Corporate Law in Romania – An Overview

Navigating the Romanian business landscape requires a keen understanding of its corporate law, which serves as the foundation for every commercial venture within the country’s borders. As of the current legislation, Romanian corporate law governs the establishment, management, and dissolution of companies, laying down the rules and regulations that businesses must abide by to thrive in this dynamic market.

The main relevant legal acts in the field of Romanian company law are Law no. 31/1990 on companies, Law no. 265/2022 on the Trade Register, as well as some provisions of the 2009 Civil Code. These acts cover a wide range of aspects related to companies, including the types of companies, company management and governance, share capital and shares, auditing and financial requirements, modifications of an existing company, the procedures of dissolution and liquidation.

For an overview, in the following we will go through all the stages of setting up, operating and dissolving a company under Romanian law.

1. Legal forms of companies in Romania

As a rule, for the purpose of carrying out profit-oriented activities, natural or legal persons may associate and set up companies with legal personality, in compliance with the provisions of the law. 

According to the Companies Act, a company may take any of the following five forms provided by law: general partnership, limited partnership, partnership limited by shares, limited liability company and joint-stock company. But for a simpler approach these can be divided into three main categories, as it follows:

A) Partnerships (societățile de persoane) may opt for any of the following forms of organization recognized by law:

A.1. General Partnership (societate în nume colectiv, SNC): An SNC is formed by two or more individuals or legal entities who come together to carry on a business with a common purpose. One significant characteristic of an SNC is that all partners have joint and several liability for the partnership’s debts and obligations. This means that each partner is personally and fully responsible for the partnership’s debts, and creditors can pursue any partner individually to satisfy the partnership’s liabilities. In an SNC, all partners actively participate in the management and decision-making of the business, unless otherwise stipulated in the partnership agreement. Decisions are generally made on a consensus basis.

A.2. A more evolved form of the a company is the Limited Partnership (societate în comandită simplă, SCS), which combines elements of a general partnership (with at least one general partner) and elements of a limited liability partnership (with at least one limited partner). The Limited Partnership is a business structure where two or more individuals or entities come together to form a partnership to conduct business. This type of partnership has two distinct categories of partners:

  • General Partners: These partners are fully liable for the debts and obligations of the partnership. They also have the authority to manage the business and make decisions on behalf of the partnership.
 
  • Limited Partners: These partners, on the other hand, have limited liability, meaning their liability is restricted to the amount of capital they have contributed to the partnership. Limited partners are not involved in the day-to-day management of the business and usually play a more passive role.
 
A.3. Partnership Limited By Shares. An even more complex form of the abovementioned Limited Partnership is the Partnership Limited By Shares (societate în comandită pe acțiuni, SCA): Although the limited partnership limited by shares is not a common business structure in Romania, it is a legal form an enterprise the combines features of both a limited partnership and the joint-stock company. A SCA must have at least two types of partners: 
 
  • general partners: these partners have unlimited liability for the company’s debts and obligations and are actively involved in managing the business;
 
  • limited partners: these partners have limited liability, restricted to the value of their contributed shares. They are not actively involved in the management of the company.
 

The conditions for setting up an SCA are identical to those for setting up a joint-stock company.

B) Limited Liability Company (societate cu răspundere limitată, SRL): An SRL is a legal form of business organization commonly chosen by entrepreneurs in Romania. The SRL is a type of private company with limited liability for its shareholders, which means the shareholders’ liability is restricted to the amount they have invested in the company’s capital. It is essential that the association in an LLC is made with particular regard to the person of the other associates, based on cooperation and mutual trust between them. 

In Romania, an SRL typically requires at least one shareholder and can have up to 50 shareholders. It is the most common type of company due to the following reasons: 

  • limited liability of shareholders;

  • ease of formation: the registration process is streamlined, and the required share capital is relatively low, making it accessible to a wide range of entrepreneurs;

  • flexibility: the shareholders can easily adapt the company’s structure to suit their specific business needs and goals. This flexibility allows for efficient decision-making and can be especially beneficial for small and medium-sized businesses.

