types of romanian commercial companies
TRANSCRIPT
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Transilvania University of Brasov
Faculty of Economic Sciences
Business Administration
Project
Business Law
Consultant Teacher: Daj Alexis
Student:
Year I, 1st Group
- 2010 -
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Introduction
The general legal framework
Nature and types of Commercial Companies
1. General Partnership
2. Limited Partnership
3. Joint Stock Companies
4. Limited Partnership by Shares
5. Limited Liability Companies
Similarities and distinctions between different types of commercial companies
Setting up Commercial Companies
Dissolution of Commercial Companies
Merger and Division of Commercial Companies
Liquidation of Commercial Companies
The bankruptcy procedure
Societas Europaea (European Company)
Introduction
Incorporation
Minimum capital
Registered office
Registration and liquidation
Statutes
Annual accounts
Winding-up
Taxation
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Conclusions
TYPES OF
COMMERCIAL COMPANIES
Introduction
The term “commercial” comes from two Latin words: “cum” (with) and “merx” (merchandise).
According to the dispositions of the Romanian Civil Code, the company is a contract by which two
or more persons agree to put something in common with the purpose to share the profit that may derive
from it. The company has to have a lawful object that has to be made for the common benefit of the parties
(art.1491 and art.1492). Any commercial company has its own judicial personality, it represents a contract,
as well as a subject of autonomous law, and in the same time it has a lucrative purpose, because it wants to
have material benefits, and benefits of another nature.1
The General Legal Framework
There are four pieces of legislation which are of particular relevance for doing business in Romania.
These are:
1. The Company Law (31/1990)
The Company Law defines the forms of Romanian business entities. It also provides for the rules applicable
to each form of business entity relating to their respective formation procedures and documents, capital and
shares, shareholders’ decisions, administration, mergers and liquidation.
1. The Insolvency Law (64/1995)
This Law deals with the insolvency of Romanian companies and other Romanian business entities. It also
covers such matters as restructuring and liquidation.
2. The Commercial Registry Law (26/1990)
1 C. Hamangiu, “Tratat de drept civil roman”, Editura Nationala, Bucuresti,1996
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The Commercial Law governs the operation of the Commercial Registry, the obligations of business entities
to register information with the Commercial Registry for publication and also the registration and public
inspection procedures.
3. The Commercial Code
The Commercial Code sets out the main basic rules applicable to business transactions in Romania.
2. Nature and types of Commercial Companies
The Company Law (31/1990) provides for five types of Romanian business entities:
• General Partnerships (“societate in nume colectiv”, abbreviated “S.N.C.”), which must have a
paid-in capital and in which the partners have unlimited and joint liability.
• Limited Partnerships (“societate in comandita simpla”, abbreviated “S.C.S.”), which must have a
paid-in capital and in which general partners have unlimited and joint liability, limited partners however
being liable only for the value of their paid-in capital.
• Joint Stock Companies (“societate pe acţiuni”, abbreviated “S.A.”), in which the liability of
shareholders is limited to their holdings of capital in the company.
• Limited Partnerships by Shares (“societate in comandita pe acţiuni”, abbreviated “S.C.A.”), in
which the contributed capital is divided into shares and where the financial obligations of the partnership are
guaranteed by the capital and by the unlimited and joint liability of the general partners, limited partners
being liable only for payment of their shares.
• Limited Liability Companies (“societate cu răspundere limitata”, abbreviated “S.R.L.” or “Srl”), in
which the liability of shareholders is limited to their holdings of capital in the company.
Business entities existing under the Company Law (31/1990) may have their name prefixed by the
words “societatea comerciala”, abbreviated to “S.C.”. In some cases this prefix may reflect the specific type
of company concerned. The most commonly encountered entities in Romanian business area tend to be
Limited Liability Companies and Joint Stock Companies.
a. General Partnership
Its obligations are patrimonial guaranteed by the social and the unlimited liability of all associates.
The partnership relationship is based upon a contract and any person who is capable of entering a binding
contract may enter a partnership. Following this agreement, the parties must register their partnership with
the National Trade Register Office.
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In a General Partnership, partners are jointly liable for the debts and obligations of the partnership
and each partner can be personally liable for the overall debts and liabilities, which are not satisfied by
assets of the partnership.
