Romania became a member of NATO in 2004 and a member of the EU in 2007. The implementation of key structural reforms has improved the predictability and stability that foreign investors and companies seek.
A functioning market economy status has been granted by the EU. Highly skilled labor and low wages are key features in the explanation of the steady increase in Foreign Direct Investment.
Not to forget, with a population of nearly 20 million, Romania is also the largest market in South-Eastern Europe. We present you the legal forms in which a foreign-owned company can operate in Romania.
A foreign company can do business in Romania through a subsidiary or a branch. While a subsidiary has a legal personality and is considered a Romanian entity, the branch is just an extension of the parent company and therefore has no legal personality and no independence.
Law No. 105/1992 on the Regulation of the Private International Law Relationship adopts the accepted international practice by which a branch is governed by the national law of its parent company.
Legally, the branch has no separate status from the foreign company itself. It is merely carrying on business in Romania. The foreign company will be liable to the employees and creditors of the branch for the actions of, and debts contracted by, its managers and agents on behalf of the branch. On the contrary, according to the Law No.31/1990, a Romanian subsidiary of a foreign company is a Romanian legal person and, consequently, it is subject to Romanian laws. It is liable, on its own behalf, for the actions assumed. Subsidiaries and branches can carry out only the activities to which the parent company is authorized.
In practice, subsidiaries are commissioned following the same steps as the registration of companies, i.e. notarizing the statutes, and registering the subsidiary with the National Trade Register Office. The formation of a branch follows the same steps as that of a subsidiary, but they do not need to establish incorporation statutes.
- a notarized copy of the articles of incorporation of the parent company;
- evidence of registration of the parent company in its country of origin;
- documentation indicating the company’s solvency; and
- the decision of the parent company’s Board of Directors (or similar authorized body) to establish a foreign branch. This decision should indicate the type of activity of the branch, the individuals appointed by the parent company to act on its behalf and the confirmation of the parent company that the acts of its representatives are legally binding to it.
Assuming the branch is accepted, it must then be registered with the local office of the National Trade Register Office. The formation of a subsidiary must comply with the minimum capital requirements under the Romanian Company Law.
The Limited Liability Company (SRL)
The law defines this type of company as a commercial enterprise, whose social obligations are guaranteed by its assets. Associates are obligated only to pay shares.In this case, the company’s capital is divided into shares which, under bylaw and the provisions stipulated in the charter, are not negotiated at stock exchanges. Members of such liability company are socially responsible only to the amount deposited as shares, as well as company assets.
The company needs to have at least one shareholder. There are maximum 50 shareholders. A company with a sole shareholder is allowed.
- the registered capital: minimum 200 RON (around 400 Kronen), deposited as cash or in kind;
- the registered capital is divided in equal shares (of minimum 10 RON);
- the shares can be transmitted unconditionally among shareholders;
- the shares can be transmitted to third parties only by sale;
- each share represents a vote in the general assembly of shareholders;
- the LTD is responsible before the law only with its own goods;
- the decisions of the LTD are taken by the general assembly of shareholders (AGA);
- in the decision taking process, it is necessary the shareholders’ absolute sustenance and that of the shares;
- the administrator of the LTD is nominated by the AGA or is stipulated in the incorporation papers;
- the LTD can have more administrators;
- any of the shareholders can be also administrator.
The Joint Stock Company (SA)
A joint stock company is a limited liability corporation with registered capital of a minimum of 90.000 RON and with at least two shareholders. Shares could be nominative shares or bearer shares and can be freely traded or pledged. A joint stock company may be set up privately or by public subscription. In the case of a company established on a private basis, the Memorandum of Association must indicate:
- the name and address of shareholders, as well as their nationality;
- legal form, name and, as the case may be, emblem;
- location of the proposed head office of the company alongside with the location of proposed branches and subsidiaries;
- the nature of the business or businesses in which the proposed company will be engaged;
- subscribed share capital and paid share capital. The share capital paid up by each shareholder upon constitution of the company can not be less than 30%. The remaining 70% should be paid in 12 months after the incorporation with the Trade Register;
- number, nominal value and type of shares;
- duration of the company;
- clauses on the management and control of the company;
- name, address and citizenship of company directors and any special powers or rights granted to them.
When a joint stock company is established by public subscription, a notarized prospectus must be drawn-up and filed with the Trade Register in the district where the head office of the company will be located. The Register’s office will certify compliance with Romanian legislation and will authorize issuance of the prospectus. A joint stock company formation by prospectus is only possible if the entire registered capital outlined in the prospectus has been subscribed and half of the prices of the shares subscribed for has been paid up into a bank account. If public subscriptions exceed the registered capital, as outlined in the prospectus, or are less than the amount sought in the prospectus, a meeting of the shareholders should be held to approve any revisions of the capital structure.
