The stock market's flexibility is its greatest selling point for publicly traded companies, as it allows a fast flow of capital while still enabling majority shareholders to implement fundamental corporate changes should they wish to exit the market. However, even with all of this flexibility, shares may not always be free of other encumbrances, and the sale of such shares may be opposed by interested parties or even refused to be recognised as a genuine sale by the Trade Registry.
In Romania, joint stock and limited liability companies continue to be the most common type of corporation. Limited liability companies are an important backbone of the local economy, with many becoming large enough to qualify as targets in M&A transactions. However, debate exists as to whether classical exit-related provisions (eg, put or call options or drag-along or tag-along clauses) may be implemented in M&A transactions involving shares in limited liability companies.
Although the Companies Law created flexible mechanisms and procedures allowing specific shareholder powers to be delegated to a company's management, it also provides that only some decisions made in this regard can be subject to an annulment action. Specifically, the law excludes decisions which concern an increase in a company's share capital from being challenged. However, the Constitutional Court recently recognised shareholders' right to request the annulment of such decisions in court.
Until recently, Romanian companies could distribute dividends to shareholders only on an annual basis and on approval of their annual financial statements at the end of each financial year. This paradigm has changed and companies can now opt to distribute their dividends annually or quarterly. Although these newly acquired corporate rights have been widely welcomed within the Romanian business markets, they may initially be treated with suspicion by entrepreneurs.
The government recently approved a draft legislation transposing the Fourth Anti-money Laundering Directive and introducing, among other things, important changes for private companies with regard to their reporting duties and transparency of ownership. Some of the new requirements for non-listed companies are of particular importance, as they will be key for combating money laundering and terrorism financing. The bill will also introduce stricter reporting duties and penalties for non-compliance.
The squeeze-out of minority shareholders in closely held companies is a controversial issue made more complex by the large number of Romanian companies with minority shareholders. Historically, state-owned companies were privatised through the management-employee buy-out method, which allowed employees to receive shares in former state-owned companies. As such stakes were often granular, many minority shareholders are dormant or even unaware of their participation in these companies.
The corporate functioning rules for joint stock companies have been repeatedly altered by Romanian legislation, especially in relation to the governing structures of companies, such as shareholders' assemblies and management bodies. However, some situations create problems in practice or generate inconsistencies within jurisprudence. One such example is the use of secret voting in general shareholders' meetings.
Creditors and investors assess the level of a company's net assets when deciding whether to grant a loan to or invest in that company. Further, the Companies Law requires companies to maintain a certain level of net assets. However, an increasing number of companies on the Romanian market are struggling with low net assets to total asset ratios. Luckily, such companies can redress their situation through a share capital increase, which is a straightforward procedure.
Regulatory approval plays an important role in the transfer of assets or lines of business. In general, where permits are issued in consideration of assets being sold, the transfer will entail a new authorisation procedure to be undertaken by investors. This is also the case for environmental authorisation; however, as local authorities do not consistently deal with the applicability of the various regulations in this regard, mitigating potential hurdles will generally require coordination with the respective authorities involved.
Parliament has finally adopted the long-awaited Law on the Securitization of Receivables and the Law on Mortgage Bonds. Although the Mortgage Bonds Act appears to provide a suitable tool for issuing covered bonds, the Securitization Act appears to be overly regulative.