A General Partnership must select a name for itself. Included in this name must be the name of one
individual partner, the nature of the partnership, and disclosure of the general partnership status of the
enterprise (Societate in nume colectiv – SNC). If a person who is not a partner permits his or her name to be
used in the name of the partnership, that person then becomes liable for the debts and obligations of the
partnership in the same way as general partners.
The Articles of Association (Articles of Incorporation) of this type of Romanian company shall
contain among other information: the ID data of shareholders, form, name, company office address; social
shares; duration of the future company in Romania and modality of liquidation.
b. Limited Partnerships
A Limited Partnership consists of one or more general partners who manage the business of a
partnership and one or more limited partners who contribute capital (money or other property) to a
partnership but do not participate in its management.
Its social obligations are patrimonial guaranteed by the social capital and by the unlimited liability of
the associates – the associates of this type of Romanian companies are only liable to the limit of their
contributions.
A Limited Partnership is a practical form of organization for an investment where the investors
would not normally participate in the control of the investment. Investors are limited partners while thegeneral partner provides the professional management of the investment. In this way, investors share the
profits but, as limited partners, their financial risk is limited to the capital they have contributed.
c. Joint Stock Companies
Joint Stock Companies are limited liability corporations which have not fewer than five shareholders
and have a minimum capital in RON of the equivalent of €25,000 calculated at the exchange rate fixed by
the National Bank of Romania on the date of subscription of the capital. The capital is divided into shares,
which can be negotiable instruments. The nominal value of a share cannot be less than RON 0.10.
When a Joint Stock Company is established, at least 30% of the share capital, must be immediately
contributed upon formation of the company and all registered share capital must be fully paid up within
twelve months of formation.
Shares could be nominative shares or bearer shares and can be freely traded or pledged. They have
equal value and in general confer equal rights to their holders. The General Meeting of Shareholders is
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responsible for deciding all major corporate issues regarding the company as provided by the constitutive
documents and the Company Law. The General Meeting of Shareholders generally decides:
• changes of the corporate seat;
• changes in the objects of activity;
• the increase or decrease of the capital;
• the appointment and removal of administrators (directors) and censors (internal auditors);
• the approval of the annual accounts;
• the issue of bonds;
• the merger of the company;
• the commencement of the liquidation of the company.
Certain matters may be delegated to the Council of Administration (board of directors) or, as the
case may be, the sole administrator (director).
The Joint Stock companies must have one or more administrators (directors), who are responsible
for the management of the company. Administrators can be appointed and removed from office by the
General Meeting of Shareholders, which will also set the limits of their powers. Administrators may appoint
one or more executive managers to carry out the day-to-day activities of the company.
Joint Stock companies must have at least three censors and substitutes for each censor. Censors are
appointed by the General Meeting of Shareholders for a period of three years. The appointment of censors is
a normally statutory appointment and should be distinguished from the appointment of external auditors.
A joint stock corporation is usually recognized by the use of the words limited incorporated or
corporation in its name (Societate pe Actiuni, S.A.).
d. Limited Joint Stock Companies
A limited joint stock company is a rare form of limited partnership. It has characteristics of both a
joint stock company and a limited partnership. Similarly to a joint stock company, the registered capital of
the limited joint stock company is represented by shares. Similarly to a partnership, the general partners may
be liable for the debts and obligations of the company beyond amounts they have contributed. The limited
partners, not active in the management of the company, have their liability limited to their share amount. A
limited joint stock corporation is normally recognized by using the words SCA in its name (Societate in
Comandita pe Actiuni).
e. Limited Liability Companies
A limited liability company is a company formed by a limited number of partners (no more than 50).
It is based on the constitutive documents. The registered capital of a limited liability company cannot be less
than 200 RON (approximately equivalent to €50). The registered share capital of a limited liability company
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is normally divided into social parts/shares with a registered value of not less than 10 RON. Shares cannot
be freely traded, making limited liability companies similar to what are known as private companies in other
legal systems. Shares of these companies cannot be pledged as collateral for loans.
