Company Statute – negotiating the future of your joint venture in Romania

Target audience: investors looking to partner in Romania.
Topic: enforcing negotiated terms for participation in the joint venture through the company statute and other legal ways. Joint-Venturing in Romania. Exit strategies.
Type of Romanian company: limited liability company – with two or more partners/shareholders

Expanding your business to Romania and in general starting a new business in another country requires an effort of finding out the applicable rules of the new game, knowing how things work there, what are the risks posed by the legal system itself, what are the possible exit strategies and so on.

In our today’s practical article we focus on joint-venturing according to the Romanian company law in creating a new limited liability company (the most commonly met type of company in Romania) emphasizing some legal provisions that worth knowing when negotiating how the company will work and when preparing the final company papers.

Some of the negotiated terms for participation in a Romanian company, engagements of performance from the future partners, how the company will work, how business will be conducted, who decides what, how each partner will contribute – must be drafted in accordance with the Romanian laws and included in the Company Statute. The Romanian law may recognize as valid some of the terms of agreement while others are not allowed in this type of company. Partners willing to still use the second set might need to change the type of company or find alternative legal ways to still enforce them as valid agreement terms and keep this type of company which has its advantages.

Here are two commonly met types of agreed terms for participation and the way the law sees them:

1. Promising to do a certain work for the company as contribution, in exchange for a certain number of shares. – This kind of contribution to the limited liability company is not valid under the Romanian company law. Contributions to this company type may be made only as money or in-kind.
2. Agreement that a partner would be automatically excluded in certain conditions (usually failing accomplish what he promised to do during the existence of the company, etc).Similar to the above mentioned example – a partner who promised to perform a certain activity for the company after it was created – cannot be excluded under such an agreement. Reasons for excluding a partner from a limited liability company in Romania are limited by the law to: A. Failing to bring in the promised contribution (which can be only money or in-kind); B. If the associate becomes bankrupt or legally incapable. C. The associate who is also administratorof the company commits fraud or uses his signature and company capital in his own interest or other’s. Request for exclusion is made only to Court.It is a limiting list and often we see requests for exclusion for various reasons (such as misconduct which is not fraud in itself and other actions a partner may take that block the company) and which are denied by the court in the end, the company remaining blocked in its functioning.