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Legal Entities

Limited Liability Company (Societate cu Răspundere Limitată - SRL)

Redacted by: Duma Cristian-Gabriel.

Introduction

  • First and foremost, let's clarify that an SRL (Societate cu Răspundere Limitată) is essentially the Romanian counterpart of an LTD (Limited Liability Company). Under the current Romanian legal framework, it assumes the status of a 'legal entity,' implying that it takes on a distinct identity with its own set of rights and obligations, therefore the SRL is seen as an independent entity distinct from the individuals who make up its structure

Chapter 1: Formation and Capital Structure

  • Formation: Crafting an SRL involves a streamlined procedure, necessitating just a handful of essential documents. Furthermore, it entails fewer required authorizations when contrasted with alternative legal entities.
  • Capital Requirements: An enticing feature to keep in mind is that the SRL can be established with a modest 1 ron (0.22 USD), which presents a compelling advantage over other legal entities. This accessibility opens the door to your entrepreneurial journey with minimal financial barriers.

Chapter 2: Management and Governance

  • Governance Structure: When it comes to governance, the SRL is quite flexible. Usually, there are associates, who own the social parts (stocks of the company), and the administrator (director), who is the exectutive body.
    • The associates constitute AGA (General Shareholders' Meeting), which is basically the parliament of the SRL. It draws the direction of the SRL, names or revokes directors, and takes important decisions on behalf of the SRL.
    • The administrator (director) is the executive body of the SRL, and it takes all the current decisions, which are needed for the SRL to function and operate.
    • Usually, there need to be at least 2 associates, but the law gives you the opportunity to create an SRL with only one associate, who can be at the same time the administrator of the SRL, and it can be hired as an employee as well. Having said that, in Romania, there can be only one individual who can carry out a business, which consists of a great opportunity.
  • Management Flexibility: As mentioned earlier, running and managing an SRL in Romania is a straightforward process. Depending on the number of associates involved, you have the flexibility to oversee and control the entire business with minimal obstacles. If you're interested in exploring these opportunities further, feel free to engage in a discussion with our experienced team.

Chapter 3: Liability and Risk

  • Extent of Liability: Given its structure and regulations, an SRL presents a viable option for entrepreneurs in Romania. It is regarded as a separate legal entity, existing independently from its associates, employees, and others. Consequently, the associates' liability is limited to the SRL's capital. Additionally, you have the flexibility to set the capital for your SRL, offering greater versatility in initiating a business here in Romania.
  • Risk Management: SRLs are known for their limited liability structure, where personal assets of shareholders (associates) are typically protected, allowing for flexibility in capital requirements and management decisions. In contrast, for example, SAs are companies with higher capital requirements, stringent reporting, and complex governance structures,. The choice between SRL and other legal entities depends on factors like business size, capital needs, and desired regulatory compliance and reporting levels.

Chapter 4: Financial and Tax Implications

  • Tax Obligations: As of today, the SRL has one of the lowest tax obligations, which vary from 1% to 3% if the income is above 500.000 EUROS.
    • 1%: if you're a microenterprise with revenues not surpassing 60,000 euros in the current year, you benefit from the astonishingly low 1% tax rate. It's an incredible opportunity to keep more of your hard-earned money in your pocket.
    • 3%: for microenterprises with revenues exceeding 60,000 euros in the current year, the 3% tax rate is still remarkably favorable. It allows you to enjoy the financial benefits of your success while keeping taxes manageable.
    • However, it's worth noting that certain activities, as indicated by specific CAEN codes, are obligated to pay a fixed 3% tax rate, regardless of their earned income. For example, the IT sector falls into this category.
  • Financial Reporting: There are a few documents, statements that you will have to submit, but the process is made smoothly, so you can focus on your business. Your annual financial statements, including the balance sheet, income statement, cash flow statement, and insightful notes, are a few of the obligations that you have. Your financial year aligns with the calendar year, and all reports are prepared in the resilient Romanian currency (Leu).
    • You don't need to worry about this aspect, as our professional team can assist you with everything related to bureaucracy.

Chapter 5: Dissolution and Exit Strategies

  • Dissolution Processes: When it comes to dissolving your SRL, it starts with a decision among the shareholders to initiate the process. Your appointed liquidator or liquidation commission takes the helm, guiding you through the steps ahead. They'll manage creditor notifications, asset sales, and the critical task of obtaining tax clearance certificates. With these clearances in hand, you'll submit a deregistration request to the Trade Register, supported by a comprehensive report of your company's liquidation. Finally, with official deregistration, you've successfully navigated the dissolution process, ready for new horizons.
  • Impact on Shareholders: Shareholders are presented with a compelling advantage in the dissolution process, characterized by its adherence to formal equity principles. As the company concludes its operations, shareholders have the opportunity to receive their proportionate share of any remaining assets. This distribution is meticulously calculated to align precisely with their ownership stake in the company, ensuring an equitable and transparent process.

Conclusion

  • In conclusion, an SRL registered in Romania emerges as a versatile and attractive option for entrepreneurs and businesses alike. With its streamlined formation process, minimal capital requirements, and flexible governance structure, it presents an accessible gateway to the business landscape. Moreover, shareholders' interests are protected through meticulous equity principles, ensuring that they receive their rightful share of remaining assets during dissolution. In navigating the Romanian business environment, the SRL offers a balanced blend of opportunity and protection, making it a prime choice for those seeking to embark on entrepreneurial ventures or expand their existing businesses. As the Romanian economy continues to evolve, the SRL structure stands as a resilient and advantageous option for aspiring and seasoned entrepreneurs alike.