Legal guide for company directors and CEOs in Romania

Because environmental, social and governance (ESG) is such an increasing focal point of good corporate governance, we address ESG duties and responsibilities first. For more general duties and responsibilities of directors and CEOs, please scroll down the page or use the navigator to jump to the relevant section. 

Environmental, Social, and Governance matters (ESG) have gained increasing attention over the past few years, with many investors investing only in companies that provide ESG performance reporting.

Generally, directors are responsible for the day-to-day management and operation of a company, including from the perspective of compliance with applicable laws and regulations relevant for the business carried out by the company. While ESG obligations or standards are not regulated as such, more and more companies are focused on observing ESG objectives and preparing internal reporting on ESG performance.

Environmental matters are a significant part of ESG obligations. Companies whose business activities are subject to observing environmental requirements should pay attention to relevant regulations in this respect, especially since there are rapid changes and developments in this field. In addition to the mandatory legal framework and requirements on packaging, waste management, dangerous/specific substances management, air and noise protection, soil and groundwater contamination and other pollution matters, nature conservation, greenhouse gas emissions, environmental permitting, etc., companies (through their directors and executives) may voluntarily undertake environmental management schemes/initiatives.

There are also employment-related issues that the directors should consider from an ESG perspective. For instance, the Romanian Labour Code, as well as other applicable laws and regulations, explicitly indicates the general principle of equal treatment between employees and equal pay. As directors are typically the persons implementing and exercising the employer’s rights in relation to the employees of a company, special attention shall be paid to compliance with such general principles in handling employment relations.

The Romanian Labour Code and additional applicable secondary legislation explicitly set forth the general principle of equal treatment between employees and equal pay. Gender equality, as well as equal opportunities and treatment for employees and prohibition of discrimination in the organisation, are also areas of focus for employers. Directors must ensure that such mandatory principles are observed and implemented at the level they manage within their companies.

Also, the Code of Corporate Governance issued by the Bucharest Stock Exchange (BVB) sets forth provisions related to the remuneration of directors and members of the management board. In this respect, any listed company must publish its remuneration policy in the company’s Corporate Governance Statute, which should include the form, structure and level of remuneration of the members of the management bodies of the company. The Board of Directors must establish a Remuneration Committee comprising exclusively non-executive members. The Remuneration Committee serves as a pivotal mechanism to ensure transparency, objectivity, and alignment with best practices in remuneration strategies.

Also, the composition of the board and its related committees must present an appropriate balance of competence, experience, gender diversity, knowledge and independence of members to enable them to effectively discharge their duties and responsibilities. It is advisable that most non-executive members of the board and/or related committees are independent.

In addition to the above, applicable legislation also provides that all employers must ensure a safe and healthy working environment for their employees. The general responsibility for making sure that health and safety obligations are generally observed or implemented by a company pertains in most cases to its executive officers (directors).

On 5 January 2023, the Corporate Sustainability Reporting Directive (“CSRD”) entered into force aiming to modernise and strengthen the rules concerning the social and environmental information that companies have to put in place and report. Companies will be required to include sustainability information in their management reports, ensuring that financial and sustainability data are disclosed simultaneously. Such data must be presented in a standardized digital format to facilitate streamlined verification and comparison within the European single access point database. The CSRD aims to ensure that adequate information on the impact of companies on people and the environment shall be made available to investors, for assessing the potential financial risks and opportunities arising from climate change and other sustainability issues. The companies will have to apply the new rules, gradually, starting with the 2024 financial year, with reports to be published in 2025. The Council of the European Union and the European Parliament agreed to delay the adoption of sector-specific European Sustainability Reporting Standards (ESRS) and standards for certain non-EU companies by two years, until June 2026. This extension aims to give companies more time to prepare for these new requirements, reducing the immediate administrative burden and allowing for a more manageable transition.

In Romania, the Ministry of Finance issued Order no. 85/2024 (“Order no. 85/2024”) transposing primarily the new accounting rules under Article 1 of the CSRD. Nonetheless, Order no. 85/2024 introduced as well certain aspects regarding companies’ reporting obligations on sustainability matters. The focus of the new local legislation is to improve the reporting process performed by the companies regarding their social and environmental information, so that the non-financial information reported by entities across the EU reach a high degree of standardization, consistency and comparability. The main aspects regulated by OMF no. 85/2024 on the sustainability reporting, which have been introduced in the local accounting regulations, contain provisions related to: location of sustainability information (where it is presented), the content of the sustainability reporting, as well as other clarifications regarding the reporting process, exemptions from reporting sustainability information, reporting on entities from third countries, sustainability reporting standards, responsibility for preparing the sustainability report, publication of sustainability reporting etc.

