Limited liability company (LLC) vs. joint stock company (JSC) -The commercial company is an autonomous body, which the law has conferred legal personality and which provides the best framework for the achievement of social goals, the satisfaction of personal interests of economic agents.
A JSC is a company whose share capital is divided into shares and whose obligations are secured by the company’s assets; shareholders are liable only to the extent of their contribution.
A JSC company is a capital company, the essential element being the share of capital invested by the shareholder.
A LLC is a company whose social obligations are guaranteed by the company’s assets; members are liable only to the extent of their contribution. The constitution of the company is based on the trust and qualities of the partners.
Shareholders/Members and Share Capital
The number of shareholders in a JSC may not be less than 2. The law does not impose a maximum number of shareholders for this form of company.
LLC can have only one shareholder. The law stipulates that the number of shareholders may not exceed 50.
Both shareholders and associates can be natural persons and legal entities with Romanian and foreign citizenship.
The share capital required for the establishment of an LLC is not limited and is divided into equal shares, which cannot be less than 10 lei; for JSC the share capital cannot be less than 90,000 lei and the nominal value of a share cannot be less than 0.1 lei. The cash contribution is compulsory for both forms. Contributions in kind must be economically assessable and are allowed for both forms of company and are paid through the transfer of the corresponding rights and through the effective delivery to the company of the goods in a state of use. Services in kind or services may not constitute a contribution to the formation or increase of share capital.
In the case of a JSC, the presence of shareholders holding at least 1/4 of the total number of voting rights is required for the validity of the deliberations of the ordinary general meeting. Resolutions of the ordinary general meeting are passed by a majority of the votes cast. The articles of association may provide for higher quorum and majority requirements.
The presence of shareholders holding at least 1/4 of the total number of voting rights at the first convocation, and at subsequent convocations, the presence of shareholders representing at least 1/5 of the total number of voting rights, shall be required for the validity of the deliberations of the extraordinary general meeting.
Resolutions shall be passed by a majority of the votes held by the shareholders present or represented. The decision on the change of the main object of activity of the company, reduction or increase of the share capital, change of the legal form, merger, division or dissolution of the company shall be taken by a majority of at least two thirds of the voting rights held by the shareholders present or represented.
In the case of a LLC, the general meeting shall decide by a vote representing an absolute majority of the members and shares, unless the articles of association provide otherwise.
A shareholder cannot exercise his right to vote. For resolutions concerning the amendment of the articles of association, the vote of all shareholders is required, unless otherwise provided for by law or the articles of association.
In the deliberations of the meetings of the associates concerning their contributions in kind or legal acts concluded between them and the company.
In the case of JSC the shareholder must abstain from voting if he has interests contrary to the company. A shareholder who contravenes this provision shall be liable for damages caused to the company if, without his vote, the required majority would not have been obtained.
Administration of a JSC and LLC
JSC have a special regime as regards management issues because shareholders can choose between two management systems: either the unitary system or the dual system, without being able to choose both systems at the same time.
The unitary system is characterized by the fact that there is only one level of management, i.e. that exercised by the sole administrator or the board of directors, and the delegation of management powers to one or more directors is exceptionally provided for.
The dual system has a well-structured management and monitoring mechanism, divided into two levels of competence: the management board and the supervisory board.
The JSC is managed by one or more directors, the number of which is always odd. However, companies whose financial statements are subject to a statutory audit obligation are required to be managed by at least 3 directors. When there are several directors, they constitute a board of directors.
The presence of at least 1/2 of the number of members is required for the validity of the decisions of the board of directors, unless the articles of association provide for a higher number.
Decisions of the Board of Directors shall be taken by a majority vote of the members present.
The Board of Directors represents the company in relation to third parties and in court. Unless otherwise stipulated in the articles of association, the board of directors shall represent the company through its chairman.
According to the provisions of the Law, the Board of Directors may delegate the management of the company to one or more directors, there being no minimum or maximum number of directors. Directors may be appointed from among the directors or from outside the board of directors. When there is more than one director, the board of directors is obliged to appoint one of them as managing director. The function of managing director may even be exercised by the chairman of the board of directors.
In the case of companies whose annual financial statements are subject to the legal obligation of audit, the board of directors must delegate the management of the company to one or more directors, appointing one of them as managing director.
The directors of a JSC may not, without the authorization of the board of directors or the supervisory board, be directors, managers, members of the management board or the supervisory board, auditors or, as the case may be, internal auditors or partners with unlimited liability, in other companies competing or having the same object of activity, nor may they carry on the same or a competing trade, on their own account or on behalf of another person, under penalty of dismissal and liability for damages.
