Romania is a country which is still trying to find a clear way forward both for business and for the community at large. It is for this reason each year it passes many new laws or more importantly amends existing laws, as well as adopting EU laws and EU regulations and EU directives. The constant changing of the Romanian legal environment is a nightmare not only for the companies but for lawyers practicing in Romania.
For the business community this is highly problematic as they do not know what laws will be amended, what laws will be passed or indeed what new laws will be introduced. Often new laws are passed for political reasons by way of Romanian Government Emergency Ordinance and therefore come into immediate effect without any public discussion.
Most businesses now accept this as a normal business hazard of carrying on business in Romania but it has unforeseen consequences. Romania being a country were often legal enforcement is more form over substances then unless you have a full time legal adviser working in your company legal matters can get overlooked. Changes to Law 30/1990 on Companies, of the Romanian Labor Code or the Romanian Fiscal Code are the most frequent and likely to cause difficulties. If you work in the Romanian pharmaceutical industry the requirements of the Romanian Health Ministry and licensing authorities will give you many problems.
Many accountants try to cover the financial and taxation aspects and risks. There are regulations dealing nor only with the taxation but commercial and other matters which cause problems. This was brought home to me in discussion with an architect friend last week. He pointed out that many commercial buildings in Romania are deficient from the legal technical perspective and therefore unsellable. Further more, there are matters which mean that if there was an accident or fire the owners can be personally liable as the technical matters of construction have not been adequately recorded.
Buildings that were erected in the early 1990s and 2000s whilst the general construction rules were followed, there are now in some cases serious discrepancies. These can make a building unsafe until they are resolved. The technical documentation also will need to be brought up to date.
The same applies to corporate matters for a company. A legal audit (or due diligence) should be carried out periodically by a reputable Romanian law firm. This is necessary whether or not it is intended to sell the company.
A legal audit should cover a thorough review of all documentation including corporate documents registered with the Trade Registry. Documents have to be brought up to date and registered and filed with the Romanian Trade Registry and these may have been overlooked. Copies of documents in some cases have to be kept and authorized translations obtained and made available to the authorities.
Where necessary minutes of the companies should be prepared and signed. As most companies in Romania are “family” owned and run decisions are made over a cup of coffee and not properly recorded. For the sake of good order proper records should be kept. Commercial contracts should be reviewed and any risks to the Company pointed out.
I have already written about employment matters and employment issues need to be reviewed. The companies should consider if there are any commercial matters which could give rise to claims from third parties and which would cause the company major difficulties in the future.
A legal audit need not be expensive or take a long time provided there is co-operation. In any company if a legal audit is carried out the staff need to understand that it is a precautionary step and not intended to catch people out.
Romanians not being used to planning ahead find the idea of a legal audit strange. When we have carried out such an audit we have always found that the client has learned something about their company. They have learned about matters which they did not know about and they can use it in the future. None have ever said it is a waste of time and more importantly money.
Our advice to our clients is consider periodically (at least every five years) to have a legal audit carried out to ensure that they are legally compliant. If discrepancies are picked up then they can be resolved at an early stage and matters rectified before it is too late and the company or business incurs fines and more costs.
So if you run a business think about it.
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