 

In addition to these forms of company, there are other forms of commercial enterprise in the special laws, such as the authorised natural person (PFA), the individual enterprise (IE), the family enterprise (FI) or the civil (professional) partnership [societatea civilă (profesională)].

C) Joint-Stock Company. In Romania, the joint-stock company (societate pe acțiuni, SA) is a complex type of business entity characterized by its share capital, divided into shares, which are held by shareholders or stockholders. The shareholders’ liability is limited to the value of the shares they own, which means their personal assets are not at risk for the company’s debts and obligations beyond the value of their shares. Som of the key features of a joint-stock company are:

  • share capital: a minimum share capital of 90.000 RON (around 18.000 EUR) is required to establish a joint-stock company. The share capital is divided into shares, and shareholders are required to subscribe to and pay for these shares;

  • limited liability: shareholders’ liability is limited to the value of their subscribed shares. They are not personally responsible for the company’s debts and obligations beyond their contributions;

  • transferability of shares: shares in a joint-stock company are typically freely transferable, subject to any restrictions outlined in the company’s articles of incorporation or by laws;

  • shareholders’ meeting: major decisions affecting the company require approval from the shareholders during a shareholders’ meeting (AGA, Adunarea Generală a Acționarilor);

  • public offering and transfer of shares: in some cases, joint-stock companies may be listed on a stock exchange and offer their shares to the public for trading.

 

To establish a joint-stock company in Romania, specific legal procedures must be followed, including the drafting of articles of incorporation, registration with the Trade Register, and obtaining any required licenses or authorizations.

2. Establishment of companies

According to the legislation in force, general partnerships (SNC), limited partnerships (SCS) are set up by a partnership agreement, while joint-stock companies (SA), limited partnerships (SCA) and limited liability companies (SRL) are set up by a partnership agreement and articles of association. As an exception to this rule, the single-member limited liability company (SRL) is set up only by drawing up the articles of association. The partnership agreement and the articles of association are referred to as „founding act” or „articles of incorporation” (act constitutiv).

The founding act of a company must include:

  • the identification data of the partners; in the case of a limited partnership, the limited partners shall also be indicated;

  • the form, name and registered office;

  • the object of the company’s activity, specifying the main field and activity;

  • the subscribed share capital, stating the contribution of each partner, whether in cash or in kind, the value of the contribution in kind and the method of valuation; in the case of limited liability companies, the number and nominal value of the shares and the number of shares allotted to each partner for his contribution;

  • the method of adopting resolutions of the general meeting of members, with all members voting, if, because of the parity of the share capital, an absolute majority cannot be established;

  • the members who represent and manage the company or the non-associated directors, their identification data, their term of office, the powers conferred on them and whether they are to exercise them jointly or separately;

  • in the case of limited liability companies, if auditors or financial auditors are appointed, the identification details of the first auditors or financial auditors respectively;

  • each member’s share of profits and losses;

  • where applicable, where required by law, the identification details of the beneficial owners and the manner in which control of the company is exercised.
 

The founding act may also include:

  • the secondary offices – branches, agencies, representative offices or other such establishments without legal personality – where they are set up at the same time as the company, or the conditions for their subsequent establishment if such establishment is contemplated;

  • the duration of the company;

  • the manner of winding up and liquidation of the company; the arrangements for meeting liabilities or settling them in agreement with creditors in the event of dissolution without liquidation, where the members agree on the distribution and liquidation of the company’s assets.

3. Functioning of the company

3.1. Shareholders’ Meetings

Under Romanian corporate law, there are two main types of general meetings of shareholders:

a) Ordinary General Meeting (adunarea generală ordinară): The Ordinary General Meeting is held annually and must take place within six months from the end of the company’s financial year. It serves as a forum to address regular business matters and to ensure the proper functioning of the company.

b) Extraordinary General Meeting (adunarea generală extraordinară): The Extraordinary General Meeting is convened whenever there are specific matters that require the approval or decision of the shareholders, beyond the regular business matters addressed in the Ordinary General Meeting.

Both types of general meetings are vital in ensuring corporate governance and providing shareholders with a platform to participate in decision-making processes. The notice period, quorum requirements, voting procedures, and other rules regarding the convening and conduct of these meetings are prescribed by Romanian company law and the company’s articles of association.