In 2020 the BVB announced the launch of the first ESG-focused initiative on the Romanian capital markets, which aimed to provide high-level ESG insights for companies listed on the exchange. The goal of this initiative was to make available topline ESG research and ratings for most companies listed on the BVB by using the Sustainalytics’ flagship ESG Risk Ratings. The initiative also aimed to encourage local companies to align their business strategies with ESG practices, thus making them more attractive to local and foreign investors. Two years later, the BVB released its first environmental, social and governance (ESG) reporting guidelines for listed companies. The guidelines do not introduce additional reporting obligations; instead, they are designed for voluntary adoption by companies. They offer valuable insights into current regulatory advancements, established sustainability reporting standards and frameworks, as well as international benchmarks, serving as a beneficial resource for companies seeking to enhance their sustainability reporting practices.

The management of a company must prepare for each financial year, a report reflecting a correct presentation of the development and performance of the company's activities and its position, as well as a description of the main risks and uncertainties it faces. To the extent necessary to understand the development, performance or position of the company, the report may include financial and, where appropriate, non-financial key performance indicators relevant to the specific activities, including information on environmental and personnel issues.

Following entry into force of Order no. 85/2024, the management of certain companies (mostly large entities) should comply with certain sustainability reporting requirements and should include in the Report, information required to understand the company's impact on various sustainability aspects (e.g. environmental factors, social and human rights factors and governance factors, including sustainability factors) and information required to understand how such sustainability aspects affect the entity’s development, performance and position. More specifically, such Report may contain, inter alia:

• a short summary of the company's business model and strategy (e.g. the resilience of the business model and strategy in relation to the risks related to sustainability aspects, the opportunities in relation to sustainability aspects, plans, including implementation actions and related financial and investment plans, to ensure that the business model and strategy are compatible with the transition to a sustainable economy),
• a description of the sustainability policies and strategies and how they have been implemented, together with a description of the objectives set in this regard,
• a description of the role of the administrative, management and supervisory bodies in relation to sustainability aspects, as well as their specialist knowledge and competences to fulfill such role or access to such knowledge and competences,
• details on the existence of incentive systems regarding sustainability aspects made available to members of administrative, management and supervisory bodies,
• a description of the main risks for the company related to sustainability issues, including a description of the company's main dependencies on such issues, as well as how the company manages those risks, etc.

The management of the company will also have to involve the employees’ representatives and discuss with them the relevant information and the means of obtaining and verifying the information on sustainability.

Apart from the CSRD, the EU Sustainable Finance Disclosure Regulation (“SFDR”) came into effect, mandating greater transparency on sustainability-related disclosures for financial market participants and financial advisors. Directors are expected to ensure compliance with these regulations, including disclosing how sustainability risks are integrated into investment decision-making processes.

Furthermore, the EU has also passed the Shareholders’ Rights Directive II (2017/828/EU) (“SRD II”) on the encouragement of long-term shareholder engagement, which provides for the preparation of an ESG-oriented investment strategy and a policy of ESG-related commitments. The SRD II has also been implemented in Romania by several laws and regulations.

Under Romanian Companies’ Law, the rules concerning the management of companies differ depending on the type of company under discussion. This guide will focus on the rules concerning directors of joint stock companies (“Societate pe actiuni” or S.A.) and to limited liability companies (“Societate cu raspundere limitata” or S.R.L.), as these are the most common types of company in Romania. The guide does not address the rules relating to other forms of companies.

Romanian joint stock companies can opt for a one-tier management structure (which is generally more common) or a two-tier system. The one-tier system consists of a single director, or a board of directors whose number must always be odd. Joint stock companies subject to mandatory auditing requirements must have at least three directors.

The two-tier system in a joint stock company consists of a management board and a separate supervisory board:

• the management board, which is also the executive body, carries out the management of the company on a day-to-day basis and represents the company in relation to third parties and in front of official bodies, and
• the supervisory board mainly supervises the company’s activities, including those of the management board, and appoints members of the management board.

Members of the supervisory board may not simultaneously be members of the management board or employees of the company.

A Romanian limited liability company is managed by one or more directors, who can also be shareholders of the company. The articles of association of a limited liability company must include provisions with respect to the appointment of directors, the powers granted to them and the manner of exercising these powers (whether jointly or individually).

The distinction between executive and non-executive directors is more relevant for joint stock companies. In principle, directors of limited liability companies are executive directors with full representation powers (unless such powers are limited through the articles of association).

