In 1990, Romania introduced new corporate legislation governing the set up, management and liquidation of a various range of legal entities through which business may be carried out. These include private and public companies, limited and unlimited partnerships, branches and representative offices. The main legislation governing private companies is the Company Law of 1990 and the Trade Registry Law of 1990, as subsequently amended. In respect of some of the structures more detailed regulations are set out in laws governing particular types of structure. For example this is a Law Decree regarding representative offices. There is also specific legislation for obtaining operating authorisations for a company (environmental authorisation, labour permit, fire permit, sanitary authorisation).
The corporate structures most commonly used or encountered by foreign investors are the limited liability company, the stock joint company and the representative office.
Limited Liability Company ("Societate cu raspundere limitata")
Status
Out of the types of companies available under Romanian law, the setting up of a Romanian company as a limited liability company is the most common and straight forward, as it requires less formality for its incorporation and for its functioning than a joint stock company. In addition, only a limited liability company may be owned by a sole shareholder (either a natural person or a legal entity). It is the simplest form of Romanian company and for that reason is often used for wholly owned subsidiaries of foreign investors and generally makes it the first choice for a foreign company entering the Romanian market. A limited liability company is designated by the letters "SRL" after its name and it is similar in concept to a German GmbH.
The most significant difference between a limited liability company and a joint-stock company is that a limited liability company does not issue shares. The share capital is instead divided into "participation" units ("parti sociale"). Unlike shares issued by a joint stock company, these participation units are not considered to be securities. A limited liability company cannot be listed on a stock exchange and it cannot issue bonds.
The minimum share capital of a limited liability company is ROL 2,000,000 (the equivalent of approx. 50 Eur as of January 2004). Contributions can be made in cash or in kind and have to be paid in full. The liability of participants in the company for the debts and obligations of the company is, as a general principle, limited to the amount of their respective contributions.
A limited liability company may be wholly owned by another business entity provided that that entity, is not itself a company wholly owned by a legal entity or individual. A Romanian limited liability company can have a minimum of one shareholder and a maximum of fifty. If the number of participants in the company exceeds fifty then, if the number of participants is not reduced, the company is obliged to re-register as a joint stock company or to dissolve itself.
Management
The management structure of a limited liability company is relatively straightforward and consists of the general meeting of shareholders and one or more administrators (forming the board of administration). Usually, the sole administrator or one of the administrators is the general director of the company and takes all decisions regarding the activity of the company, within the limits given by the general meeting of shareholders.
A shareholder in an SRL will receive the number of votes which is proportional to its holding of participation units.
Transfer of participation units
Participation units are freely transferable to other shareholders of the SRL. They can also be transferred to third parties subject to approval by a general meeting of shareholders passed by a three quarters majority.
Right to withdraw
Every shareholder of a limited liability company has a right to withdraw from the company under the conditions expressly stipulated in the company's charter or with the consent of all the other shareholders. If the shareholder wants to withdraw for other reasons than those stipulated or the consent of the other shareholders is not obtained, a court decision may be obtained to grant the shareholder the right to withdraw, if such shareholder has a good reason for doing so.
Joint Stock Companies ("Societate pe actiuni")
Status
The establishment of a joint stock company is also governed by the Company Law, 1990, as amended. A joint stock company is designated by the letters "SA" after its name. The legal provisions regulating this form of company are more detailed and clear than in the case of a limited liability company. The share capital of a joint stock company is divided into shares that can be regulated or bearer shares. Only joint stock companies can issue shares and can be listed on a stock market, in compliance with specific regulations (Government Ordinance no. 28/2002, as amended).
A minimum of 5 shareholders are needed to establish a joint stock company and a minimum share capital of ROL 25,000,000 (the equivalent of approx. 600 Eur as of January 2004). The contributions can be made in cash, in kind or in liabilities.
Management
The management structure of a joint stock company consists of three bodies - the general meeting of shareholders, the board of administrators (or a sole administrator) and the executive body.
The general meeting of the shareholders is the supreme corporate body of a joint stock company and is required to be held annually. Extraordinary meetings may be called by the board of administrators on its own initiative or on the initiative of the auditing body, the independent auditor or the holder(s) of more than 10% of voting shares. The Company Law provides for certain decisions which are within the authority of the general meeting of the shareholders and which may not be delegated to any other management body within the company.
The board of administrators is responsible for the general management of the company and has authority to decide on almost any issue except those reserved for the general meeting of the shareholders. Administrators are elected by the general meeting of the shareholders for one year and may be re-elected any number of times.
The executive body of a joint stock company may consist of one person, the General Director, or of a General Director and a group of persons acting as a collective executive body. The executive body is responsible for day-to-day management of the company. The executive body of the joint stock company is elected by the board of administrators.
Issue and Transfer of shares
In a joint stock company, the existing shareholders have pre-emption rights to subscribe for any new shares, under conditions which have to be stipulated in the Company's charter. The general meeting of shareholders can waive the pre-emption right of shareholders in certain situations.
Title to shares in a joint stock company is determined by reference to the register of shareholders which all joint stock companies are required to maintain. Share transfers take effect on entry into the register and the shareholders entitled to participate in shareholders meetings are determined from that register. The register may be kept by the company itself or by an independent registry company duly licensed. The stock companies listed on the stock exchange market have to keep their share registers in accordance with the specific regulations governing listed companies.
