Legal aspects are of high importance when buying a business. Your advisor needs to be up to date with the legal framework that applies to M&A transactions in Romania. Here we mention some aspects that you need to consider when acquiring a company in Romania.
Business activities may be carried out in Romania by legal entities or by authorised individuals. There are several legal structures available for investors wishing to acquire companies in Romania, but the most frequent types of companies of choice for investors are joint stock companies and limited liability companies, which both offer to shareholders a limitation on their liability, they being solely responsible for paying up the value of the shares they have contributed. The principle of limitation of liability can only be defeated in case of liquidation of the company, in case the relevant shareholder had defrauded the creditors, by abusing the limitation of its liability and the distinct personality of the company, or in case of insolvency proceedings.
Although the general rule is that the legal form of the company may be freely chosen by its founders, certain business activities may be conducted only by companies having a certain legal form (eg insurance activities or banking activities may be carried out only by joint stock companies). Moreover, from the corporate perspective, only companies set up in the form of a joint stock company may access the capital market.
The joint stock company must have at least two shareholders and a share capital equal to at least RON90,000. The minimal share capital may be updated by the government in order to ensure that its RON equivalent is no less than E25,000. The company’s share capital may be formed by contributions made in kind, in cash or consisting of accounts receivable. The company may be set up by the founders subscribing all the share capital or by offering part of the shares to the public through the publication of a prospectus. The latter option, even though allowed by the law, has been however only very rarely used, if ever at all.
The share capital may be increased by using cash, contribution in kind, company’s reserves (save for the legal reserves), undistributed dividends and share premiums or by setting off outstanding receivables against the company with newly issued shares. Positive balance registered pursuant to the revaluation of the company’s assets may not be used for the purpose of increasing the share capital of a joint stock company.
The existing shareholders have a pre-emption right for subscribing to the newly issued shares, as well as for the bonds convertible into shares. Shares may be ordinary (ie one share gives right to one vote in the shareholders’ meeting and to the dividends proportionally to the quota of the share capital) or preferential (ie giving priority to dividends but not entitling to voting rights). Preferential shares may account for only up to ¼ of the share capital nominal value.
Unless otherwise provided in the company’s articles of association, the shareholders may freely transfer their shares to any person. In case the company is listed on the capital market, the transfer has to observe the rules governing the relevant regulated market.
The main management body of a joint stock company is the General Meeting of Shareholders (GMS). Depending on the matters to be submitted to shareholders’ approval, the GMS may be ordinary (eg appointing and dismissing the directors and auditors, approving the yearly financial statements and the management report) or extraordinary (whose powers relate essentially to amending the constitutive documents of the company).
Important differences between ordinary and extraordinary GMS are provided as regards the quorum and vote rules. Most of the decisions may be duly passed in the presence of the shareholders holding at least 1/4 of the total number of voting rights and with the vote of the shareholders representing at least ½ of the voting rights of the present or represented shareholders. However, a special majority of 2/3 of the voting rights of the present shareholders is required for decisions on major issues, such as increase or decrease in the share capital, merger or dissolution.
The shareholders holding at least 5% of the share capital may require that a GMS be called or the agenda of an already convened GMS be completed with other headings. As well, they may request the auditors to review any act or operation of the company or start a claim, on the company’s account, against the founders, directors or managers of the company for damages brought to the company by breaching their duties. Two management systems are available to joint stock companies under the law: (i) the traditional management system (based on the old French system), where the directorship of the company may be entrusted either to a sole director or to a Board of Directors, with the possibility to delegate management attributions to one or several Executive Managers, who may be from among the directors; (ii) the so-called dualist system based on a two-tier management, where the actual administration of the company is entrusted to an Executive Board or the managing body, which carries out its activity under the control of a Supervisory Board.
In case of listed companies the directors may be appointed, upon the request of a shareholder holding at least 10% equity participation, by way of cumulative voting, which implies appointment of the board members by the shareholders on individual basis, proportionally with their voting rights.
Romanian companies meeting at least two of the following criteria: aggregate assets amounting to at least E3,650,000, net turnover amounting to at least E7,300,000 or more than 50 employees are compelled to draw up financial statements in accordance with the EC IVth Directive and have them audited, while the rest have to draw up and provide simplified financial statements. The companies traded on the capital market are always required to follow these standards and audit their statements. Article is based upon input of Cristina Metea.
The buy-back of shares is permitted subject to certain restrictions and limitations under the Romanian Company Law No 31/1990 (the ‘Company Law’).
In respect of buy-back of shares listed on a regulated market, the limitations set forth under the Commission Regulation (EC) No 2273/2003 of 22 December 2003 as regards exemptions for buy-back programmes and stabilisation of financial instruments should be also observed.