What benefits do you have if you set up a limited liability company for your business? Incorporation documents templates.
Updated: May 16
Are you looking to launch your own business and searching for the best legal structure for your company? An LLC (limited liability company) or, in Romanian version, SRL, might be the answer. The LLC structure combines the benefits of a corporation with the flexibility and simplicity of a freelancing business.
1. Setting up and organizing an LLC in Romania. Company incorporation documents templates.
The LLC structure offers flexibility in operation and organization. You can choose to operate an LLC with a single or more shareholders, while the process of establishing the company is similar in both situations. The main difference lies in the articles of association: use a shareholders’ agreement for more shareholders or articles of incorporation for sole shareholder. However, the number of shareholders in a Romanian LLC cannot exceed 50.
The process of establishing an LLC may seem complicated at first glance for someone unfamiliar with the field, but it is actually straightforward and easy enough to be navigated by anyone, regardless of background. Here are some basic steps to follow to establish an LLC:
Choose the company name and check its availability.
Determine the company's business purpose.
Draft the LLC's articles of incorporation and sign them. Download company incorporation documents itemplates instantly.
Register the LLC with the Trade Register.
Obtain a unique fiscal identification code (CUI).
Open a bank account for the LLC. This step is no longer mandatory before establishing the LLC, as the requirement for a minimum social capital has been eliminated. Therefore, after registering the company with the Trade Register, you can go to the bank where you will present the registration documents to open a corporate account.
The initial costs of establishing an LLC are low. In principle, the only legal obligation is to pay the fees calculated by the Trade Register during the registration administrative process. Any other cost remains at your discretion: if you wish to hire specialized firms to assist you throughout the registration process, you can expect to pay between 300-2,000 lei (around EUR 70-400) or even more if you hire lawyers. You also have the option of going through the LLC establishment process on your own.
Regarding the internal organization of your company, start by understanding the legal obligations you have and how to ensure that your LLC is protected.
A first step is to understand how decisions are made within a Romanian LLC. We have two key words: majority and quorum. The rule provided by law is that of double majority. The general assembly of an LLC decides by the vote representing the absolute majority of the shareholders and social parts. Through the articles of incorporation, shareholders can decide on other decision-making conditions, but it is essential that these be expressly stated. Templates of resolutions for amending the articles of association, shares par value decrease, share capital increase or descrease, changing shareholding structure and other decisions can be found on Docs & Deeds.
A second step is to ensure that you have appointed a director to manage the day-to-day affairs of your LLC. The director can also be an employee under an individual employment contract, or, if you want to avoid employee-specific bureaucracy, can be appointed through a mandate contract for director appointment.
Lastly, make sure to use professional contract templates for relationships with clients, contractual partners, and employees. For business relationships, partnership contracts or consultancy contracts are preferred by SMEs for contracting external collaborators. In employment relationships, using an individual employment contract and an appropriate internal regulation offers you the advantages of a professional framework for managing employees and the conduct they must adopt within the company. Depending on the business domain, you may be interested in implementing professional template contracts for eCommerce or template contracts for IT & Tech sector and software development.
2. Separation of the LLC's assets from those of the shareholders
One of the main advantages of an LLC is the limited liability of the shareholders. Legal entities such as LLCs have the right to enter into contracts and engage in various transactions on their own, being separate legal entities then the owners. Shareholders are not parties to the contracts entered into by the company, which means they do not incur personal obligations from them.
In case the company faces a debt or potential litigation, the personal assets of the shareholders are protected. They are not required to cover the debts of the LLC using their personal assets, and they cannot be forcibly executed for them.
If the LLC cannot cover its debts, it may become involved in legal proceedings, but the shareholders are protected. Of course, protection of the shareholders' assets is not absolute. In cases where shareholders have used the LLC as a cover for illicit activities or as a vehicle to pursue personal interests, they may be held liable.
The most common scenario of this kind is encountered in the insolvency of LLCs. The insolvency procedure is initiated when an LLC faces a lack of liquidity and, for this reason, cannot pay its creditors for more than 60 days, or, as the law states: "insolvency is a state of the debtor's assets characterized by the insufficiency of available monetary funds to pay certain, liquid, and due debts, and which is presumed when, after 60 days from the due date, the debtor has not paid its debt to the creditor; the presumption is relative."
The threshold value to know whether your company is or is not in a state of insolvency is 50,000 lei for both creditors and debtors, and for employees, it is 6 average gross salaries per economy/employee.
All entrepreneurs have heard of insolvency, but less known is the fact that initiating the procedure is not optional. If the debts of your LLC exceed the threshold value, you are obligated to file an insolvency procedure for the company. There is no option in this regard, and once the conditions provided by law are met, the LLC must declare insolvency.
The risks of not filing an insolvency procedure are criminal, so keep careful records of the debts your LLC has, and when they exceed the legal limit, file a request with the competent court.
