Types of companies - the right choice for business success

There are some criteria to be taken into account in this respect, but it is vital that before taking any action they gather a lot of information on the characteristics of the main types of companies in Romania, in order to understand which one suits them and which one can bring them the desired success.

Publication date: 13 December 2022

In the article below you will discover what the main types of companies in Romania are, what their financial characteristics are, what advantages and disadvantages each one has and you will learn how to choose the right type of company that can ensure success in your chosen business.

Contents:

1. Types of companies in Romania and their financial characteristics

1.1. General partnership

1.2. Limited partnership by shares

1.3. Limited liability company (SRL)

1.4. Joint stock company (SA)

1.5. Limited partnership

2. Advantages and disadvantages of the main types of companies

2.1. Advantages of the main types of companies

2.2. Disadvantages of different types of companies

3. Choosing the type of company that can make a business successful

1. Types of companies in Romania and their financial characteristics

Before specifying the types of companies in Romania, it is important to mention a few useful facts about their incorporation, founders and, obviously, the registered office of the company:

• To set up a company you need at least two associates, and to create a limited liability company you will only need one person (single-member limited liability company);
• General partnerships or limited partnerships can be set up under a partnership agreement;
• Joint-stock companies, limited partnerships and limited liability companies are based on a memorandum of association (consisting of a contract and articles of association);
• The persons who signed the memorandum of association are called the founders of the company;
• To set up a company a share capital must be subscribed (the amount will vary depending on the type of company chosen);
• The company's assets are the security for its obligations;
• Every company must have a registered office (it does not matter whether it is a building with several flats or a house);
• The business may or may not be carried on at the registered office;
• The registration of the registered office requires proof of the right of use with at least one of the following documents: land register extract, sale-purchase contract, donation contract, certificate of inheritance, exchange contract, court decision, rental contract, concession contract, property lease, commodatum or any other document resulting from the right of use of the property;
• The registered office of the company may be changed according to needs and wishes.

For those who wonder how many types of companies there are in Romania, the answer to this question is very simple. There are five types of companies that can be set up in Romania: general partnership, limited partnership or limited partnership limited by shares, limited liability company (SRL), joint-stock company (SA).

1.1 General partnership

The general partnership or SNC is characterised by the very close cooperation and personal relationship between the founding members, who are usually friends, family members, work colleagues. Partnerships are unlimitedly liable for the obligations of the company created. The name of this company will include the name of at least one of the founders, followed by the words SNC. In terms of share capital, the law has not set a minimum or maximum limit. Decisions on the partnership will be taken by the general meeting of partners, where each partner has the right to vote, and will be managed by one or more persons appointed by them. It is also worth noting that these partnership decisions will be taken unanimously. 

1.2 Limited partnership by shares

This company usually operates like a joint-stock company, except that the shareholders will be divided into limited partners and limited partners, who are considered founders. The name of the company will be unique, with the mandatory addition of the expression 'limited partnership limited by shares'. The company will be managed by one or more limited partners, and the managers may be removed by the general meeting. 

1.3 Limited liability company (SRL)

The limited liability company or SRL is set up by individuals, regardless of whether they are Romanian or foreign citizens, individually or in partnership. The number of partners can be at least 1 and at most 50. The name of the company is made up of an individual name followed by the phrase "limited liability company" (SRL).

Decisions are taken at a general meeting by an absolute majority of the members and shares, unless the articles of association or the law provide otherwise. The general meeting will be convened at the registered office at least once a year by the administrators (appointed by statute or by resolution of the meeting) or more often if necessary. A person holding at least one quarter of the shares may convene the meeting for a specific purpose, which he shall specify. If a majority is not convened, then the meeting will be reconvened and can then take decisions regardless of the number of members present. If the company has more than 15 members, one or more censors will be appointed.

1.4 Joint stock company (SA)

The joint stock company (SA) must have at least two shareholders (they can be natural or legal persons) and will have a unique name, to which the words "joint stock company" or SA must be added. As regards the share capital, the following must be stated:

• the company is created by full and simultaneous subscription of the share capital;
• the signatories to the memorandum of association may decide to subscribe the entire share capital if they do not have the necessary resources;
• dividends will be distributed from the profits according to the number of shares held by the shareholders.

