Romanian Companies’ in-kind share capital contribution

Romanian Companies in-kind share capital contribution

As a Romanian law Firm involved in several incorporations of companies for foreign clients, we are often asked about capital contributions in cash and kind. Under the Romanian Companies Law, contributions toward capital in cash are mandatory when incorporating a company. However, not all the capital has to be contributed in cash. The capital contributions may also be in-kind when incorporating a joint stock or a limited liability company.

I. Definition

A contribution in kind can be defined as the contribution of any asset (tangible or intangible, movable or immovable) that is not a contribution in cash, provided that this asset has a financial value, is transferable, and is not subject to any limitations provided for by law.

II. Valuation

Concerning the value of the in-kind contribution, the law provides that the company’s deed of incorporation needs to contain both the value of the assets and the method used to assess the value.

Regarding the valuation of contributions in kind, the main risk lies in the overvaluation of the asset. This can be detrimental to the relationship between the shareholders as well as the company’s creditors, who could be misled about the company’s assets. Thus, such a valuation is subject to a special procedure.

Further, it should also be noted that the in-kind contribution involves both the relationship between the associate and the company through which the associate receives the right to participate in the profits of the company and the relationship between the company and the company`s creditors, as the share capital of the company serves as a warranty to third parties who deal with the company.

From this perspective, the law provides different valuation procedures for the two types of companies. In the case of limited liability companies, the private interest has priority. In joint-stock companies, additional measures specifically designed to protect the public interest are established.

To this extent, in the case of joint-stock companies and considering that the share capital is larger and of higher importance for the company having a minimum share capital threshold of twenty-five thousand Euro, the public interest is protected by establishing the obligation to evaluate the assets brought as a contribution in kind through a valuation report carried out by an independent expert. Further, when registering the share capital, the Romanian Trade Register will, within five days from the lodging of the application, appoint one or more experts to draw up a report including the description and evaluation method of each asset contributed and will highlight whether its value corresponds to the number and value of the shares issued in respect of the value of the asset.

On the other hand, the limited liability company is a more straightforward and flexible form of business organization. It is viewed and constituted as a personal company, where the relationship between associates is assumed to be closer and more direct.

Thus for limited liability companies, the obligation to evaluate the contribution through a valuation report is not provided for by law except where a sole shareholder owns a limited liability company. This exception is to protect the creditor`s interests, and a valuation report executed by an independent expert is needed.

III. Paying the share capital

When incorporating a joint-stock or limited liability company, the paid-up share capital must be at least 30% of the subscribed share capital. The balance of 70% must be paid within twelve months of incorporation for cash contributions and within two years from the incorporation date for in-kind contributions.

The in-kind contributions are paid by transferring ownership (or other rights) to the company and by effectively handing the goods to the company.

IV. Real Estate and Shares

As mentioned, when defining the in-kind contribution, the assets that can be used to contribute to the share capital can be tangible or intangible, movable or immovable goods.

It should be noted that for both types of companies, if there has been a contribution in-kind to the capital of real estate, then the company’s deed of incorporation must be signed in front of a notary. The associates and the company must consider all the other formalities applicable when transferring ownership rights over real estate, such as respecting legal or conventional preemption rights.

Shares in another company can be contributed to the share capital by transferring the right of ownership over those shares. As for real estate, the following aspects will be considered when transferring ownership rights over the shares. These need to obtain the prior consent of the limited liability company associates unless the shares are contributed to the share capital of a company that does not already own shares in the company who will issue shares for this in-kind contribution. In any event, when shares of a third-party company are to issue for an in-kind contribution, then the possible preferential rights of the shares of the current companies’ associates need to be complied with, if applicable, with the obligation to make any prior notifications and obtain any necessary authorizations.

V. Conclusions

Making an in-kind contribution to the share capital of a company may prove to be a convenient option as it has the advantage of saving time and other resources when compared to the lengthier process of selling the assets and then making a cash contribution to the share capital of a company. Further, even though in this article we are talking about the incorporation of a company, the contribution in kind can be made during the corporate life of a company at any time to finance a capital increase.

Diana Niculae, Lawyer

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