The articles of incorporation of the limited liability company will include:
• the full name, place and date of birth, domicile and citizenship of individuals;
• the name, registered office and nationality of the shareholder, as legal person;
• the type, name, headquarters and, if any, the company logo;
• the object of the company, specifying the main domain of activity;
• the subscribed and paid in registered capital, the shareholders contribution in cash or in kind,
the value of the contribution in kind and its valuation method as well as the date of the full payment of the
subscribed share capital; the number and nominal value of shares as well as the number of shares subscribed
to each associate for his/her contribution;
• the shareholders in charge with the representation and administration of the company or the
non-shareholder administrators individuals or legal persons, and their powers which are to be exercised
jointly or separately;
• the share of profits and looses for each shareholder;
• the secondary offices (branches, agencies, representative offices or other such entities with
no legal personality) whether or not are established as the same time with the company, or the conditions of
their subsequent establishment if such establishment is taken into account;
• the duration of the company;
• the methods of dissolution and liquidation of the company.
Decisions are made by majority vote in the General Meeting of the Shareholders (1 share = 1 vote).
Decisions involving changes in the constitutive documents must be agreed by all shareholders if these
documents do not state otherwise. One or more Directors/Managers are appointed in the constitutive
documents or by the General Meeting and are put in charge for the management of the company.
Shareholders’ meetings of Limited Liability companies deal with the following matters:
(a) the approval of the balance sheet and distribution of dividends;
(b) the appointment, removal and discharge of directors, censors and auditors;
(c) decisions to sue the directors and censors for losses caused to the Company; and
(d) the amendment of the constitutive document.
Limited liability companies may also be formed by a sole associate. Currently, the majority of
companies registered in Romania, whether domestic or foreign-owned, are limited liability companies. A
limited liability company is known as a SRL (Societate cu raspundere limitata).
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Similarities and distinctions between different
types of commercial companies
The main similarities between a Joint Stock Company and a Limited Liability Company are
that both of them offer shareholders the benefit of limited liability. In both cases, they must keep books and
records in accordance with Romanian legislation. Also, dividends / net profits can be distributed according
to the approved annual accounts
The distinctions between a Joint Stock Companies and a Limited Liability Company are the
fact that, usually, a Limited Liability company has a simpler organizational and management structure than
a Joint Stock Company.
Limited Liability companies may also have single shareholders, thus allowing them to be used as
wholly-owned subsidiaries. By contrast, Joint Stock companies must have at least five shareholders.
Against this, the main disadvantage of Limited Liability companies is that changes to the
constitutive document require the approval of a general meeting which must have 100% of the capital
represented at the meeting with resolutions passed by a vote of shareholders representing the absolute
majority of both the number of shareholders and also the capital of the Company, otherwise provided by the
constitutive document.
The main differences between a limited liability company and a general partnership are given
by the responsibility of the partners and by the registered capital. Thus, in a general partnership, the
associates shall have an unlimited and joint liability for the company's obligations; the creditors of the
company may sue the company in order to recover the credit given. In the case of limited liability
companies, the associates may be kept liable only up to the value of their subscribed registered capital. In
the case of limited liability companies the law prescribes a mandatory minimal amount of registered capital.In the case of general partnership, there is no minimal limit of registered capital.
3. Setting up Commercial Companies. The memorandum of association
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The assets representing contribution in kind to the company become its property when the company
is incorporated at the Trade Register. Interest is not paid for the contribution of the associates.
The benefit quota, which will be paid to each associate, represents the dividend. Dividends will be
paid to the associates proportional with their participation to the paid social capital. Dividends will be
distributed only from real benefits, in the contrary they will be given back. The returning of the dividends is
prescribed in a period of 3 years from the date they were distributed.
Any document, letter or publication issued by the company must indicate the name, legal form, and
head office, recording number in the Trade Register and the fiscal code.
4. Dissolution of Commercial Companies
The following situations can cause the dissolution of companies and partnerships and give each
shareholder the right to ask for liquidation:
a) the expiration of the period set for the duration of the partnership or the company;
b) the impossibility to attain the business object of the partnership or the company;
c) the decision of the general meeting;
d) bankruptcy;
e) the joint-stock companies shall also dissolve if the number of the shareholders was reduced to less than
five, there are more than 6 months since that reduction and the number was not completed.