The general meeting of members shall be convened by the administrator at least once a year. It may also be requested by a number of members who together hold at least one quarter of the share capital, provided they state the purpose of the meeting. A general meeting of the members shall be convened by the administrator at least once a year. The convocation may also be requested by a number of members who together hold at least one quarter of the share capital, with the obligation to state the purpose of the convocation. The actual convocation shall be effected as a rule by registered letter at least 10 days before the day fixed for the general meeting, indicating the agenda, or by the method laid down in the articles of association. … 

For the general meeting to be valid, members holding together at least one quarter of the share capital must be present. If this quorum is not met at the first convocation, the meeting shall meet at a second convocation, irrespective of the proportion of the share capital held by those present.

Resolutions of the general meeting of members are adopted:

  • unanimously, when it is a question of amending the articles of association of the limited liability company, because this is based on the common interest and mutual trust of the partners;

  • by a vote of the partners representing at least three quarters of the share capital when approving the transfer of shares to a third party outside the company;

  • the other decisions are adopted by absolute majority, i.e. the majority vote of the shareholders who together hold the majority of the share capital;

 

The articles of association may lay down higher quorum and majority requirements, the shareholders being free to regulate the legal relations between themselves and the operation of the company.

3.2. Company Management

In a Limited Liability Company (SRL) under Romanian law, the company’s management is typically handled by one or more administrators (also known as directors or managers). The administrators are appointed by the shareholders and are responsible for overseeing the day-to-day operations and decision-making of the company. The appointment of administrators is typically outlined in the company’s Articles of Association. The decision regarding the number of administrators and their appointment is made during the General Meeting of Shareholders. The administrator of a legal entity can be another legal entity as well. The administrator’s role can be described by the following duties and responsibilities:

  • managing and representing the company: the administrators’ powers are defined by the founding act and may include tasks related to financial management, contractual agreements, strategic decision-making, and other operational matters;

  • powers and liabilities: administrators have a fiduciary duty to act in the best interests of the company and its shareholders. They are accountable for their actions and decisions and acting against the company’s interests can result in a legal liability before a court of law, in which case the administrator will bear the damage suffered by the company;

  • legal compliance: administrators are responsible for ensuring that the company adheres to all applicable laws, regulations, and legal requirements, especially tax laws, labor law and industry-specific regulations;

  • record-keeping and reporting: administrators are required to maintain accurate records of the company’s activities. This includes financial transactions, contracts, corporate governance documents, and other important records that may be needed for legal or regulatory purposes.

 

It is important to note that in the event of mismanagement or failure to fulfil the obligations laid down by law or the articles of association, the administrator may be held liable for the damage caused to the company. In current legislation there are two main cases of this kind:

  • the liability of the director under common law applies to damage caused by the directors or the company’s senior staff, if, with their care and supervision, such damage could have been avoided; the director is also liable for damage caused by his predecessor if he does not report his predecessor’s mismanagement;

  • order the administrator to bear all or part of the liabilities in insolvency proceedings if he abused his position in the company to the detriment of the company, failed to comply with the accounting rules or worsened the (already) precarious financial situation of the company.

 

A company may also opt for the introduction of a dual system of management (the management of the company is carried out by the management board, under the coordination of the supervisory board which has the exclusive right to decide on certain matters laid down in the articles of association), which is more common in joint-stock companies.

3.3. Shareholders’ Rights

Under Romanian law, shareholders in a company, including a Limited Liability Company (LLC), have a range of rights that are designed to protect their interests and ensure transparency and accountability in corporate governance. Here are some of the most important rights of shareholders in Romania:

  • right to vote in the general meetings: Shareholders have the right to cast their votes on various matters discussed during general meetings. Each share typically carries one vote, but the Articles of Association may specify otherwise, for example, a weighted vote proportional to the participation in the association; if the founding act specifies, the right to vote may be transferred a specific person, e.g., an attorney-at-law;

  • right to information: Shareholders are entitled to access relevant information about the company’s activities, financial position, and performance. This includes the right to review financial statements and balances, reports, and other corporate documents.

