Reducing share capital represents a method of adapting the share capital to the constraints of a deficient financial situation or to the narrowing of the company’s business scope. Companies typically resort to share capital reductions when they face significant financial losses over a long period.
Therefore, a decrease in share capital can be driven by strategic considerations (acquiring and canceling own shares to avoid takeover by other parties), failure of some partners to fulfill commitments (who have not paid their subscribed contributions on time), or, in some cases, by the withdrawal or exclusion of a partner or shareholder.
Share capital includes the cash and in-kind contributions of partners participating in the establishment of the company. In the company’s balance sheet, share capital is shown on the liabilities side, as an obligation of the company to its partners.
The nominal share capital is fixed for the entire duration of the company, meaning that the value of the company’s assets must be at least at the level of the share capital, with the legislator providing the obligation to restore or reduce it according to Law no. 31/1990, republished and amended.
First, share capital reduction can be achieved either by decreasing the number of shares/social parts, by reducing the nominal value of shares/social parts, or by acquiring own shares and subsequently canceling them.
Secondly, according to art. 207 of Law no. 31/1990, share capital can be reduced in the following situations:
➡️ Decreasing the number of shares or social parts;
➡️ Reducing the nominal value of shares or social parts;
➡️ Acquiring own shares, followed by their cancellation.
Additionally, if the reduction of a company’s share capital is not motivated by certain losses, it can also be undertaken by:
➡️ Total or partial exemption of partners from the payments due;
➡️ Returning to shareholders a portion of contributions, proportional to the reduction of share capital and calculated equally for each share or social part;
➡️ Other procedures provided by law.
Regarding the decision-making authority for adopting the reduction of share capital, art. 113 of Law 31/1990 on commercial companies establishes that the general meeting (extraordinary in the case of joint-stock companies) shall meet whenever a decision is needed for “g) reducing the share capital or restoring it by issuing new shares.”
According to art. 208 of Law no. 31/1990, the reduction of share capital can only be realized after two months have passed from the day the decision was published in the Official Gazette of Romania, Part IV. Additionally, the decision must respect the minimum share capital when the law sets it and must mention the reasons underlying the share capital reduction.
Specifically, to reduce share capital, the general meeting will adopt a decision with the quorum and majority required by law and statutory regulations, respecting the legal minimum capital, depending on the company’s legal form (limited liability company, joint-stock companies, partnerships limited by shares).
Furthermore, the decision will elaborate on the reasons for the reduction (financial losses, activity reduction, withdrawal or exclusion of a partner, etc.) as well as the process that will be applied to achieve it.
On the other hand, the company’s creditors have the right to oppose this decision when their interests are affected by the share capital reduction decision. Thus, creditors whose claims precede the publication of the decision will be entitled to obtain guarantees for claims that have not become due by the date of that publication. Otherwise, the court may compel the company to provide such guarantees.
Among the documents needed to register the mention at the Trade Registry for the reduction of share capital, we mention: the general meeting’s decision of the partners/shareholders or the decision of the sole partner, the updated constitutive act with the new share capital structure, an excerpt from the Official Gazette of Romania, Part IV, in which the decision to reduce the share capital was published, etc.
For further information or any additional inquiries, please do not hesitate to contact us:
➡ Phone: (+4) 031 426 0745
📧 Email: office@grecupartners.ro
We are here to assist and provide legal support for all your needs. We look forward to discussing with you.
Alexandra Florescu – Attorney at lawr