The board of directors of a joint stock company can include both executive and non-executive directors. Should the board of directors delegate management powers to a general manager, the majority of members in the board of directors must be non-executive directors. Under Romanian law, a non-executive director does not have day-to-day management responsibilities nor any representational powers in relation to third parties. His/her responsibilities are mainly to supervise the activity of the general manager(s).

Moreover, in the case of a two-tier management system, the supervisory board generally has no managing powers, but the articles of association may provide that certain matters require the prior consent of the supervisory board.

For joint stock companies, generally both individuals and legal entities may be appointed as directors or  members of the supervisory board. However, a legal entity must designate an individual as its permanent representative. In general, the same conditions and obligations as well as similar civil and criminal liability, apply both to legal entities or individuals appointed as directors.

There are no citizenship, residency or work permit requirements for directors or for members of management or supervisory boards. However, certain restrictions are placed on who can become a director. For example, restrictions are placed on persons who have been legally declared incapable or who have been convicted of crimes of corruption, forgery, embezzlement, tax evasion and other crimes prescribed by the law (e.g. the AML legislation).

Also, it is important to note that:

• if the directors of a joint stock company are appointed from among the company’s employees, their employment agreement must be suspended for the term of their mandate as directors, and
• an individual can be a director and/or a member of the supervisory board of no more than five other joint stock companies headquartered in Romania. This prohibition does not apply where the director holds 25% of the shares of the company or acts as a member of the board of directors or a member of the supervisory board of the joint stock company owning 25% of the said shares. This restriction also applies in the case of representatives of the directors/members of the supervisory board’s legal person.

There are no residency or nationality requirements for directors of a limited liability company.

For joint stock companies with one-tier management systems, directors are appointed at an ordinary general meeting of shareholders. The first directors are nominated in the articles of association of the company and their mandate cannot exceed 2 years. The mandate of subsequent directors cannot exceed 4 years. The directors may be re-elected, unless the articles of association do not allow this.

The Trade Registry Office must be notified of any new appointments and resignations of managers or directors, and these must also be published in the Romanian Official Gazette.

In the case of a two-tier system, members of the management board are appointed by the supervisory board for a term set by the articles of association of the company, but their mandate may not exceed a period of 4 years.

Members of the supervisory board are appointed at the general meeting of shareholders, but the initial members are appointed through the articles of association of the company and their mandate cannot exceed 2  years. The number of members on the supervisory board is also established in the articles of association and must be between three and eleven.

Directors of limited liability companies are appointed by the general meeting of shareholders or through the articles of association. The vote representing the absolute majority of the share capital and number of shareholders shall be required to appoint one or more directors (from among themselves or third parties), determining the extent of their powers, the term of their mandate and their remuneration (if applicable), unless the articles of association provide otherwise. Pursuant to the Romanian Trade Registry’s practice, directors of limited liability companies must be appointed for a determined (limited) period of time.

Directors may resign at any time by giving notice to the company. They do not need to give a reason for their resignation. If a there is a sole director managing the company, he/she must immediately convene a general meeting of shareholders upon his/her resignation.

In principle, directors may be removed at any time by a decision of a general meeting of shareholders. Under Romanian law, directors removed without cause are entitled to claim damages.

In joint stock companies with a two-tier system, members of the management board may be removed at any time by the supervisory board, unless the articles of association provide that they are revoked by a decision of a general meeting of shareholders. Members of the supervisory board may be removed at any time by a decision of a general meeting of shareholders taken with a majority of at least two thirds of the votes of those shareholders present at the meeting.

In the case of a limited liability company, a director can be removed at any time by a decision of a general meeting of shareholders taken with the vote representing the absolute majority of the share capital and number of shareholders, unless the articles of association provide otherwise.

Generally, directors are authorised to perform all acts necessary and useful for the conduct of the company’s business, other than those acts requiring the approval of shareholders at a general meeting. These acts are  found in the articles of association of the company or are expressly provided for by Romanian law.

Directors with powers to represent the company cannot subdelegate such powers unless they are expressly authorised to do so. Failure to observe this may result in the company claiming any ensuing benefits from the person to whom the director delegated his/her authority. Liability in such cases is joint with the person to whom  the director delegated his/her authority.

The names empowered to represent the company must be filed with the Trade Registry Office by the board of directors.

In the case of a limited liability company, generally, and unless otherwise provided in the articles of association, the power to represent the company is granted to each director appointed in the company. The articles of association may include limitations to such powers or may include the four eyes principle which would require  double signature for certain operations.

