environment and the prevention and penalization of corruption, introduced two new forms of association for economic purposes, i.e., Economic Interest Groups and European Economic Interest Groups.

Economic Interest Group (EIG.)

An E.I.G. represents an association between two or more individuals or companies, set up for a fixed period of time for the purpose of facilitating or developing the economic activity of its members, and improving the results thereof.

The main characteristics of this form of association, as provided by Law no. 161/2003, are:

• An EIG is a profit-making legal entity, which may or may not be involved in business activities.
• An EIG may not have more than 20 members.
• The activities carried out by an EIG must be related to the economic activity of its members and must be an accessory thereto. An E.I.G may not carry out certain activities such as: (i) Managing or supervising, whether directly or indirectly, the activity of its members or of another legal entity, particularly in the human resources, finance or investments field; (ii) Holding shares, directly or indirectly, in any of the member business companies, with certain exceptions; (iii) Employing more than 500 staff, etc.

An EIG may be set up under a notarized agreement signed by all its members, (in the form of acts of incorporation), and becomes a legal entity as from its registration with the Trade Registry Office. An EIG can be set up with or without share capital. If the EIG members decide to allocate a certain amount of capital for carrying out the EIG activity, the contribution of its members need not have a minimum value and is not restricted to a certain type of contribution.

The operating authorizations of an EIG are issued by the Trade Registry’s special office in compliance with Law no. 359/2004, as amended. An EIG’s headquarters registered in Romania can be relocated abroad, by unanimous decision of its members.

The operation of an EIG is very flexible, with its structure and operation being set out under the Acts of Incorporation.

The members of an EIG are fully and jointly held liable for the EIG’s obligations assumed to third parties, unless otherwise agreed. The creditors of an EIG must first assert their claims directly to the EIG, and only if it does not make the due payments within a maximum of 15 days from notification of late payment, may they assert their claims against the EIG’s members.

EIGs may not generate profit for themselves. If profit is derived from an EIG’s activity as reflected in the annual financial statements, this profit must be distributed, in full, among its members, in the form of dividends in the quotas provided by the acts of incorporation, or in the absence of such a provision, in equal parts. Unlike business companies, EIGs may not allocate any part of their profits for the purpose of creating reserve funds.

If expenses exceed the income of an EIG, its members must cover the difference in the quotas provided by the Acts of Incorporation, or in the absence of such provisions, in equal parts. The amounts distributed to the members out of the EIG’s profit are deemed as dividends and are subject to tax in accordance with the law.

The financial statements are subject to the provisions of the Accounting Law (no. 82/1991), as republished. The annual financial statements must be prepared in compliance with the rules applicable to general partnerships.

European Economic Interest Group (EEIG.)

An EEIG is an association between two or more individuals or companies, set up for a fixed period or indefinitely, for the purpose of facilitating or developing the economic activity of its members, and improving the results of such activity. Duly established EEIGs are legally recognized and can operate in Romania

Members of an EEIG can only be the following:

• Companies as defined under art. 58 par. 2 of the consolidated version of the Treaty establishing the European Community.
• Public or private legal entities set up in accordance with the legislation of one of the EU member states whose headquarters and main office for the management and administration of the statutory activity is located in an EU member state.
• Companies or other legal entities which, according to the legislation of a member state, are not obliged to have a registered office and which, for the purpose of managing their statutory activity, can locate their main office in an EU member state.
• Individuals carrying out industrial, commercial, handicraft or agricultural activities or rendering professional or other services in an EU member state.

Further rules applying to EEIGs:

• The organization and operation of an EEIG is similar to that of an EIG
• An EEIG established abroad may set up subsidiaries, branches, and representative offices in Romania as well as other entities that are not legal entities. The establishment of branches or subsidiaries in Romania is subject to all the requirements governing the incorporation, registration and publication of documents and details of a Romanian EIG without, however, being subject to the authorization requirements provided by Decree-Law no. 122/1990 on the authorization and operation in Romania of representative offices of companies and foreign economic organizations, as amended.

Source: KPMG - Investment in Romania report (May 2013)