Company Formation in Romania: discover what only the top, expert lawyer in Romania know about company formation in romania
The types of companies commonly used in Romania are joint stock companies (SA’s) and limited liability companies (SRL’s). There are certain relevant differences, mainly with respect to the limitations / restrictions regarding share transfers, shareholders rights and opposability of corporate acts in an SRL as opposed to an SA. The decision to establish the company as an SA or SRL should be taken by considering all the relevant differences between the two types of companies.
It is recommended that the name of the company shall not include a word for which prior approval of the General Secretariat of the Romanian Government is required (e.g. “Romania”).
Apart from the lawyers assisting on the company incorporation, you should ensure that a tax consultant or an accountant is involved in the process from an early stage, in order to advise on the best tax registration option for the company and to prepare the tax statement for the company registration, as well as to advice on the VAT registration process.
Which type of company?
In our view, using an SA seems more appropriate than an SRL in implementing a structure of association in which the partners might have opposite interests and the majority shareholder wishes to exercise the control of the relevant decisions and to be able to easily transfer its participation to third parties. Also, an SA might work better for the implementation of the relevant provisions of an association agreement, due to flexibility of share transfers, minority shareholders rights, the various way of structuring the management, and the decision taken rules in an SA. However, the more onerous corporate governance rules in an SA should also be considered.
The legal form of the company which ensures the highest comfort for the shareholders and which is appropriate for the type of association between the shareholders and the business activity of the company should be assessed on a case by case basis.
Potential issues between shareholders in a Romanian company and ways to mitigate
When there are several shareholders in a Romanian company, issues between shareholders can often arise during the existence of the company, depending on the shareholding structure, the rules for taking decisions by the shareholders as well as on how particular situations are regulated in the articles of association of the company.
In order to mitigate the potential issues, the shareholders should discuss and agree, prior to incorporation of the company, apart from commercial matters, certain important legal elements of their association, such as:
- the structure of the association
- which legal form of company ensures the greatest flexibility for each party
- which party shall have control with respect to the strategic decisions to be taken on behalf of the company and which party shall have the operational control
- what are the relevant documents recommended to be put in place in order to implement the chosen structure of the association and which are the key legal aspects that should be addressed by each document
- what is the legal mechanism in case one party decides to sell their participation in future to a third party, or in case a shareholder does not fulfill its obligations.
Typically, partners incorporating a company in order to start a new business will regulate the terms of their association under a shareholders’ agreement.
However the practice of joint ventures is not as developed in Romania as in many western countries, and therefore most of the specific terms typically included in various types of association agreements have not been tested in the Romanian courts.
Therefore in case of a dispute the level of predictability in Court is not as high as in other countries with a tradition of joint ventures. Such can be mitigated by transposing the relevant terms of association in the typical Romanian company documents regulated by Romanian Company law, e.g. articles of association of the company.