The joint stock company operates through close cooperation between its internal structures. The main decision-making body is the general meeting. It may be ordinary or extraordinary. The company has one or more directors and the audit function is carried out by auditors (three in number, one of whom must be a certified accountant).

1.5 Limited partnership

This type of company has two types of partners (limited partners and limited partners), considered founders. Limited partners (only natural persons) have the right to manage the company. The risk of the limited partners (natural or legal persons) is limited to the subscribed capital and they have the right to request a copy of the balance sheet and profit and loss account and the right to verify their authenticity by means of supporting documents.

The partnership must have a name which includes the name of at least one of the limited partners and then the words "limited partnership". The liability of limited partners is different from that of limited partners. The former are liable unlimited and jointly and severally for the obligations of the company, while the latter are liable only up to the amount of the subscribed share capital.

Partners make decisions in general meetings. Depending on the number of shares they hold, they may exercise their voting rights at this meeting. Shareholders also receive dividends according to the number of shares. The limited partnership is controlled and managed by one or more limited partners.

2. Advantages and disadvantages of the main types of companies

To better understand the differences between the main types of companies, it is useful to research each one carefully and look at their advantages and disadvantages, so that future entrepreneurs know which would be the best option for them. 

2.1. Advantages of the main types of companies

This identifies some of the advantages of the main types of companies:

• In the case of the general partnership it is simple organisation (close cooperation, as the founders are members of the same family, work colleagues or close friends) and large share capital;
• The limited partnership is advantageous because the limited partners are liable only up to the amount of the subscribed share capital, unlimited and jointly and severally liable, and because there are multiple possibilities for financing and developing the business;
• The main advantages of the limited partnership are: the managing partner is responsible for the total assets and liabilities of the company and the administrative costs are usually small and medium-sized;
• Choosing to set up a limited liability company can be beneficial because its main advantages are the relatively short set-up time (2-3 working days), limited liability of partners and directors, submission of projects for non-reimbursable funds from the state and obtaining financing for business development;
• Last but not least, the advantages of the joint-stock company should be mentioned. These include the possibility of developing the activity and attracting investment for the equipment used to carry it out, liability for the company's obligations is limited to the share capital, decisions are taken on the basis of the number of shares held by each partner, and the only system of taxation is corporation tax.

2.2. Disadvantages of different types of companies

Companies may also have certain disadvantages, depending on the type:

• An LLC does not allow one person to be the sole shareholder in more than one such company, and if it has more than 15 shareholders, then it requires a board of auditors;
• A public limited company (SA) has a more cumbersome procedure for setting up and the capital required is large, and the liability of shareholders is limited;
• The general partnership (SNC) implies unlimited liability of the partners and does not offer guarantees to banks and partners;
• The limited partnership has the following disadvantages: the limited partners only share in the profits, the limited partners manage the firm and do not provide guarantees to banks and partners;
• The limited partnership limited by shares does not present guarantees to the banks and partners.

3. Choosing the type of company that can make a business successful

The most popular type of company that can ensure the success of a business is considered by some to be the SRL, but other types of companies have their advantages too. The following key criteria should be taken into account when choosing the right type:

• the number of founders of the company;
• the location of the company's registered office;
• registration costs;
• fees and taxes;
• accounting requirements;
• the company's main activity.

Founders must choose the name of the company, which can be verified and reserved with the ONRC, choose the type of business they will carry out, draw up the Memorandum and Articles of Association, file the share capital and the registration file.

Regardless of the type of company set up, an entrepreneur starting out should try to get all the help possible, which will provide maximum guarantees for the success of his business. Business consultancy firms, which offer a variety of services for companies of various sizes, are of great help in this respect. For example, SNCs, founded for the efforts of several related members, can benefit from family business services, which offer advice on business management, regulatory compliance and top financial advisory services.

It's not just new businesses that benefit from business advice, an example of this is those companies that are required to carry out financial audit work to identify areas of risk and eliminate unnecessary losses.

In conclusion, anyone who wants to set up a business needs to create a company that fits with their medium and long-term goals and their idea of business. Depending on what field of activity they prefer, the number of shareholders and the level of responsibility they want to assume, they can choose from the different types of companies that exist in Romania.

*This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.