Representative Office
Status
A representative office is not a separate legal entity but an office of the parent entity that is set up in Romania to represent the interests of that parent. Although a representative office may in practice conduct business in Romania and may be treated by the tax authorities as a separate profit centre from its parent company, the fact that as a matter of civil law, a representative office does not have its own separate legal identity limits the types of business for which a representative office may be useful. For example, a representative office may not import goods for purposes other than its own needs, nor may it register title to immovable property in its own name. A representative office may also experience difficulties in obtaining licenses and permits to conduct certain types of business.
A representative office may however, carry out representative functions on behalf of its parent, including arranging marketing and advertising in Romania, negotiating the terms and conditions of agreements on behalf of the parent entity and facilitating the execution of those agreements by the parent company. It may also help in other commercial and legal transactions between the parent and Romanian organisations, including the rental of property.
Liability
As a representative office is merely an extension of its parent, the parent remains responsible for the debts and liabilities of the representative office.
Management
A representative office is managed by the "Head of the Representative Office", who is empowered to conduct the business of the office, and so to represent the foreign parent company, by way of power of attorney. Since the foreign parent company is fully liable for the debts and obligations of the representative office, some consideration should be given to the management of the office and any internal controls that may be appropriate to mitigate the exposure of the parent company.
Setting up a representative office is often a first step that foreign companies take when entering the Romanian market and may be used for certain service industries on an on-going basis. However, the representative office may not engage in any trading activities of its own and it is not authorised to conclude contracts. For companies in many other business sectors, however, a representative office is not, on its own, sufficient although it may form part of a larger structure involving one or more corporate entities.
Other Entities
The Company law provides for a range of other entities including branches and simple partnerships which are not legal entities. There are also non-commercial organizations that may be used for charities, trade associations or other non-profit organizations.
Establishing a presence
Having decided the type of legal presence to be established in Romania, the next step is to register the presence with the relevant authorities. The registration procedure and the documents required for registration are very similar for a limited liability company and a joint-stock company. Registration procedures for a representative office are different.
The registration procedure has been simplified recently, especially in respect of obtaining operating authorisations which are compulsory for all types of company at incorporation.
Registration Authorities
Companies
In accordance with the Company Law and the Trade Registry Law, all companies and the majority of other forms of partnerships are registered with the Trade Registry, which is the sole authority for the registration of the application and which will issue the incorporation certificate, the operating authorisations and the sole registration code that represent the identification data of each company.
The Trade Registry Law establishes a uniform procedure for the registration of legal entities regardless of their organisational and legal form and the kinds of economic activities pursued by them.
Representative Offices
The accreditation of a representative office requires a permit to be obtained from the Ministry of Economy and Trade and such permit has to be endorsed by the Ministry of Public Finance (through its regional departments). Once registered, the representative office must apply itself for the operating authorisations (environmental authorisation, labour permit, fire permit, sanitary authorisation) and so on from each competent authority, which is a more time consuming process than that for companies.
Registration Procedure
In order to incorporate a new company, a file containing all the required documents has to be submitted to the appropriate Trade Registry covering the area where the company is to have its headquarters. The procedure is a judicial one, as all incorporation files and all amendments to constitutive documents of a company have to be approved by a delegated judge at the Trade Registry.
The registration of legal entities should be made within 10 to 20 working days of the submission of the file containing all required documents to the local branch of the Trade Registry. A legal entity is deemed to be registered as soon as the delegated judge gives his decision approving it.
The Trade Registry Law provides that the relevant documents can be submitted personally by the applicant or by its authorised representative. The registration body is obliged to issue a receipt to the applicant. A clerk verifies the file and may refuse to proceed with the registration if there are documents missing. Although the Law sets out the documents which need to be submitted, the Trade Registry clerks are entitled to request additional documents, which often results in delays in registration.
All other authorities are informed of the registration of a legal entity by the Trade Registry and not by the applicant.
Registration Documents for Companies
The Trade Registry Law requires the following documents for the incorporation of a Romanian company:
- the constitutional document approved by the shareholders;
- the proof of payment of share capital or quota (as applicable) by each shareholder;
- the title to the premises to be used for the headquarters of the company;
- technical documentation required for the operational authorisations;
- stamp duties and fees for Trade Registry registration;
- statements from shareholders, administrators and internal auditors.
If one of the founders of the new company is a foreign legal entity, it will also be required to submit an extract from its trade register confirming its legal status, a letter of good standing and a power of attorney. Documents prepared in a foreign jurisdiction must be notarised and apostilled if originating from a country that is a member of the Hague Convention, or, if from any other country, the documents must be legalised. The procedure for obtaining an apostille varies from country to country and an investor should check with a locally qualified notary or the requisite government office to determine how and where to obtain an apostille.
The Trade Registry may require additional documents to those stipulated by law.
Registration Documents for Representative Offices
The following documents are the principal areas needed in order to register a representative office:
- formal application;
- copy of constitutive document of the foreign company;
- excerpt from the relevant registration authority evidencing the incorporation of the foreign company;
- original bank letter of guarantee;
- power of attorney for the person appointed to be the head of the representative office in Romania;
- copy of title over the premises for the headquarters;
- payment of the annual fee for first year (USD 1,200 in 2003).
The registration authorities apply strict rules both as to the form and content of these documents and also as to the manner of their execution. Incorporation certificates and articles of association must be filed as notarised copies with an apostille affixed.
All documents must be in Romanian or have a certified translation into Romanian attached to them before the documents are submitted to the registration authorities.