For joint stock companies, the directors or, in the case of a two-tier system, the management board, acting in the name and on behalf of the company, can only acquire, alienate, lease, exchange or grant security over assets relating to the company, with a value exceeding half of the book value of the company’s assets on the date of entering into such act, with the prior approval of an extraordinary general meeting of shareholders.

In a one-tier system, the board of directors represents the company in relation to third parties and in court. In the absence of a different provision in the articles of association, the board of directors represents the company through its chairman. Furthermore, the articles of association may appoint the chairman and one or several directors to represent the company, acting jointly or individually.

The board of directors may also delegate the management of the company to one or several managers, appointing one of them as a general manager. In the case of joint stock companies which are subject to mandatory financial audits, it is compulsory to delegate the management of the company to a manager(s). If the board of directors delegates the management of the joint stock company to managers, the power to represent the company will be in the hands of the general manager.

In a two-tier system, the management board is authorised to represent the company in relation to third parties and in court. Unless otherwise provided in the articles of association, members of the management board may only represent the company jointly. In such case members of the management board can authorise one of them to perform certain operations or certain types of operations by unanimous consent. The supervisory board represents the company in relation to the members of the management board.

For a joint stock company, the organisation and working rules of the board of directors, management board and supervisory board are usually set out by the articles of association of the company and by the applicable provisions of the Company Law. The board of directors must appoint a chairman from among its members. The  articles of association may provide for the chairman to be nominated and approved by a decision of the ordinary general meeting of shareholders. The board of directors may also set up consulting committees of at least two members, who advise the board in respect of matters such as audit, remuneration of staff or nomination of candidates for various managerial positions.

In terms of quorum requirements, the resolutions of the board of directors (in a one-tier system), management board or supervisory board (in a two-tier system) require the presence of at least half of the number of members  of each of these bodies to be valid, unless the articles of association provide a higher number. The decisions of the board of directors, the management board or the supervisory board are taken by a simple majority of the votes of the members present at the meeting, unless otherwise provided in the articles of association of the company. Decisions regarding the appointment and revocation of the chairmen of such bodies are taken by the vote of the majority of the board’s members. Members may only be represented by other members. A member present at the meeting can only represent one absent member.

Unless otherwise provided in the articles of association, the chairman of the board of directors or of the supervisory board has a casting vote in the case of deadlock. This does not apply if the chairman of the board of directors also acts as a manager.

If the current chairman of the board of directors, management board or supervisory board cannot vote or is barred from voting within the relevant body, the other members may elect a chairman who will have the same rights as the current chairman. In the case of deadlock, and if the chairman does not have a casting vote, the motion is considered denied.

The articles of association of a company may also approve participation at board meetings by means of electronic communication. Also, the articles of association can limit decisions to be taken in such situations and can also provide for a right to object to the manner of holding the meeting in favour of a certain number of members of the relevant body.

In the case of a limited liability company, if the articles of association provide that the directors must work together, the relevant decisions must be taken with the unanimous vote of the directors. In the case of deadlock, the shareholders representing the absolute majority of the share capital (50% plus 1) will decide.

In the case of a joint stock company, the legal relationship between directors and the company is regarded as a commercial mandate. Throughout the term of the mandate, directors of joint stock companies cannot enter into employment agreements with the company. Directors may therefore be retained on the basis of management or  mandate agreements, specifying their duties and remuneration/benefits, and including, inter alia, confidentiality and non-compete provisions.

The remuneration of board members and, in the case of a two-tier system, of supervisory board members, may be set by the general meeting of shareholders or through the articles of association.

In the case of a limited liability company, directors may be retained on the basis of management agreements/mandate agreements, or of employment agreements. Romanian law provides that a sole shareholder can be an employee of the limited liability company of which he/she is the sole shareholder. Generally, in practice, management agreements are more common for management positions as they offer more flexibility than employment agreements (e.g. termination provisions, non-compete clauses, etc.).

The directors of a joint stock company must exercise their mandate with loyalty and in the interests of the company.

Any director who has a conflict of interest relating to a transaction must inform the board of directors and the auditors of such a conflict and abstain from voting in respect of that transaction. The same obligations apply in cases where the conflict of interest relates to the director’s relatives or affiliates. Failure to observe this obligation may render the director liable to compensate the company for any damage sustained by the company as a result of such failure.

A director may enter into transactions with the company for his/her own benefit, subject to such transactions receiving prior approval from the shareholders at an extraordinary meeting, if the value exceeds 10% of the net assets of the company.

