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Buying Shares in a Romanian Company

by Vlad Cuc

There can be many reasons why a shareholder would want or need to sell his/her shares in a Romanian company and even more reasons why someone would prefer the acquisition of shares rather than incorporating a new company in RomaniaOur team of Romanian lawyers can offer legal assistance on the procedure that must be followed in both cases.

One must consider that this procedure is now more complicated in Romania and it involves interaction with the local tax authorities, which will verify that all accounts are updated and the person who sells the shares does not have debts towards the Romanian state. Our lawyers can also present additional information on the requirements imposed by the local tax institutions, such as registering for corporate tax, social security or VAT in Romania

A sale of shares can in some instances take up to three months (the reasons for this lengthy timeframe is owed to the reporting requirements towards the local tax authorities). It’s very important to note that, if the assignor or assignee of shares is another Romanian or foreign legal entity then, besides the Share Transfer Agreement, a special Resolution or Resolutions will be needed in a special format (drafted exactly per the wording of the Share Transfer Agreement). If any differences between these two documents will appear, one might encounter problems with the Romanian Trade Register.

The transfer of shares is a legal operation consisting in the transmission of a contract for the transfer of shares to one or more third parties (shareholders or persons who are not part of the company), who acquire such shares. It is very important to note that if the assignee is already a shareholder within the company, then the entire procedure is much simpler and shorter than in the case in which the buyer is not a shareholder.

The transmitter is called the assignor and the party receiving the shares is called the assignee. In order to purchase shares in a Romanian company, the parties have to sign a shares assignment contract; the contract is signed by the current owner of the shares and the future shareholder, who will have ownership rights on the respective shares, once the transaction is completed. 

The shares assignment can be performed at the shares’ nominal value, mentioned in the company’s articles of incorporation, or at a higher value than the nominal one. In this case, the new shareholder has the obligation to discharge to the state the tax in amount of 16%, percentage which applies to the difference between the nominal value and the purchase value.

For the shares assignment to be demurral to third parties unknown to the contract, it has to be registered with the Trade Register Office, and consequently published in the Official Gazette. The shares assignment agreement shall contain a clause inserted by which the value of the assignment will be established (they will mention respectively if the assignment remains to the shares nominal value or to another value convened by the parties).

The shares assignment and the rights over the dividends in Romania 

The dividends which are incumbent after the share transmission data belongs to the transferee, excepting the case where the parties have otherwise agreed. Although the law refers to Romanian joint stock companies, this also applies Romanian limited liability companies. As a result, the shares assignment agreement can contain a clause for the right of the transferee to obtain the dividends for the period prior to the assignment.

If the parties have not regulated the legal situation of the dividends, the practice inclines to assign them to the assignor for the period of time prior to conclusion of  assignment. This way, the right to dividends, being a fundamental social right of each shareholder, cannot be alienated only through the party’s convention.

In addition, the dispositions of Article 1 of the Civil Code, stating that the civil law is not retroactive, is taken into consideration. The company is forced to pay to its shareholders the convened dividends. If this payment obligation is not respected, the company indebts interests to the associates, on the grounds of the Article 43 of the Commercial Code.

The share assignment to a foreign legal entity in Romania

Our team of Romanian lawyers can provide information on the procedure through which the share assignment procedure is concluded here. Foreign investors can receive more information on the legislation regulating the transfer of shares in Romania. When referring to the share assignment procedure, investors should know that the following steps will apply:

  • between the Romanian company (as an assignee) and the foreign company (as an assignor) a share assignment agreement will be concluded;
  • all the associates of the Romanian limited liability companies adopt the decision of the Romanian general meeting of shareholders by which the following are approved: the shares assignments and the modification of the articles of association as a result of the assignments;
  • the updated version of the articles of association of the Romanian limited liability company (SRL) showing the new shareholding structure and new modifications (if applicable);
  • if the shares cession by the Romanian limited liability company’s shareholders is concluded at a higher value than the nominal value, it interposes the necessity of payment of investments income taxes;
  • the foreign legal entity which becomes shareholder in the Romanian limited liability company will need a series of documents for the assignment registration with the Romanian Trade Register Office.