In the case of a JSC, some of the powers of the general meeting of the shareholders, limited by law, may be delegated to the directors, including the change of the object of activity, except for the main field and activity of the company.
The LLC is managed by one or more administrators, whether associates or no associates, appointed by the articles of association or by the general meeting.
Administrators may not, without the authorization of the GMS, receive the mandate of administrator in other companies competing or having the same object of activity, nor may they carry out the same or another competing trade on their own account or on behalf of another natural or legal person, under penalty of revocation and liability for damages.
If the shareholders’ meeting appoints more than one director, they will not be able to work together as a real board of directors and decisions must be taken unanimously.
It should be noted that in practice, although the law does not expressly provide for this possibility, in the case of a limited liability company, it is customary to set up a board of directors.
In the case of a LLC, there are no special provisions on the delegation of executive management, as this is regulated by the articles of association.
The conditions imposed by law in the case of delegation of management powers by the Board of Directors to the directors (conditions to be fulfilled by the directors, administrators, professional insurance, etc.) indicate the LLC as the recommended legal form in this case.
Unless otherwise provided in the articles of association, the director of a JSC may, in his own name, alienate, i.e., acquire, assets to or from the company, having a value of more than 10% of the value of the net assets of the company, only after obtaining the approval of the extraordinary general meeting.
The provisions are also applicable to transactions in which one of the parties is the spouse of the director or a relative or a relative up to and including the fourth degree of the director; also, if the transaction is concluded with a civil or commercial company in which one of the aforementioned persons is a director or manager or holds, alone or together, a share of at least 20% of the value of the subscribed share capital, unless one of the companies in question is a subsidiary of the other.
The acquisition by the company, within a period of not more than 2 years from the incorporation or from the authorisation of the commencement of the company’s activity, of an asset from a founder or shareholder, against a sum or other consideration representing at least one tenth of the value of the subscribed share capital, shall be subject to the prior approval of the general meeting of shareholders. These provisions shall not apply to acquisition transactions carried out in the course of the company’s ordinary business, to those carried out at the behest of an administrative authority or a court of law, or to those carried out in connection with stock exchange transactions.
In the case of a company limited by shares, if a director initiates an operation which goes beyond the limits of the normal operations of the trade in which the company is engaged, he must inform the other directors before carrying it out, under penalty of bearing the losses resulting from it.
In the event of opposition by any of them, the partners representing an absolute majority of the share capital shall decide.
The limits of the administrators are decided by the meeting of the associates and by the articles of association.
Bonds are securities issued by the company in exchange for sums of money borrowed, incorporating the company’s obligation to repay these sums and to pay interest on them. A limited liability company cannot issue bonds, whereas a JSC can issue bonds under the conditions laid down in the law.
The nominal value of a bond may not be less than 2.5 lei, being issued in material form, on paper, or in dematerialized form, by book entry.
The subscription of the bonds will be made on copies of the issue prospectus.
The nominal value of the bonds convertible into shares shall be equal to that of the shares. The bonds are redeemed by the issuing company at maturity.
Registers of JSC and LLC
In addition to the records provided for by law, JSC companies must keep the registers of the board of directors or the management board, respectively, by the bodies concerned:
a) a register of shareholders;
b) a register of meetings and deliberations of general meetings;
c) a register of the meetings and deliberations of the board of directors, the management board and the supervisory board respectively;
d) a register of the deliberations and findings of the auditors and, where applicable, of the internal auditors, in the performance of their duties;
e) a register of liabilities;
f) any other registers provided for by special regulations.
Records of bonds issued in dematerialized form and traded on a regulated market or through an alternative trading system, as well as of shares traded on a regulated market or through an alternative trading system, shall be kept in accordance with specific capital market legislation.
The register of shareholders and the register of bonds may be kept manually or in a computerized system.
The JSC may contract with an independent private registrar to keep the register of shareholders and the register of bonds in a computerized system and to carry out the entries and other operations related to this register.
The procedure for keeping registers in the case of a LLC is much simpler because in the case of this form of company the directors, who are personally and jointly and severally liable, must keep a register of members, in which the name and surname, the name, domicile or registered office of each member, his share of the share capital, the transfer of shares or any other change concerning them will be entered, as appropriate. The register may be inspected by members and creditors.
Regardless of the form of company (JSC or LLC) that they set up, shareholders/partners will have to take into account the aspects that differentiate them and that can be of greater benefit to their business strategy.
From the moment of exercising the option for one form or the other, all the statutory bodies are obliged to comply with the legal provisions, both for the establishment and for the operation of the company and the achievement of the purpose for which it was set up.