The dissolution of the business organizations must be recorded in the Register of Commerce and
published in the Official Gazette.The effect of the dissolution of the company is the beginning of the
liquidation procedure. The dissolution takes place without liquidation in the case of merger or total division
of the company or in other cases stipulated by the law. From the moment of the dissolution, administrators
cannot undertake new operations.
5. Merger and Division of Commercial CompaniesThe merger represents the absorption of a company by another company or by merging of two or
more companies to form a new company and it is decided by each partnership or company. The division
represents the division of the entire patrimony of a company, which ceased to exist, between two or more
existing companies or which are thus set up. Merger and division are decided by each company, under the
terms stipulated for the modification of the Articles of Incorporation.
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Based on the decision of the General Meeting of the Shareholders of each company, which
participates to the merger or division, their administrators prepare a merger or division project. This project,
signed by the representatives of those respective companies, shall be submitted to the Trade Register where
each company is registered, accompanied by a statement of the company which ceases to exist as a result of
the merger or division regarding the modality in which its liabilities will be paid off.
Merger and division take place at the following moments in time:
• in the case of setting up of one or more new companies, the date of registration in the Trade Register
of the new company or of the last of them;
• in other cases, the date of registration in the Trade Register of the mention regarding the increase of
the social capital of the absorbing company.
6. Liquidation of Commercial Companies
The liquidation of a commercial company is the process by which a business or activity is freeze and
discontinued with a purpose to stop its operation and existence by paying of liabilities after disposing its
assets.
In law, liquidation is the process by which a company (or part of a company) is brought to an end,
and the assets and property of the company redistributed.
The liquidation of the company must be finished within maximum 3 months from the date of
dissolution. After completing the liquidation, the liquidators have to ask the deletion of the company from
the Trade Register. The Trade Register could make the deletion also automatically. The liquidation does not
operate a release for the associates and does not impede the commencement of the bankruptcy proceedings
of the company.
7. The bankruptcy procedure
Bankruptcy is the situation in which the liabilities of a person or business entity exceeds the assetsand properties owned by them and such entity has no means to settle the dues to their creditors fully. Courts
declare an entity as bankrupt based on the petition moved by such person or entity.
Bankruptcy is a legally declared inability or impairment of ability of an individual or organization to
pay its creditors. Creditors may file a bankruptcy petition against a debtor ("involuntary bankruptcy") in an
effort to recoup a portion of what they are owed or initiate a restructuring. In the majority of cases, however,
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bankruptcy is initiated by the debtor (a "voluntary bankruptcy" that is filed by the insolvent individual or
organization).
Bankruptcy fraud is a crime. While difficult to generalize across jurisdictions, common criminal acts
under bankruptcy statutes typically involve hiding of assets, hiding or destruction of documents, conflicts of
interest, fraudulent claims, false statements or declarations, and fee fixing or redistribution arrangements.
The bankruptcy modes
• The general procedure – represents the procedure mode scheduled by law, according to a
debtor which fulfils the condition of the law is submitted after an observation period to the judiciary
reorganization and bankruptcy procedure, successive or separately.
• The simplified procedure - represents the procedure mode scheduled by law, according to the
debtor is submitted directly to the bankruptcy procedure either at the beginning of the insolvency procedure
either after an observation period of maximum 60 days (this is the time interval to analyze all the specific
elements).
The parts at the bankruptcy procedure
Creditors – civil or legal person that has a privilege over the debtor property and solicits the
registration of this privilege the final debts table or in the final hard-set table and can be proved.
Debtors - civil or legal person whose patrimony is submitted to insolvency.
Legal courts
Bankruptcy judge
Administrator and liquidator
The insolvency procedure can be initiated with the petition introduced by the debtor and the
creditor, also by other legal persons or institutions legally vested.
Societas Europaea (European Company)
Introduction
The European Companies (known by the Latin term "Societas Europaea" or SE) are new companies
that can be established in various ways – for example, by the merger of two or more EU-based companies,
or by the creation of joint holding companies or subsidiaries. Individual companies may also choose to
transform themselves into SEs if they already have an established presence in more than one EU member
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state. In this way it is possible to incorporate a European company with its own legislative framework. This
will allow companies incorporated in different Member States to merge or form a holding company or joint
subsidiary, while avoiding the legal and practical constraints arising from the existence of different legal
systems, to arrange for the involvement of employees in the European company and recognize their place
and role in the company.