  • right to dividends/to participate in profits: the right to receive a share of the company’s profits in the form of dividends, provided that the company’s financial condition allows for it and it has been approved by the general meeting.

  • right to challenge corporate decisions: decisions made by the company that they believe to be in violation of legal or regulatory requirements in court of law, especially if the decisions the decision is contrary to the interests of the LLC/SRL;

  • the right to elect and remove administrators : they have the power to elect administrators (directors or managers) at the general meeting of shareholders to manage the company

4. Modification of companies

Modifying a company registered in Romania involves making changes to its structure, name, share capital, management, or other aspects that affect its legal status. The modification process can vary depending on the type of company (e.g., SRL, SA) and the specific changes required. Here are the general steps to modify a company registered in Romania:

  • Determine the Changes: Identify the modifications you want to make to the company. This could include changes to the company’s name, address, share capital, ownership structure, statutes, management, or other significant aspects.

  • Drafting Resolutions: Prepare the necessary resolutions outlining the proposed modifications. These resolutions should be approved by the company’s management, such as the Board of Directors or General Meeting of Shareholders, depending on the decision-making structure of the company.

  • Amend the Articles of Association (actul constitutiv): For substantial changes, you may need to amend the company’s Articles of Association (actul constitutiv). This document sets out the company’s fundamental details and rules. The amendments must be drafted and approved following legal requirements.

  • Shareholders’ Meeting: If the proposed changes require approval from the shareholders, convene a General Meeting of Shareholders (Adunarea Generală a Asociaților). Provide proper notice to the shareholders and present the proposed modifications for their approval through voting.

  • Registration: Some modifications may require specific legal procedures. Once the changes are approved, the updated documents must be registered with the relevant authorities. For instance, amendments to the Articles of Incorporation must be registered with the Trade Register (Registrul Comerțului) when they. Certain changes, especially those related to the company’s name, may need to be published in the Official Gazette (Monitorul Oficial) or other designated publications.

  • Obtain Necessary Permits and Licenses: If the modifications impact the company’s operations or activities, ensure that you obtain any necessary permits, licenses, or authorizations from the competent authorities.

  • Inform Stakeholders: Inform relevant stakeholders, including employees, suppliers, clients, and partners, about the modifications and any potential implications for their relationship with the company.

5. Withdrawal and exclusion of members

5.1. Withdrawal

In Romania, individuals may withdraw from a company or corporation under various circumstances, subject to the provisions in the company’s bylaws or shareholder agreements. The following are common situations where a person may choose to withdraw:

  • Amicable Withdrawal from the Company („Retragere amiabilă din societate”): This refers to the voluntary withdrawal of a shareholder from a company in a manner that is agreed upon and accepted by all parties involved, without the need for legal action or litigation. It typically involves negotiations and the drafting of an agreement that outlines the terms and conditions of the withdrawal;

  • Judicial Withdrawal from the Company („Retragerea judiciară din societate”): This refers to the process of a shareholder seeking to withdraw from a company through legal means, often because an agreement cannot be reached through negotiations or due to disputes. This could involve going to court to resolve the matter and obtain a judicial decision regarding the withdrawal;

  • Sell of shares and buyout: It is also possible to withdraw from the company by selling shares to other shareholders who buy them if this operation is approved by the general meeting of shareholders by a majority of three-quarters of the share capital.

5.2. Exclusion

A partner may be excluded from a general partnership (SNC), limited partnership (SCS) or limited liability company (SRL) or from a limited partnership limited by shares (SCA) if:

  • having been put in arrears, fails to make the contribution to which he has agreed;

  • a partner with unlimited liability who is bankrupt or has become legally incapable;

  • a member with unlimited liability who unlawfully interferes in the administration or contravenes the provisions of Articles 80 and 82;

  • a managing shareholder who commits fraud against the company or uses the company’s signature or share capital for his own benefit or for the benefit of others.

 

The exclusion of a partner from a company may be requested either by the company or by any of the partners and is decided by a court decision. If exclusion is requested by a partner, both the company and the partner concerned will be summoned to court.

