In furtherance of these initiatives, in July 2020 20 members of Parliament submitted to the Senate a draft law proposing new amendments to the Companies Law 31/1990.
The draft law proposes numerous amendments – some which are welcome and some which raise questions as to their benefits. This article highlights the main proposed legislative changes and their anticipated effects.
Faster transfers of shares in LLCs
Pursuant to the draft law, it will be faster to transfer shares in limited liability companies (LLCs).
The draft law removes the 30-day opposition period with regard to the transfer of shares to third parties currently provided for by the Companies Law. Thus, transfers of shares to third parties will be able to be carried out within any timeframe conventionally set by the parties involved in the transfer.
However, at present, the transfer of shares to third parties takes more than 30 days (even without an opposition from creditors), as the formalities involving the Trade Register are completed in two stages and the 30-day period runs from the publication of the LLC's shareholders' decision approving the transfer in the Official Gazette, which may take several weeks. Therefore, the time necessary to prepare the corporate approvals relating to the transfer, together with the time that it takes to publish the decision in the Official Gazette and the 30-day opposition period, mean that the transfer of shares to third parties takes approximately 60 days.
Moreover, the draft law allows an LLC's shareholders to establish their own rules regarding the conditions of the transfer of shares to third parties. Thus, the LLC's shareholders will be able to decide in the articles of association to derogate from the imperative rule currently established by the Companies Law, according to which the transfer of shares to third parties is allowed only if it has been approved by shareholders representing at least three-quarters of the company's share capital.
These changes are welcome as they will help to speed up the transfer process. At present, the opposition period is discouraging, especially given the increasing number and complexity of transactions taking place in the Romanian market. Thus, the obligation to comply with the 30-day opposition period delays transactions (especially, for example, cross-border transactions, which involve the fulfilment of obligations simultaneously and where compliance with a uniform contractual timetable is essential for the quick and successful conclusion of the transaction).
Elimination of minimum threshold of share capital
The draft law also removes the minimum threshold of a company's share capital (approximately €45 at present) and the minimum nominal value for a share (approximately €2 at present). Further, the full payment of share capital when establishing an LLC will no longer be mandatory under the draft law.
However, the implementation of such proposals may not bring real benefits to corporate-related legislation. A company's share capital is not a real cash reserve available to potential creditors, but rather an element in the company's balance sheet that reflects the shareholders' receivables towards the company. Nevertheless, the law should set certain thresholds for the share capital or nominal value of the shares for LLCs as it does for joint stock companies. If the initiators of the draft law consider that the current value of at least approximately €45 and the minimum nominal value of approximately €2 per share prescribed for LLCs by the Companies Law are not aligned with Romania's economic evolution, it would perhaps be more useful to propose new values that reflect the current context.
The draft law has been sent to the government for review. Based on the government's analysis, as well as that of specialised parliamentary committees, the draft law may be amended before a final version is put to a vote in Parliament.
However, it is encouraging that such initiatives are emerging as they are a sign that the legislature is focusing on the needs of Romania's business environment.
Wider reform of companies legislation
The measures proposed in the draft law are not an isolated action, but rather are part of a broader process of reforming Romanian companies legislation.
A series of measures easing the procedure for setting up new companies were introduced at the beginning of July 2020 via Law 102/2020, which amended the Companies Law by, among other things, eliminating the ban on being a sole shareholder in more than one LLC and reducing the number of documents required with regard to registered offices (for further details please see "Parliament eases procedure for setting up new companies").
Further, in July 2020 Law 108/2020 entered into force, amending Law 129/2019 (on preventing and combating money laundering and terrorist financing) with regard to companies' obligations to declare their ultimate beneficial owners (for further details please see "Streamlining procedure for declaring beneficial owners"). Law 108/2020:
- introduced an additional exception to the submission of ultimate beneficial owner statements for legal entities which have only natural persons as shareholders when they are the only ultimate beneficial owners; and
- removed companies' obligation to submit an ultimate beneficial owner statement annually within 15 days of the submission of their financial statements.
This wave of changes in this area is expected to continue, given the list of measures proposed in June 2020 by the Ministry of Justice and the National Office of the Trade Register in order to further debureaucratise the formalities relating to the establishment and operation of Romanian companies and companies' related registrations with the National Office of the Trade Register.
This article was first published in International Law Office.