Within 15 days at the very most of the closing of the subscription, a founding meeting must be held. This meeting, which must be advertised in the Official Gazette, receives evidence that capital has been subscribed, determines the value of any contributions in kind, approves the basis for profit-sharing among founders of the company and other shareholders and appoints directors and auditors.
The following partnerships are available to foreign companies wishing to carry out business in Romania:
- General Partnership (SNC)
- Limited Partnership (SCS)
- Limited Joint Stock Company (SCA)
General Partnership (SNC)
A general partnership can involve two or more partners. 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.
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 the assets of the partnership.
The capital of the partnership is formed of the partners’ contributions. These contributions can include cash, real estate, equipment, or other property. Contributions become assets of the partnership and comprise its registered capital. Romanian laws do not set maximum or minimum limits on capital, nor does it indicate how much must be in cash or other assets. These decisions are left with the partners.
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 fashion as general partners.
General partnership matters are determined under a written partnership agreement. Where the agreement is silent or unclear, decisions are made by partners on the basis of their relative capital contributions. If a partnership seeks to have a formal management, perhaps because of its large size, a vote of the partners representing a majority of the registered capital is required.
Limited Partnership (SCS)
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. Generally, limited partners are not liable for the debts and obligations of the partnership beyond their contributions, to the registered capital. The liability of the general partner is the same as the liability of partners in a general partnership. For an investor, therefore, being a limited partner is similar to have an investment in a corporation.
Limited partners share the profits or other compensation by way of income in proportion to their partnership contributions. However, no such income or other distribution can be made if it would reduce the assets of the limited partnership to an amount insufficient to discharge its liabilities to persons who are not partners.
While the limited partners cannot manage the business, they may examine the state and progress of the partnership business and advise on its management. A limited partner may also act as a contractor for, or an employee of, the limited partnership.
Company Law No.31/1990 generally sets out the rights, powers, and obligations of limited partners. For example, a limited partner may be held liable as a general partner if the limited partnership legislation is not strictly complied with; when a limited partner participates in the management of the partnership’s business without having been mandated to that effect by company’s representatives, by means of a special power-off attorney, registered with the trade register, or allows his or her name to be used in the name of the limited partnership.
A limited partnership is a practical form of organization for a pooled investment where the investors would not normally participate in the control of the investment. Investors are limited partners while the general 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.
A limited partnership must use in its name the words ‘limited partnership’ (‘societate in comandita simpla’ ‘“ SCS).
Limited Joint Stock Company (SCA)
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. The same as in a limited partnership, there are general and limited partners. 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 stake. A limited joint stock corporation is normally recognized by the use of the words SCA in its name (‘Societate in Comandita pe Actiuni’).
Romanian Economy Overview
Romania, which joined the European Union in 2007, began the transition from Communism in 1989 with a largely obsolete industrial base and a pattern of output unsuited to the country’s needs. The country emerged from a punishing three-year recession thanks to strong demand in EU export markets.
Domestic consumption and investment have fueled strong GDP growth in recent years, but have led to large current account imbalances. Romania’s macroeconomic gains have only recently started to spur creation of a middle class and address Romania’s widespread poverty. Corruption and red tape continue to handicap its business environment.
GDP – real growth rate: 7.6%
GDP – per capita (PPP): $12,200.
GDP composition by sector:
- agriculture: 8.1%
- industry: 36%
- services: 55.9%
Labor force: 9.32 million
Labor force – by occupation:
- agriculture: 29.7%
- industry: 23.2%
- services: 47.1%
Unemployment rate: 7,1%
FDI in Romania has increased dramatically. Net foreign direct investment was inbound US$12 billion (EUR 9.1 billion). Cheap and skilled labor force, low taxes, a 16% flat tax for corporations and individuals, no dividend taxes, liberal labor code and a favorable geographical location are Romanias main advantages for foreign investors.
New investment stimuli introduced more favorable conditions to IT and research centers, especially to be located in the east part of the country (where is more unemployment), to bring more added value and not to be logistically demanding.
- wheat, corn, barley, sugar beets, sunflower seed, potatoes, grapes; eggs, sheep.
- electric machinery and equipment, textiles and footwear, light machinery and auto assembly, mining, timber, construction materials, metallurgy, chemicals, food processing, petroleum refining.
Industrial production growth rate: 8% (country comparison to the world: 27).
Electricity – production: 58.28 billion kWh (country comparison to the world: 44).
- machinery and equipment, textiles and footwear, metals and metal products, machinery and equipment, minerals and fuels, chemicals, agricultural products.
- machinery and equipment, fuels and minerals, chemicals, textile and products, metals, agricultural products.
Reserves of foreign exchange and gold: $ 44.47 billion (country comparison to the world: 33)
Sources: NOROCC (The Norwegian Romanian Chamber of Commerce)