When starting a business in Romania, one of the first and most important decisions you’ll need to make is choosing the right legal form for your company. The legal structure you select will influence everything—from taxes and liability to management and regulatory obligations. Understanding the options available is essential for setting your business on the right track and ensuring long-term success.
In this article, we’ll explore what is the legal form of company in Romania and help you determine which option best suits your needs.
1. Why Is Choosing the Right Legal Form Important?
The legal form of your business plays a significant role in shaping how your company operates. It determines how you’ll pay taxes, how profits are distributed, and even how much personal liability you take on as a business owner. Whether you’re an independent freelancer or planning to build a large corporation, selecting the right structure is critical to ensuring your business runs smoothly.
2. The Most Common Legal Forms of Companies in Romania
In Romania, there are several types of legal forms for businesses. Here are the most common ones
1. PFA (Persoana Fizica Autorizata)
A PFA, or Authorized Natural Person, is one of the simplest forms of self-employment in Romania. It is often chosen by freelancers, consultants, and professionals who don’t require a complex business structure. The PFA allows you to operate as an individual, and you’re fully responsible for any profits and losses.
- Advantages:
- Simple registration process
- Lower administrative costs and requirements
- Tax deductions on business-related expenses
- Disadvantages:
- Unlimited personal liability (you are personally responsible for all debts and obligations)
- Limited growth potential (not ideal for expanding businesses)
- Higher taxes in some situations compared to other structures
If you’re a solo entrepreneur or a freelancer, a PFA might be the easiest and most cost-effective way to start your business
2. SRL (Societate cu Raspundere Limitata)
The SRL (Limited Liability Company) is the most popular legal form for small and medium-sized enterprises (SMEs) in Romania. The key advantage of an SRL is that it limits the personal liability of its shareholders to the amount of their contribution to the company.
- Advantages:
- Limited liability for shareholders (protects personal assets)
- Flexibility to have one or more shareholders
- Easier to raise capital and expand
- Lower tax rates for small companies
- Disadvantages:
- More administrative requirements compared to a PFA
- Mandatory financial reporting and accounting requirements
- Initial costs associated with registration and maintenance
An SRL is ideal for entrepreneurs who plan to grow their business and want to limit their personal liability. It is also a great choice for those seeking to attract investors or partners.
3. SA (Societate pe Actiuni)
The SA, or Joint Stock Company, is typically used for large enterprises or companies planning to raise significant capital from multiple investors. In an SA, the company’s capital is divided into shares, and the shareholders are only responsible for the company’s obligations up to the value of their shares.
- Advantages:
- Ideal for large businesses with multiple investors
- Ability to raise capital through stock offerings
- Limited liability for shareholders
- Disadvantages:
- Higher administrative and financial requirements
- Complex reporting obligations
- Initial capital requirement of at least 90,000 RON
The SA structure is typically chosen by larger businesses, especially those considering public listings or raising large sums of capital from investors.
4. SNC (Societate in Nume Colectiv)
The SNC, or General Partnership, is a form of company where two or more individuals run a business together. In an SNC, partners share unlimited liability for the company’s obligations. This means that if the business faces financial difficulties, each partner’s personal assets could be used to cover debts.
- Advantages:
- Simplicity in management
- No minimum capital requirements
- Easy to establish
- Disadvantages:
- Unlimited personal liability for all partners
- Less flexibility compared to an SRL
- Risk of disagreements among partners affecting the business
An SNC is suitable for small businesses where partners are closely involved in day-to-day operations and are willing to share personal responsibility for the company.
5. SCS (Societate in Comandita Simpla)
The SCS, or Limited Partnership, is similar to the SNC but with a key difference: it includes both general partners with unlimited liability and limited partners whose liability is restricted to the amount they’ve invested in the company.
- Advantages:
- Ability to attract investors who prefer limited liability
- Flexibility in management between partners
- No minimum capital requirements
- Disadvantages:
- General partners still face unlimited liability
- Complex partnership agreements
- Not as common or straightforward as other legal forms
An SCS may be appropriate for businesses where one or more partners wish to be actively involved in management, while others only want to invest capital without personal liability.
3. How to Choose the Right Legal Form for Your Business?
Choosing the right legal form for your company in Romania depends on several factors, including:
- Your business goals: Are you planning to operate as a solo freelancer, or do you have plans for expansion? For freelancers or small, one-person operations, a PFA might suffice. If you plan to grow or take on partners, an SRL or even an SA could be better suited.
- Tax implications: Different legal forms have different tax structures. A PFA can be beneficial for individuals who want to take advantage of simpler tax rules, while an SRL offers opportunities to optimize taxes through different types of deductions and tax breaks.
- Liability: How comfortable are you with taking on personal liability for the company’s debts? If you want to protect your personal assets, an SRL or SA is a better option than a PFA or SNC.
- Ease of administration: Some legal forms are simpler to administer than others. A PFA has fewer administrative burdens, while an SRL or SA requires more paperwork, accounting, and compliance with regulations.
4. Steps to Register Your Company in Romania
Once you’ve decided on the legal form of your company, the next step is to register it with the Romanian Trade Registry (Oficiul National al Registrului Comertului). The process varies depending on the type of company you choose, but in general, you’ll need the following:
- Company Name: Make sure the name is unique and complies with Romanian naming regulations.
- Registered Address: This will be the official headquarters of your business.
- Articles of Incorporation: These outline the structure, purpose, and rules of your company (especially for SRLs and SAs).
- Shareholders and Capital Contribution: Specify the shareholders and their contribution to the company’s capital.
- Tax Registration: You’ll need to register for taxes, including VAT if applicable.
- Other Documents: Depending on the business type, additional documentation may be required, such as proof of professional qualifications.
Conclusion
Understanding what is the legal form of company in Romania is crucial when starting a business in the country. The decision you make will affect everything from taxation and liability to how you manage your business on a daily basis.
If you’re not sure which legal structure is best for your business, consider reaching out to Buju, Stanciu & Asociatii. With their team of experienced legal professionals, they can provide the guidance and support you need to make the right choice, ensuring that your business is set up for success from the very start.