Managers of joint stock companies (in a one-tier system), as well as members of the management board (in a two-tier system), cannot hold the position of managers directors, members of the management board or supervisory board, censors or internal auditors or shareholders in other competing companies or companies with the same object of activity, nor can they carry out the same trade or competing trade without prior approval from the board of directors or supervisory board, respectively. Moreover, a person can be a director/member of the supervisory board in no more than five Romanian joint stock companies.

Similarly, directors of limited liability companies are not allowed to act as directors in competing companies or companies having the same object of activity, nor may they carry out the same trade or competing trade on their own behalf or on behalf of another natural or legal person, without the prior approval of the general meeting of shareholders, otherwise they may be dismissed and/or be liable for damages.

The duties of directors of a joint stock company vary depending on which governance system is adopted:

• in a one-tier system, members of the board of directors are entrusted with the fulfilment of all acts necessary and useful for the conduct of business activities of the company including: (i) the establishment of accounting policies and financial control systems; (ii) the supervision of managerial activities; and (iii) the drawing up of an annual report. The shareholders at a general meeting may also delegate certain actions to members of the board of directors, such as changing the headquarters of the company and increasing its share capital. (In this case, for a period of maximum 5 years, the board of directors/management board is authorised to increase the subscribed share capital of the company up to a specific nominal value, by issuing new shares, provided that the nominal value of the share capital does not exceed half of the subscribed share capital of the company as at the date the authorisation is granted.)
• in a two-tier system, the management board has executive powers, while the supervisory board has only a supervisory role.

The directors of a limited liability company are entrusted with taking all measures or acts necessary for the conduct of the business activities of the company, except for matters reserved by law or by the articles of association to the general meeting of shareholders.

The main responsibilities of a director of a limited liability company include organising the general meetings of shareholders and implementing the resolutions adopted at these meetings, drawing up a shareholders’ register, keeping the accounting records and financial statements of the company and participating in all of the company’s internal meetings.

The legal representatives of a Romanian company must submit a statement on own their responsibility in order to identify the UBO of the company, according to the AML legislation.

The directors are held responsible directly to the company for the non-fulfilment of their obligations that derive from the articles of association of the company, the decisions of a general meeting of shareholders or the law. Under Romanian law, directors are jointly liable to the company for any breach of their obligations.

An action for damages may be brought by the general meeting of shareholders, with a majority required either by the articles of association or by law.

Under Romanian Law, if the directors find that, following losses established by the annual financial statements, the value of the net assets of a joint stock company has decreased to less than half of the value of the subscribed share capital, they should immediately convene an extraordinary general meeting of shareholders to decide whether the company should be dissolved or on how to remedy the situation.

The articles of association may establish that the extraordinary general meeting of shareholders be convened even in the case of a decrease in net assets less significant than the one provided by law, establishing the minimum level of net assets in relation to the subscribed share capital. The directors shall present to the extraordinary general meeting of shareholders a report on the financial situation of the company, accompanied by observations of the auditors. This report must be submitted at the company’s registered office at least 1 week before the date of the meeting in order to be consulted by any interested shareholder.

Also, if a company is threatened with insolvency, directors will need to give increased attention to the interests of creditors. In particular, once directors know (or ought to know) that the company is likely to become insolvent, they must consider the interests of the creditors as paramount and take those interests into account when carrying out their duties to the company. The liquidator of an insolvent company has the power to review the conduct of the directors in the period leading up to the insolvency.

Directors are liable towards the company for the non-fulfilment of their obligations which are set forth in the articles of association of the company, the decisions of a general meeting of shareholders or by law.

Under Romanian law, directors are jointly liable to the company for any breach of obligations relating to: the contributions made by shareholders, the actual existence of paid dividends, the accuracy and existence of the company’s registers, the strict implementation of resolutions of the general meetings of shareholders, and the strict fulfilment of the duties imposed on them by law and by the articles of association of the company.

Directors’ liability may also be triggered by creditors of the company (subject to the opening of insolvency proceedings) or by any third parties who incur a loss as a result of their unlawful actions. As directors act on behalf of the company, personal liability towards third parties may be triggered only if they act beyond the scope of their powers. Directors are also subject to criminal liability under Romanian company law. A director’s liability for intentional wrongdoings vis à vis third parties may not be limited by the company.

Romanian company law does not contain specific provisions permitting the limitation of a director’s liability. However, general principles of law restrict agreements limiting the liability of a debtor to cases when the debtor to cases when the debtor acted negligently or imprudently and not with intentional wrongdoing.