At the request of the judicial administrator or the judicial liquidator, the judge may order that a part or the entire liability of the insolvent company be borne, without exceeding the damage causally related to that fact, by the members of the management and/or supervisory bodies of the company or by other persons who contributed to the state of insolvency of the debtor. Acts considered by law as contributing to the insolvency state include:
Used the assets or credits of the legal entity for their own benefit or that of another person.
Engaged in production, trade, or service activities for personal interest under the cover of the legal entity.
Ordered, for personal interest, the continuation of an activity that clearly led the legal entity to default.
Kept fictitious accounting, made some accounting documents disappear, or did not keep the accounting in accordance with the law. In the case of non-delivery of accounting documents to the judicial administrator or liquidator, both the fault and the causal connection between the act and the damage are presumed. The presumption is relative and can be proven otherwise.
Diverted or hidden part of the legal entity's assets or artificially increased its liabilities.
Used ruinous means to obtain funds for the legal entity with the aim of delaying default.
In the month preceding the default, paid or ordered to be paid with preference to a creditor, to the detriment of other creditors.
Any other intentional act that contributed to the insolvency state of the debtor, as determined according to the provisions of this title.
3. Differences between an LLC and other business structures
There are several types of business structures available, and the right choice depends on your specific needs and objectives. Here are some major differences between an LLC and other business structures:
LLC vs. Authorized Physical Person (PFA): An authorized physical person is a natural person entitled to conduct commercial activities. A PFA not a separate legal entity from the entrepreneur or professional, but more of an entity established for fiscal purposes. Even though it may have a separate asset for the professional activity it carries out, the owner of a PFA is personally responsible for the obligations contracted. On the other hand, a PFA provides easier access to the funds allocated to the business you conduct, while with an LLC, you have to wait for dividends at the end of the year or quarter.
LLC vs. other types of companies: In addition to LLCs, the Companies Law 31/1990 provides for the following forms of company: general partnership, limited partnership, joint-stock company, and joint-stock partnership. Some differences between them are:
Shareholders in general partnerships and limited partners in limited partnerships are unlimitedly and jointly responsible for the social obligations. Creditors of the company will first pursue the assets of the legal entity, and only if the company does not pay within a maximum of 15 days from the due date, they can turn to these shareholders. Shareholders, limited partners, and shareholders in LLCs are only responsible up to the subscribed share capital.
Except for LLCs, the other forms of companies do not allow the existence of a single shareholder; there must be at least 2 founders.
Some forms of companies have minimum share capital requirements. For example, the share capital of a joint-stock company or a joint-stock partnership cannot be less than 90,000 lei.
3. What else you need to know about setting up an LLC in Romania
Legal and accounting obligations. LLC shareholders are not devoid of any form of responsibility. Once the LLC is established, you will have continuous legal and accounting obligations, such as organizing accounting, filing tax returns, maintaining accounting records, and complying with other legal requirements.
Use of the e-Invoice system. Starting from January 1, 2024, it is mandatory to issue all invoices through the national system provided by the Ministry of Finance. The e-Invoice system aims to improve the collection of taxes and fees, especially VAT (value-added tax).
The e-Invoice system is not new. Certain categories of economic operators already had the obligation to use it. For example, economic operators issuing invoices in relation to the state or those selling products with a high fiscal risk already use the e-Invoice system. The products with high fiscal risk we refer to, according to the law, are: (i) vegetables and fruits, (ii) water, including mineral water, (iii) alcohol, (iv) clothing and footwear, (v) sand, gravel, stones, (vi) new buildings.
e-Invoice is not synonymous with "electronic format invoice." The latter is issued in Word or a similar format, sent by email, and can be printed. e-Invoice is an XML file containing encoded and standardized information.
The implementation of the e-Invoice system will be done in stages, as follows:
January 1 - March 31, 2024, is a transition period during which no taxpayer will be fined for not introducing invoices into the e-Invoice system.
Starting April 1, LLCs are required to report invoices in the e-Invoice system within 5 working days from the issuance date but no later than five working days from the deadline set by the Fiscal Code. The fine for not meeting this obligation starts at 1,000 lei and increases to 10,000 lei.
July 1, 2024 is the moment when "paper" invoices disappear for LLCs and other economic operators. All invoices must be issued through the e-Invoice system. Receiving and recording business-to-business invoices outside the e-Invoice system will be sanctioned with a fine equal to the VAT specified on the invoice.
In other words, even if the LLC generated a document in the internal computer program and sent it to the client, that document does not represent an invoice in the legal sense.
Establishing an LLC can be an excellent choice for your business, providing limited liability protection, flexibility, and ease in managing your business. However, it is essential to carefully evaluate your specific needs and objectives before making a final decision. Consulting with a lawyer can also be helpful to ensure that you choose the right legal structure for your business.
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