Commercial Code in Romania – key points

This Romanian law provides a framework for the organization and functioning of commercial companies in Romania. Here is a structured summary highlighting the essential points of a commercial code in Romania:

General Provisions

1. Establishment of Companies: Individuals and legal entities may establish companies for commercial purposes, respecting this law’s regulations. Romanian companies are Romanian legal entities.
2. Types of Companies:
   • General partnerships with unlimited, joint liability.
   • Limited partnerships with limited liability for some partners (commanditaires).
   • Limited partnerships by shares with a capital divided into shares.
   • Joint-stock companies, where shareholders are liable only up to their share value.
   • Limited liability companies, with liability limited to the social contributions.

Company Formation

1. General Partnerships & Limited Partnerships: These are formed by an association contract containing specific details (partners’ information, capital, objectives, and management structure).
2. Registration: Within 15 days of notarization, the association contract must be registered in the trade registry and published in the Official Gazette.
3. Joint-Stock & Limited Partnerships by Shares: Require a minimum capital and at least five shareholders; established by a partnership contract and statutes.
4. Capital Requirements: Initial capital must be partially deposited before the company’s legal status is recognized.

Company Operation

1. Company Assets: Assets contributed become company property. Shareholders can only receive dividends from actual profits.
2. Obligations & Liabilities of Administrators:
   • Administrators handle company operations and must attend meetings.
   • Administrators with conflicting interests in certain transactions must abstain from voting on them.
3. General Meetings:
   • Ordinary meetings are annual, approving the budget, balance sheets, and electing board members.
   • Extraordinary meetings decide on major issues like changing the company’s capital, structure, or dissolution.

Changes in Company Structure

1. Capital Increase/Decrease:
   • Requires approval by the general meeting.
   • New shares offered must first be offered to existing shareholders.
   • Creditors may oppose a capital decrease that impacts their claims.
2. Company Reorganization (e.g., Mergers): Each participating company must approve the merger, following specific procedures including publication and creditor approval.

Exclusion of Shareholders

1. Exclusion Criteria: Shareholders can be excluded for failing to contribute capital, declaring bankruptcy, or violating the association contract.
2. Process: Exclusion is legally processed and registered in the trade registry.

Dissolution & Mergers

1. Dissolution:
   • Can be voluntary (decided by shareholders) or mandatory (e.g., upon achieving the company’s purpose or bankruptcy).
   • Procedures include liquidation and asset distribution among shareholders.
2. Mergers: Approved by each company’s general meeting, and creditors may object within a set period.

Liquidation

1. Liquidators’ Role: Authorized to conclude business, pay creditors, and distribute remaining assets.
2. Obligations: Liquidators must ensure transparency and submit detailed financial reports to the trade registry.

Criminal Penalties

1. Criminal Offenses: Penalties include imprisonment or fines for fraudulent acts such as misrepresentation in reports, paying dividends from non-existent profits, or embezzling company assets.

Key Administrative Requirements

• Registries: All companies must keep registries for shareholders, meetings, board deliberations, and financial records.
• Publications: Decisions affecting third parties (e.g., changes in capital) must be published in the Official Gazette.

This law aims to ensure fair operation, transparency, and protection of shareholder and creditor rights within Romanian commercial entities.

Historical Context of the Romanian Commercial Code

Romania’s Commercial Code has evolved over time, reflecting historical influences and economic transitions within the country. Some key historical points:

1. 19th Century Origins: Romania’s first commercial code was heavily inspired by French and Italian codes, adopted in 1887. This code was part of Romania’s modernization efforts, as it sought to align itself with Western European legal standards. It focused on partnerships, corporations, and commercial transactions and laid the foundation for the modern Romanian commercial system.
2. Communist Era Modifications: During the communist period (1947–1989), Romania’s commercial laws were modified to reflect the state’s control over the economy. Private businesses were dissolved or nationalized, and commercial activities were conducted by state-owned enterprises. Private companies essentially ceased to exist, and commercial codes were minimized, aligning with planned economy principles rather than market economy dynamics.
3. Post-1989 Transition: After the fall of communism in 1989, Romania shifted to a market economy, necessitating a complete overhaul of commercial law. The reintroduction of a market-oriented Commercial Code aimed to encourage private enterprise and foreign investment, aligning Romania with international standards and attracting economic growth. Laws from this period gradually restored private company structures and property rights.
4. EU Integration and Modernization: Romania joined the European Union in 2007, prompting further revisions to the Commercial Code to harmonize with EU standards. This led to increased transparency, shareholder rights, and procedural clarity in line with EU directives, especially concerning corporate governance, insolvency, and competition laws.