Once exclusion has been ordered, the court will, by the same judgment, determine the structure of the shareholding of the other shareholders. The exclusion decision can be appealed, thus giving the possibility to challenge the decision of the court of first instance. Once a final decision has been obtained, it must be submitted within 15 days to the Trade Register Office for entry in the register and the operative part of the decision is published in the Official Gazette of Romania, Part IV, at the request of the company for opposability. This exclusion mechanism ensures the protection of the interests of the company and of the other shareholders against unfair or prejudicial behavior by a shareholder.

6. Dissolution and liquidation

6.1. Dissolution

The company is dissolved by:

  • the expiry of the time fixed for the duration of the company;
  • the impossibility of achieving the company’s object of activity or its realisation;
  • the nullity of the company;
  • a resolution of the general meeting;
  • a court ruling, at the request of any member, for good cause, such as serious misunderstandings between the members which prevent the company from functioning;
  • bankruptcy of the company;
  • other causes provided for by law or by the founding act of the company.

A commercial company may be dissolved before the expiry of the term fixed for its duration by the will of the members, expressed at the General Meeting.

According to the law, any partner may apply to the court for dissolution of the company for good cause. The law presumes that serious misunderstandings between the partners, which prevent the company from functioning, are grounds.

The court decision or the decision of the Shareholders’ Meeting on the dissolution of the company in Romania must be entered in the Commercial Register and published in the Official Gazette.

6.2. Liquidation of companies

The liquidation of a company in Romania is the process of winding up its affairs and distributing its assets to creditors and shareholders. The decision to liquidate a company may be voluntary, initiated by the company’s shareholders or management, or it may be involuntary, initiated by creditors or authorities due to insolvency or other legal reasons. The winding up of a company, following its dissolution, is mainly in the interests of the members and the creditors of that company. Once the distribution of the net assets among the shareholders has been completed, the liquidation of the company is completed. Here is an overview of the liquidation process under Romanian law:

  • Voluntary or Involuntary Liquidation: As mentioned earlier, liquidation can be either voluntary or involuntary. In voluntary liquidation, the decision to liquidate the company is made by the shareholders through a General Meeting. In involuntary liquidation, a court may order the liquidation due to insolvency or other legal grounds.

  • Appointment of Liquidator: In voluntary liquidation, the shareholders appoint a liquidator (administrator judiciar) responsible for overseeing the liquidation process. In involuntary liquidation, a court-appointed liquidator (Administrator judiciar sau Lichidator judiciar) takes charge of the process.

  • Notice to Creditors: Regardless of whether the liquidation is voluntary or involuntary, the liquidator must publish a notice in the Official Gazette (Monitorul Oficial) and in a national newspaper, informing creditors about the liquidation and setting a deadline for claims.

  • Inventory and Asset Valuation: The liquidator conducts a thorough inventory of the company’s assets and liabilities and assesses the value of those assets. The purpose is to determine the available resources for satisfying creditors’ claims and distributing any remaining funds to shareholders.

  • Settlement of Debts: The liquidator proceeds to settle the company’s debts with its creditors. Creditors’ claims are examined, and their validity is determined. Debts are paid in the order of priority established by law, starting with secured creditors and continuing with other categories of creditors.

  • Distribution of Assets: Once all the company’s debts have been settled, the liquidator distributes any remaining assets to the shareholders in proportion to their ownership shares or as prescribed in the company’s Articles of Incorporation.

  • Completion and Deregistration: After all assets have been distributed, the liquidation process is completed. The liquidator must file a final report with the Trade Register (Registrul Comerțului) and request the deletion of the company from the commercial register.

  • Termination of Legal Existence: Upon deregistration from the commercial register, the company ceases to exist legally. Its legal personality is terminated, and it no longer has the capacity to conduct business – so it is radiated from the Trade Register.

 

In Romania, a company may also be dissolved ex officio by the county court, at the request of the National Trade Register Office or any other interested person, if it can no longer operate or carry out any economic activity for a period of time prescribed by law.

In conclusion, Romanian Company Law forms the bedrock of the country’s business environment, offering a robust framework for company formation, operation, and dissolution. Compliance with this legislation is essential for business growth and safeguarding stakeholders’ interests.