Shareholders’ Agreements

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Shareholders' agreements are legal documents found on the borderline between company law and contract law. They are contractual in nature, but their effectiveness depends in some respects on their compliance with the provisions of Law 31/1990 on companies (Law 31).

The characteristics of shareholders’ agreements could be summarised as follows:

• They are contractual in nature, which gives the shareholders more flexibility as regards the agreed contractual provisions (including the law applicable to the agreement, which does not have to be Romanian law).

• They do not have to be published (similar to company articles of association), although they usually contain essential elements concerning the exercise of control in the company and are confidential.

• They are not regulated as such and their contents is usually determined by practice.

• They are of unquestionable economic importance, as they provide essential rights for members/shareholders such as the right to participate in company decision-making, participation in the management of the company through the appointment of board members, exit rights i.e. in the case of transfer of shares.

• They can be concluded both at the time of the company's incorporation and subsequently. Shareholders’ agreements are usually negotiated and concluded in the context of attracting new investors to the company through the sale of a stake or an increase in share capital,

• Not regulated and not public, shareholders’ agreements may seem curious to new entrepreneurs and even to the courts of law. This may be a disadvantage if a party to such an agreement wants to protect its rights before the Romanian courts. For this reason, usually shareholders' agreements contain arbitration clauses i.e. clauses on the settlement of possible disputes through arbitration - a more costly - but more efficient and confidential way of settling disputes.

The good news is that shareholders’ agreements don't have to be an exotic concept for entrepreneurs but can be used successfully with the guidance of the right lawyer. #lclegalproof

Share capital increase and bringing in new shareholders as way of business financing

An article from the series: The Entrepreneur and their Business in Romania

#lclegalproof #legalbrain #antreprenor #societati #srl #sa #societatepeactiuni #societatecuraspunderelimitata #businesschallenges #entrepreneurship #companylaw #startup #founders #beingafounderinRomania #majorare #capitalsocial #majorarecapitalsocial #sharecapitalincrease

One of the ways to raise capital in an existing company is to increase the share capital through contributions Finanțarea unei societăți prin participarea la o operațiune de majorare de capital social poate fi atractivă pentru investitori întrucât deținerea unei participații în societatea în care au decis să investească poate reprezenta o garanție suplimentară în sensul că activitatea și rezultatele societății se îndreaptă în direcția dorită. from investors, individuals or other companies, which implies that investors will become partners/shareholders in the company in exchange for a stake in the share capital and receiving shares in return. Contributions from new (or existing) shareholders can take the form of cash, in-kind or by offsetting certain, liquid and payable claims.

According to the Companies’ Law 31/1990 ("Companies Law")[1] the increase of share capital is decided by a resolution of the extraordinary general meeting of shareholders, with the participation of the existing shareholders and those who will become shareholders. The resolution shall also provide for the additional contributions and the related shareholdings. It should be stressed that, depending on the specific situation of the company in question (e.g. if we are talking about a joint stock company with several existing shareholders) it may be necessary to take into account the observance of certain preferential rights of the existing shareholders in order to avoid their dilution. The provisions of Article 216 of the Companies Law suggest that such pre-emptive rights would only exist for shareholders in a joint stock company. However, the law does not prohibit the creation of similar rights for shareholders in a limited liability company by its articles of association.

Financing a company by participating in a share capital increase operation can be attractive to investors as holding a stake in the company they have decided to invest in can be an additional guarantee that the company's business and results are moving in the desired direction. On the other hand, the involvement of investors may mean less control of the entrepreneur over the business.

In order to establish clearly from the outset what the rights of the new shareholders are and the level of control they can exercise, the share capital increase could be accompanied by the signing of a shareholders' agreement - which we will discuss in detail in a separate article.

Carrying out a share capital increase operation requires going through certain formalities at the Trade Register Office. But this is the last stage of the whole process - what should be of particular interest is the outcome of the operation and how the company operates once the new shareholders/partners join.

[1] Article 113 letter f) of the Companies Law.

S.R.L. and S.A. Impact of the choice of company form on business development.

An article from the series: The Entrepreneur and their Business in Romania

#antreprenor #societati #srl #sa #societatepeactiuni #societatecuraspunderelimitata #businesschallenges #entrepreneurship #companylaw #startup #founders #beingafounderinRomania

The first step in conducting entrepreneurial activity is to choose a corporate form. The most commonly used are SRL (limited liability company) and SA (joint stock company). The optimal variant for a start-up entrepreneur's business should be chosen according to a number of factors, including: available capital, number of partners/shareholders, but (perhaps most importantly) the entrepreneur's intention regarding the destiny of the new company.

S.A. and S.R.L. at a glance

Probably the easiest way to understand what the common and distinguishing features of S.A. and S.R.L. are is to include them in a (non-exhaustive) picture like the one below:

Shareholding structure

Shareholding is the composition of the partners or shareholders in a company. It may be relevant for a company seeking to attract funding either from private individuals (such as angel investors) or from venture capital firms. Given that, by assumption, the company is in the early stages of its development, the importance of the people involved in realising the founders' vision is crucial.

Financing options and potential obstacles linked to the corporate form

The options available to a company to raise finance from outside the sphere of its shareholders/owners depend to a large extent on the type of company. While both limited liability companies and joint stock companies can access the services of crowdfunding platforms (which I wrote about here) or obtain loans from third parties - convertible into shares or stocks or not (which I wrote about here), other forms of financing are reserved only for joint stock companies (e.g. issuing bonds or raising finance by listing on Romanian or foreign capital markets).