Romania: Corporate update
Of the five types of corporation under Romanian law, joint stock and limited liability companies remain the most prevalent. Current data indicates nearly one million active companies in Romania, with approximately 800,000 being limited liability or joint stock entities. Limited liability companies outnumber joint stock companies by roughly two to one.
The choice between these structures often hinges on incorporation expenses. Limited liability companies require minimal subscription (under €50, or Lei200 minimum share capital), while joint stock companies need at least Lei90,000 at incorporation.
Limited liability companies form a crucial part of Romania’s economy and frequently become acquisition targets in M&A transactions.
DRAG-ALONG RIGHTS
These provisions enable majority shareholders to compel remaining shareholders to accept third-party purchase offers on identical terms. This mechanism forces minority shareholders to sell their shares under the same conditions as majority shareholders, functioning as a squeeze-out tool.
Drag-along rights provide majority shareholders with improved exit opportunities and enhance deal attractiveness by eliminating the discount typically associated with minority shareholder presence. Since squeeze-outs are limited in private companies, contractual drag-along mechanisms remain essential for complete exits.
SHARE TRANSFERS IN LIMITED LIABILITY COMPANIES
Joint stock company shares transfer freely, easily accommodating exit provisions. However, limited liability companies are “intuitu personae”—dependent on shareholder quality and relationships—requiring stricter transfer regulations, including shareholder approval and creditor consent.
SHAREHOLDER APPROVAL – ABSOLUTE SUPER MAJORITY
Third-party share transfers require at least 75% share capital approval. This mandatory requirement cannot be eliminated or modified by articles of association. Some legal scholars argue that even court decisions cannot override shareholder approval requirements.
OPPOSITION BY COMPANY CREDITORS
Beyond shareholder approval, transfer validity depends on the absence of creditor opposition. Creditors possess 30 days to oppose transfers. Deals become fully enforceable only if no opposition materializes or courts dismiss such challenges. Though opposition success rates remain traditionally low, creditor actions can significantly impact transaction closing timelines.
POTENTIAL HURDLES IN ENFORCEMENT OF DRAG-ALONG CLAUSES
The enforceability of drag-along clauses in limited liability companies raises important questions. Romanian corporations fall under Companies Law and Civil Code governance, with the Civil Code providing general operational rules complementing specific Companies Law provisions.
Civil Code provisions regarding civil company share transfers state that “breach of promise to transfer…gives only the right to damages” and exclude specific performance claims. Though not expressly applicable to corporations, scholars argue this extends to limited liability companies based on their intuitu personae nature and existing transfer restrictions.
This interpretation would significantly impact share transferability, depriving majority shareholders of efficient enforcement mechanisms and limiting remedies to damage claims. However, lacking relevant court precedent, this remains theoretical.
COMMENT
Practical limitations for drag-along implementation in limited liability companies remain debatable. Enforceability should strengthen through clear contractual provisions linking drag-along rights with additional mechanisms recognized by Romanian law, such as share sale option agreements or bilateral sale promises supplemented by pledges favoring majority shareholders.