The tax available in this case is applicable at a rate of 16% of the income calculated as the difference between the assignment price and the nominal value of the assigned shares. The investment income tax in this case is calculated taking into consideration several aspects, which can be detailed by our team of Romanian lawyers.  

The investment income tax is withheld (it means that the assignor will pay to the assignee the assignment reduced price with the investment income tax value), the assignor is the one obliged to pay the income in the name of the assignee (even if the assignee is the one who realizes the income); in the case of the foreign legal entities without permanent office in Romania (without a fiscal registration number), the foreign legal entity must designate a fiscal representative.

What are the rights of the new owner of shares in Romania? 

Once a natural person or a legal entity has purchased shares in a Romanian company, then the respective party will have ownership rights on the respective shares. This means that he/she will legally become a shareholder of the respective company, which will provide a set of rights and obligations. Our Romanian law firm can advise on the attributions of shareholders in Romania, but investors should know that the acquisition of shares will lead to the below mentioned aspects:

  • a person can become the owner of shares sold in a Romanian company only after the ownership transfer is made;
  • this will allow the shareholder to obtain various benefits in the respective company; 
  • this right is measured based on the person’s participation at the company’s capital;
  • the rights and obligations of the new shareholders are prescribed in a set of statutory documents;
  • thus, such rights and limitations can be stipulated by the company’s articles of association, the memorandum of association and the shareholders agreement
  • important provisions in this sense can also be found in the Sale and Purchase Agreement of Shares signed during the transfer of ownership

What is the procedure for selling shares to third parties in Romania? 

As stated earlier in this article, a buyer of shares in Romania can be an entity that is part of the company (another shareholder of the company) or a person/legal entity outside the company. If the latter applies, the purchase procedure is composed of more steps and it requires a more complex list of necessary documents. 

In the case in which the buyer of the Romanian shares is a third party, our team of lawyers in Romania can advise on the main procedures that must be concluded; basically, the transfer is composed of two main steps: the general assembly of the shareholders will file a decision on the sale of shares, that will be published in the Romanian Official Gazette

After this information is published with the Romanian Official Gazette, there is a period of 30 days in which another party can make an opposition; from here, two options are available. Provided that a person will make an opposition, the procedure will be suspended and the case will be handled by the local courts; the procedure can continue once the Romanian courts will issue a resolution. 

In the case in which there is no opposition, the sale of shares can move to the second procedure. It is necessary to know that both of the procedures require specific documents and in this sense, we highly recommend sellers/buyers of shares to address to our Romanian law firm, where they can receive update information on the requirements of the local institutions. The foreign investors may also address to our local partners for buying/selling shares in a Romania company.  

What are the statistics on shareholders in Romania? 

Romania is a country which encourages the participation in the business environment of both men and women. Although the business environment is traditionally driven by men, the last decades were also influenced by businesses registered by women. At the same time, foreigners are welcome to open a Romanian business, as there aren’t any restrictions regarding this matter; foreigners can receive more information on this subject from our law firm in Romania and it is also important to know the following: 

  • in August 2018, there were more than 496,900 women who were associates or shareholders of Romanian companies;
  • this represented a share of 37.23% of all the shareholders in Romania;
  • businessmen who were shareholders of Romanian companies accounted for 837,976 persons;
  • the share of men shareholders in Romania was of 62.77% in August 2018;
  • the highest share of women shareholders was registered in Tulcea (a rate of 41.25%);
  • the lowest rate of women shareholders, of only 32.02%, was registered in the Harghita county. 

WORDING OF A TRANSFER OF SHARES AGREEMENT IN ROMANIA (this is solely for information purposes only; please contact our law firm in Romania if you require assistance):

I , Person A. ……….. , assigning a number of ……….. shares at their nominal value of …………………….., to person B. ………. will withdraw myself as shareholder (asociat) in …………….. SRL , renouncing through by this document any rights and obligations in the company mentioned above.

I , person B , received from the X. …… a total of ……………………shares of ……… lei each , the total value of  …………………. ie 60 % of the share capital.

Completed and signed by the parties in …….copies, five copies were released today to each party, the date of authentication in Notary Public.

Please contact our Romanian law firm for more information on the sale of shares; our team of Romanian lawyers can provide an in-depth presentation on the rights and obligations that will apply for the new owner of the shares of a company in Romania.