| Introduction |
Significant new rules have become effective as of December 1,
2006 affecting all Romanian companies and requiring amendments to
their by-laws and other corporate documents. The Romanian Company
Law (Law no. 31/1990 regarding companies, as republished, and Law
no. 26/1990 regarding the Trade Registry, as republished) was
amended by Law no. 441/2006, which changes the way companies are
registered, structured and function in Romania. It has a particular
impact upon joint stock companies. This article presents an overview
of these amendments, but it should not be regarded as a presentation
of the provisions of the law in itself. Moreover, since the new law
has many crucial amendments that affect joint stock companies, the
article will focus on joint stock companies, while at the same time
pointing out which amendments apply to other forms of companies.
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| Incorporation and Shareholding
Requirements |
The founders of a company – the persons signing
the Articles of Incorporation and those having a crucial role in its
registration – must be persons who have not previously been
convicted of certain crimes to which the crimes from the Insolvency
Law have now been added. As to the creation of joint stock companies
there has been an amendment with regard to the share capital that
has to be paid upon incorporation. In the old version of the law,
only 30% of the share capital had to be paid at the time of
incorporation and the rest could be paid in 12 months time from the
date of incorporation. Now, the capital that has been subscribed but
not yet paid is divided into cash and assets, and treated
differently. With regard to the cash, the law is unchanged, but for
assets, a two year period from registration is now provided for
payment. For all other types of companies, the entire share capital
must be subscribed and paid at the moment of the incorporation.
The currency used in determining the minimum share
capital for joint stock companies has been changed from euros to
lei. Instead of € 25,000 the share capital is now stated as RON
90,000. (RON is the new Romanian Leu.) The share capital is now
measured in Euros only in a subsidiary. Because of recent changes in
the exchange rate, the minimum share capital has increased, although
in December 2006 when the amendment became effective, the amounts
were equivalent. The share capital may never decrease under this
initial minimum value. If it does the company may be dissolved. The
amount of the share capital for limited liability companies has not
been amended, but the sums are now expressed in RON.
Another
important change is the decrease in the minimum number of
shareholders for joint stock companies from five to two. Also, if
the company has only one shareholder for more that nine months it
could be dissolved. The share capital that is subscribed in assets
now can now only include assets that have a pecuniary value. The
contribution of debts to share capital has the same legal regime
applied to it as with all other participations to the share capital.
They are only permitted in joint stock companies that have no public
subscriptions. The law now expressly includes services in the
category of participations that are not allowed. The conditions
under which more than one company may function at the same
headquarters are: that the space allows the functioning of more than
one company, at least one person is a shareholder in all the
companies and that at least one of the shareholders is the owner of
the premises. The amendment provides that only one of the conditions
needs now to be fulfilled and not all of them as in the past.
The founders, the first administrators, or, as the case may
be the first members of the Board of Directors, are jointly liable
for not registering the company within a 15 day period from the date
of the execution of the Articles of Incorporation.
The
company may acquire within two years from the registration date or
from the date when it receives the authorization for developing its
activity, assets from a founder or a shareholder, for an equivalent
of at least 1/10th of the value of the subscribed share
capital, upon the prior approval of a general shareholders meeting.
Such action must be noticed to the Trade Registry and it must be
published in the Romanian Official Gazette or in another important
newspaper. The acquisitions that are part of the daily operations of
the company, those done by order of a public authority, as a result
of a court ruling, or arising from stock market operations, are not
included in this requirement. |
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| Dividends |
| If dividends are to be forthcoming, they must be
paid at intervals established by the General Shareholders Assembly,
or as the case may be, by special legislation, but no later than
within six months time from the approval of the financial statements
for the previous year. If the company does not pay dividends in
time, it is liable for damages for the period of delay at the legal
interest rate, if a larger interest rate has not been
established. |
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| The Daily Operations of the
Company |
| The managers, administrators, directors, financial
auditors or censors of a company that is a debtor, or that has been
found guilty of crimes under the Company Law or the Insolvency Law,
cannot hold or acquire such a position for a period of five years
after the court decision has become final. The amendment to the
Company Law provides that the directors, censors, auditors and all
the other persons with duties in the daily business of the company
are liable for their actions with regard to the company. To this
end, minority shareholders who represent individually or jointly at
least 5% of the share capital of the company may bring claims on
behalf of the company, against any of the above mentioned
individuals. They have this prerogative only if the company itself
does not take any action. The amendment therefore adds to the
persons who are liable, the censors, auditors and other persons
involved in running the company and adds a minimum threshold of
participation to the share capital. |
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| Joint Stock Companies |
| The amendment introduces the possibility for the
holders of preferential shares to acquire the right to vote if there
are delays in the payment of dividends. The company cannot subscribe
to its own shares. A company may acquire its own shares directly, or
through a person acting in its stead, by complying with some
conditions: the Extraordinary General Assembly must authorize the
acquisition and its terms, the total value of the shares acquired by
the company must not exceed 10% of the subscribed share capital, the
shares have to be fully paid, and the payment for these shares must
be made from the profit that could be distributed and from the
available reserves of the company, with the exception of the legal
reserves. The shares thus held by the company do not bear the right
to dividends. Also the right to vote inherent to these shares is
suspended during the time they are held by the company. If the
shares are bought to be distributed to employees of the company, the
transaction must be finalized within a 12 month period from the date
of the acquisition. If the shares are acquired by a company in which
the present company holds the majority interest, it is considered to
be the acquisition of those shares by the present company. |
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| Shareholder Assemblies |
New quorum and voting requirements have been
instituted for the Ordinary General Assembly, i.e., instead of
requiring the presence of shareholders representing at least half of
the share capital, the amendment provides for the presence of the
shareholders representing at least one quarter of the voting rights.
