What is cross-border division?

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Generally speaking, a cross-border division is a division operation in which at least two of the companies involved are governed by the laws of two different Member States.

The cross-border division may involve joint stock companies, limited partnerships, limited liability companies, Romanian legal entities and European companies with their registered office in Romania.

Specifically, cross-border division is the operation whereby:

  • a company, which is dissolved without going into liquidation, transfers all its assets and liabilities to two or more newly incorporated beneficiary companies, in exchange for the distribution to the shareholders of the company being divided of shares or other securities representing the share capital in the beneficiary companies; and, where applicable, in exchange for a cash payment of not more than 10% of the nominal value or, in the absence of a nominal value, a cash payment of not more than 10% of the book value of those shares or securities representing the capital (hereinafter referred to as a full division);
  • a company transfers part of its assets and liabilities to one or more newly formed receiving companies in exchange for the distribution to the shareholders of the company being divided of shares, stocks or other securities representing the share capital in the receiving companies or in the company being divided or in both; and, where applicable, in exchange for a cash payment of not more than 10% of the nominal value or, in the absence of a nominal value, a cash payment of not more than 10% of the accountable par of the shares or other securities representing the capital (hereinafter referred to as partial division or division in the interest of the shareholders);
  • a company transfers part of its assets and liabilities to one or more newly formed receiving companies in exchange for the distribution of shares or other securities representing the capital of the receiving companies to the company which is the subject of the division (hereinafter referred to as division by division or division in the interest of the company).

In a cross-border demerger, the directors (or members of the board) of the demerging company have an extremely important role and responsibility.

They draw up a draft of the cross-border demerger which must include at least the following:

(a) the legal form of the company, the company name and the registered office of the company being divided;

(b) the proposed legal form, name and registered office of the companies to be divided;

(c) the arrangements for the distribution of the securities representing the capital of the receiving companies;

(d) the proposed indicative timetable for the cross-border division;

(e) the conditions for the allotment of shares or other securities representing share capital to the recipient companies or to the company being divided or to both and the criteria on which such allotment is based;

(f) the rate of exchange of the shares;

g) the rights granted by the beneficiary companies to holders of shares;

(h) the date from which the shares entitle their holders to participate in the benefits and any conditions affecting that entitlement;

(i) any special advantages granted to directors or managers or, as the case may be, members of the supervisory board or the management board;

(j) the price of the shares/shares in the event that members exercise their right to withdraw from the company;

(k) any guarantees granted to creditors;

(l) the implications of the cross-border division for the workforce;

(m) information on the procedures for determining employee participation and other forms of employee involvement in the recipient companies;

n) a precise description of the assets and liabilities of the company being divided and a description of their allocation to the receiving companies or retained by the company being divided;

(o) information concerning the valuation of the assets and liabilities allocated to each of the receiving companies;

(p) the date of the financial statements of the company being divided used to establish the terms of the cross-border division;

(q) the date or dates from which the transactions of the company being divided will be treated for accounting purposes as belonging to the recipient companies.

Associates who did not vote in favour of the cross-border split have the right to withdraw from the company and have their shares returned to them.

If the procedures for carrying out the cross-border division are carried out in accordance with the law, the certificate prior to the cross-border division will be issued.

The National Commercial Registry Office of the company’s registered office which is in the cross-border division procedure shall forward the certificate prior to the cross-border division to the competent authorities of the Member States of the beneficiary companies.

What are the types of cross-border division?

  1. Full cross-border division:

(a) all the assets and liabilities of the company being divided are transferred to the receiving companies according to the breakdown set out in the draft terms of cross-border division;

b) the shareholders of the company being divided become shareholders of the companies;

(c) the rights and obligations of the company being divided arising from employment contracts or employment relationships shall be transferred to the recipient companies;

(d) the company being divided shall cease to exist.

  1. Partial cross-border division:

(a) part of the assets and liabilities of the company being divided are transferred to the receiving company or companies,;

(b) at least some of the shareholders of the company being divided become shareholders of the receiving companies and at least some of the shareholders remain in the company being divided or also become shareholders of both companies;

(c) the rights and obligations of the company being divided arising from employment contracts or employment relationships shall be transferred to the receiving companies or shall remain with the company being divided, according to the division provided for in the draft terms of cross-border division.

  1. Cross-border division by demerger:

(a) part of the assets and liabilities of the company being divided shall be transferred to the receiving company or companies in accordance with the division provided for in the draft terms of cross-border division, the remaining assets and liabilities remaining in the assets and liabilities of the company being divided;

(b) the shares, stocks or other securities representing the capital of the receiving company/companies shall be allocated to the company being divided;

(c) the rights and obligations of the company being divided arising from employment contracts or employment relationships shall be transferred to the receiving company or companies in accordance with the division provided for in the draft terms of cross-border division.

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The main management structure of the company in Romania is the general meeting of associates / shareholders. The constitutive act establishes the rules for convening and adopting decisions and whether the exercise of the vote can be delegated by special mandate by the associate / shareholder who cannot take part in the meeting. In the limited liability company, each shareholder entitles the holder to one vote in the respective meeting. The general meeting of associates has the following main obligations: ✓ to approve the annual financial statement and to establish the distribution of the net profit. ✓ to appoint the administrators and the censors, to revoke / dismiss them and to discharge them, as well as to decide to contract the financial audit, when it is not obligatory, according to the law; ✓ to decide the pursuit of the administrators and censors for the damages caused to the company, designating also the person in charge to exercise it; ✓ to modify the constitutive act.
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The limited liability company is the most common form of company in Romania, being the legal entity that best serves the interests of investors both from the point of view of the reliability of the activity, and from the perspective of its management. The limited liability company is abbreviated "SRL" in Romania and is the equivalent of the American limited liability company Limited Liability Company (abbreviated to LLC) or the German economic structure "Gesellschaft mit beschränkter Haftung" (abbreviated to GmbH), or the structure called "limited" , the structure used in most Latin American states.
The limited liability company is characterized by:
✓ the character intuitu personae, which means that this economic structure is based on the trust between the associates;
✓ the division of the share capital into fractions called shares, which cannot be negotiable securities;
✓ the liability of the associates is limited to their contribution to the share capital.
The limited liability company may also have a single partner, natural or legal person, of Romanian or foreign nationality, who will be the owner of all shares. Instead, the maximum number of associates is 50 people.
At present, the Romanian law no longer conditions the subscription and payment of a certain amount as share capital.
Through registration, the company acquires legal personality, becoming, under the law, a collective subject of law. The conclusion given by the judge is sent, ex officio, to the Official Gazette of Romania for publication at the expense of the company and to the Financial Administration in whose territorial area is the main headquarters of the company for fiscal registration, mentioning the registration number in the Trade Register .

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