Comparison to Other Commercial Codes

Romania’s current commercial code, although rooted in European principles, reflects certain unique features due to its historical, economic, and social landscape. Here’s how it compares to other commercial codes globally:

1. Influence of Civil Law Systems (vs. Common Law Systems):
   • France and Italy: Romania’s code, similar to French and Italian commercial codes, places significant emphasis on statutory requirements and detailed regulatory frameworks. The process for company formation, shareholder rights, and general meetings are well-defined in Romania, mirroring the comprehensive nature of other civil law countries. Civil law systems (e.g., France, Italy, and Germany) tend to offer more rigid structures for corporate governance, often requiring formal processes for changes in capital, mergers, and other structural adjustments.
   • Common Law Countries (e.g., U.S., UK): Common law jurisdictions are more flexible, with a reliance on judicial precedent, particularly in company law. Romania’s code is less flexible in comparison, requiring stricter procedural adherence, registration, and disclosures, typical of civil law traditions.
2. Transparency and Reporting:
   • EU and Romanian Standards: Since joining the EU, Romania’s requirements for transparency in reporting, audit, and public access to corporate information have aligned closely with EU mandates. This is comparable to other EU countries that emphasize transparency to protect investors and foster a safe investment climate.
   • Comparison with Non-EU Systems: In some non-EU countries, especially in emerging markets, such transparency measures may be less stringent. Romania, due to EU influence, enforces higher standards, which may pose more regulatory burdens but ultimately builds investor confidence.
3. Shareholder Rights and Protections:
   • Developed Economies (e.g., Germany, U.S.): Romania’s protection of minority shareholders has been strengthened in recent years, with legal protections to prevent majority shareholder abuse. In developed economies like Germany and the U.S., minority protections are also well established, typically through rights to vote, sue for oppression, or access information. Romania has adopted similar practices to bolster corporate governance.
   • Developing Economies: In contrast, many developing countries have weaker mechanisms to protect minority shareholders, often lacking the same level of enforcement or legal recourse for disputes.
4. Criminal Penalties for Corporate Crimes:
   • Romania’s criminal penalties for corporate crimes, such as embezzlement and misrepresentation of financial status, reflect its intent to enforce stringent accountability, as seen in other civil law countries like Germany and France. This differs from the U.S., where corporate crimes may lead to severe financial penalties but often rely on civil suits rather than criminal penalties for corporate mismanagement unless fraud is involved.
5. Company Structures and Incorporation Requirements:
   • Romania’s code sets clear distinctions between types of companies and the respective liabilities of shareholders, resembling the legal systems in France, Italy, and Spain. This structure emphasizes formalities and documentation, particularly during registration and dissolution. In contrast, the U.K. and the U.S. tend to allow simpler incorporation processes, with fewer mandated internal structures, which may be more attractive to entrepreneurs but potentially pose challenges for governance and accountability.
6. Liquidation and Dissolution Process:
   • In Romania, the liquidation process involves strict oversight and requires public notification, similar to other civil law systems in Europe. In contrast, common law countries often allow more streamlined procedures for winding up a business, providing flexibility but with potentially less regulatory scrutiny.

Summary of Comparative Insights

• Romania’s Commercial Code embodies the civil law tradition with a high degree of formality, statutory requirements, and protections.
• EU membership has brought Romanian law closer to European standards, emphasizing transparency, shareholder protections, and regulatory adherence.
• In comparison with common law countries, Romanian laws are more prescriptive, leaving less room for judicial interpretation but fostering predictable outcomes in company management and investor protections.
• The historical evolution of Romania’s code—from a Soviet-style model to a modern EU-aligned framework—demonstrates its adaptation to meet market economy demands, encourage private investment, and facilitate cross-border business within the EU framework.

This historical context and comparative analysis show how Romania’s commercial code balances strict regulatory structures with European market integration, aligning it more closely with EU norms than the more flexible systems of common law countries.