Decisions are taken with a simple majority, meaning the majority of
the votes cast. The amendment contains changes with regard to the
Extraordinary General Assembly as well. The quorum for the first
convocation is no longer three quarters of the share capital but is
now one quarter of the voting rights. For the second convocation,
the quorum is no longer half of the share capital but one fifth of
the voting rights.
Additionally, the majority for the assembly of
the shareholders is no longer measured against the share capital,
but against the voting rights, which could be less than the share
capital. The voting rights are less than the share capital if the
company has issued shares with priority without the right to vote.
Thus, what becomes important is not the actual presence of the
shareholders, but the presence of the ones who can actually cast a
vote. In some special situations, the decisions can only be taken
with a necessary majority of two thirds of the voting rights. These
situations are: the modification of the main object of activity of
the company, the decrease or the increase of the share capital,
changing the legal form, mergers and acquisitions, and divisions and
dissolutions. Any decisions of this sort that do not observe the
mandatory requirements could be challenged by interested parties as
being null and void.
The provisions regarding the agenda or
order of business of shareholders assemblies have also been amended.
Any changes to the order of business can be proposed by shareholders
who, individually or jointly, represent at least 5% of the share
capital. Once this participation limit is fulfilled, the board of
directors is obligated to include the new desired issues in the
order of business. In this way, the law puts a stop to the practice
in which a director who convoked the assembly could act over the
will of the shareholders by refusing to amend the order of business
despite their demand. Moreover, the director has the obligation to
publish the modified agenda with at least 5 days notice prior to the
date on which the assembly is to be held. The assembly can be
convened by the directors whenever they deem it necessary, or when a
certain number of shareholders expressly request it. As amended, the
Company Law requires that this number of shareholders must hold at
least 5% of the share capital of the company, and not 10% as before.
This amendment increases the power of minority shareholders in
companies that have many shareholders and a widely spread share
capital, since they now can more easily convene a general
assembly. |
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| Voting Agreements |
| A very important amendment is the introduction of
the ability to conclude voting agreements. Agreements that provide
for voting according to the instructions and proposals of the
company or its representatives are now the only ones not permitted.
All other voting agreements may now lawfully be concluded and
enforced. If concluded, they are considered to be valid and binding
upon the parties. This provision applies to all types of companies
and not only to joint stock companies. For the protection of
minority shareholders, if the company owns a website, it is
obligated to publish on it in an electronic form all the decisions
of the general assembly of the shareholders. |
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| Corporate Governance |
| The newly revised law significantly alters the
governance organization of companies. It introduces two
possibilities out of which companies need to chose one and apply it.
The governance system refers to the introduction of two
administrative systems: the monistic system (the only one Romania
had until now) and the dualistic system. In the monistic system, the
company is governed by one or more directors or a board of directors
presided over by a chairman. The dualistic system is of German
origin and provides for the governing of the company by a
directorate (the members of which have the right to represent the
company) and a supervisory council (with duties of control and
supervision). The amendment also changes the monistic (unitary)
system that has been applied until now. The directors are no longer
comprised of a single category. Now there are executive and
non-executive directors comprising the board of directors. There are
even independent directors. The law provides for special competences
for each category and the relations and interactions that exist
between them. The board of directors works by delegating. Thus it
may delegate some or all of its duties related to the management of
the company to one or more executive directors or to a directing
committee. These provisions bring flexibility to the governance of
the company since it may now choose how to conduct its daily
business and how to organize itself. If indeed it decides to
delegate, the directors of the company will only have the
prerogative of supervising the executive directors, and have only a
non-executive function. The executive directors are also the persons
who can lawfully represent the company, excluding such
representation from the duties of the board of directors. The
directors and the executive directors of the company may no longer
conclude labor agreements since they can not be the employees of the
company. They can only conclude management agreements with the
company. If the directors that are appointed had been employees of
the company, their individual labor agreement is suspended during
their mandate as a director. According to the new provisions of the
Company Law, directors must obtain professional liability insurance.
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| Company Shares |
Previously, the law provided for a preemption right
with regard to new shares issued to raise the share capital of a
company requiring that subscriptions must first be offered to
existing shareholders of the company. The amendment has extended
this preemptive right. The old version was not applicable to an
increase in share capital by contributions in-kind while now a
preemption right applies to these as well. Moreover, the amendment
created a simpler procedure with regard to the subscription for
shares issued for this purpose to third parties.
The
amendment also introduces a new concept with regard to increases in
the share capital of a company. This is the authorized capital. It
must be provided for in the constitutive documents of the company.
The board of directors or directorate, depending on the governance
system, is authorized to raise the subscribed share capital during a
period of five years from the date of the registration of the
company or of the amendment to its constitutive documents to permit
the raising of the capital, up to a certain threshold (“authorized
capital”). |
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| Conclusion |
At the present time, the Romanian Company Law is
about to be amended yet again by a Government Ordinance, and the
draft has already been submitted for the approval of the Government.
The new law provides that joint stock companies have nine
months commencing December 1, 2006 to amend their constitutive
documents in order to comply with the new legal provisions.
Consequently, all companies that do not yet conform to these
regulations must commence the formalities of amending their articles
of incorporation to comply with the new structure and organization.
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Editors
Note: It is our policy not to mention our clients by name in
The Romanian Digest™ or discuss their business unless it is a matter
of public record and our clients approve. The information herein is
correct to the best of our knowledge and belief at press time.
Specific advice should be sought from us, however, before investment
or other decisions are made.
Copyright 2007 Rubin Meyer Doru
& Trandafir, societate civila de avocati. All rights reserved.
No part of The Romanian Digest™ may be reproduced, reused or
redistributed in any form without prior written permission from the
publisher.
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TRANDAFIR
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