Incorporation
There are four ways of forming a European limited company: merger, formation of a holding
company, formation of a joint subsidiary, or conversion of a public limited company previously formed
under national law. Formation by merger is available only to public limited companies from different
Member States. Formation of an SE holding company is available to public and private limited companies
with their registered offices in different Member States or having subsidiaries or branches in Member States
other than that of their registered office. Formation of a joint subsidiary is available under the same
circumstances to any legal entities governed by public or private law.
Minimum capital
The SE must have a minimum capital of €120 000. Where a Member State requires a larger capital
for companies exercising certain types of activity, the same requirement will also apply to an SE with its
registered office in that Member State.
Registered office
The registered office of the SE designated in the statutes must be the place where it has its central
administration, that is to say its true centre of operations. The SE can easily transfer its registered office
within the Community - as is the case at present - without dissolving the company in one Member State in
order to form a new one in another Member State.
Registration and liquidation
The registration and completion of the liquidation of an SE must be disclosed for information
purposes in the Official Journal of the European Communities. Every SE must be registered in the State
where it has its registered office, in a register designated by the law of that State.
Statutes
The Statutes of the SE must provide as governing bodies the general meeting of shareholders and
either a management board and a supervisory board (two-tier system) or an administrative board (single-tier
system).
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Under the two-tier system the SE is managed by a management board. The member or members of
the management board have the power to represent the company in dealings with third parties and in legal
proceedings. They are appointed and removed by the supervisory board. No person may be a member of
both the management board and the supervisory board of the same company at the same time. But the
supervisory board may appoint one of its members to exercise the functions of a member of the
management board in the event of absence through holidays. During such a period the function of the person
concerned as a member of the supervisory board shall be suspended.
Under the single-tier system, the SE is managed by an administrative board. The member or members of the
administrative board have the power to represent the company in dealings with third parties and in legal
proceedings. Under the single-tier system the administrative board may delegate the power of management
to one or more of its members.
Annual accounts
The SE must draw up annual accounts comprising the balance sheet, the profit and loss account and
the notes to the accounts, and an annual report giving a fair view of the company's business and of its
position; consolidated accounts may also be required.
Taxation
In tax matters, the SE is treated the same as any other multinational. That means it is subject to the tax
regime of the national legislation applicable to the company and its subsidiaries. SEs are subject to taxes and
charges in all Member States where their administrative centers are situated. Thus their tax status is not
perfect as there is still no adequate harmonization at European level.
Winding-up
Winding-up, liquidation, insolvency and suspension of payments are in large measure to be governed by
national law. An SE which transfers its registered office outside the Community must be wound up on
application by any person concerned or any competent authority.
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Conclusions:
In order to perform a commercial activity, natural and legal persons may associate and set up
business organizations according to some legal provisions as: the Company Law (no. 31/1990), the
Insolvency Law (no. 64/1995), the Commercial Code, the Commercial Registry Law (no. 26/1990) and so
on.
Because a Limited Liability Company has a simpler organizational and management structure that a
Joint Stock Company and may also have single shareholders, the Limited Liability Company (SRL) is the
most frequent type of legal entity in Romania and abroad.
References:
• George D. Cameron, “Business Law: Legal Environment, Transactions and Regulation”,
Homewood, Boston, 1989
• Henry R. Cheeseman, “Essentials of Contemporary Business Law: Student Study Guide”,
Prentice Hall, 2005
• Andres F. Lowenfeld, “International Economic Law”, Oxford, 2002
• Petri Mäntysaari, “Comparative Corporate Governance”, Springer, Finland, 2005
• Official Journal of the European Communities
(http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2001:294:0001:0021:EN:PDF)
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• http://www.legal-explanations.com/index.htm
• http://www.aneir-cpce.ro/chapter5/fc1.htm
• http://www.aneir-cpce.ro/chapter5/laws/l31.htm
• www.mcgregorlegal.eu/ro/pdf/21274.pdf