In today's dynamic business environment, freelancers and small business owners in Romania face the crucial task of choosing the right legal structure for their ventures. Selecting an appropriate legal structure is vital for ensuring legal compliance, protecting personal assets from liabilities, and optimizing taxation. This article aims to provide a comprehensive overview of the legal structures available in Romania and their suitability for freelancers and small business owners.

1. Sole Proprietorship (PFA):

Sole proprietorship, known as "Persoană Fizică Autorizată" (PFA) in Romania, is a legal structure commonly chosen by freelancers and individuals operating small businesses. It offers simplicity, flexibility, and ease of setup.

In a PFA, the individual operates as a self-employed entity without establishing a separate legal entity. This means that the freelancer or business owner assumes personal responsibility for all business activities. The PFA structure allows individuals to quickly register their activities and start operating without the need for complex legal and administrative procedures. It is easy to set up and manage, requiring minimal bureaucratic processes. Freelancers have full autonomy over decision-making and can adapt their operations according to client requirements and market demands. This flexibility enables them to respond quickly to changes and seize business opportunities.

However, it is important to note that a PFA comes with personal liability. The individual is personally responsible for any debts or legal obligations incurred by the business. This means that personal assets can be used to settle business-related liabilities.

Additionally, the PFA structure may have limitations when it comes to expansion and accessing certain financing options. It is typically more suitable for freelancers or small businesses that do not have plans for significant growth or complex organizational structures.

For a PFA, there is no obligation to open a separate account, but for proper tracking of income and expenses, this is recommended. The accounting rules for PFAs are quite simple, so with a basic understanding, any individual can manage their own accounting. According to the current legislation, PFAs operating under the simplified tax system maintain their accounting using single-entry bookkeeping and the applicable legal provisions for further legal compliance.

Overall, the PFA legal structure provides freelancers and small business owners in Romania with a straightforward and accessible option to establish and operate their businesses. It offers flexibility and ease of setup while requiring careful consideration of personal liability and growth potential.

2. Limited Liability Company (Societate cu Răspundere Limitată - SRL):

The Limited Liability Company (“Societate cu Răspundere Limitată” or “SRL”) is a popular legal structure in Romania chosen by small business owners who seek to separate personal and business liabilities. It offers several advantages and features that make it an attractive option.

Establishing an SRL requires a minimum share capital of 200 RON (Romanian Lei). This capital serves as a safeguard for the company's creditors and can be contributed in cash or in-kind. The process of setting up an SRL involves drafting the Articles of Association, registering the company with the Trade Registry, and obtaining the necessary fiscal registrations.

One of the key benefits of an SRL is limited liability. Shareholders' liability is generally limited to the amount of their investment in the company, protecting personal assets from business-related debts and obligations. This provides a level of security and reassurance for small business owners.

SRLs offer credibility and a more formal business image. The legal structure is recognized and respected in business transactions, partnerships, and dealings with financial institutions. It can facilitate collaboration with other companies, attract potential investors, and provide access to financing options.

SRLs also offer flexibility in terms of ownership. They can have one or more shareholders, and shares can be easily transferred or sold. As the business grows, more shareholders can be added, allowing for the infusion of additional capital or the inclusion of new partners.

Overall, the SRL legal structure in Romania provides small business owners with the benefits of limited liability, credibility, and flexibility. It offers a solid foundation for business operations and allows for potential growth and partnerships. It is important to ensure compliance with legal and fiscal obligations and seek professional advice to navigate the setup and ongoing management of an SRL.

While as a sole proprietorship (PFA) you can handle the accounting yourself, for a limited liability company (SRL), you will need either an authorized accountant or a collaboration with an accounting expertise company. Regardless of your choice, ensure that there is good communication between you and your accountant, and that they understand your business and can provide you with necessary recommendations when needed.

The accounting law and the fiscal code are two separate legal frameworks that govern different aspects of financial management and reporting for businesses in Romania.

The accounting law (Legea contabilității) sets out the rules and principles for maintaining proper accounting records, preparing financial statements, and ensuring compliance with accounting standards. It provides guidelines for recording transactions, valuing assets and liabilities, and preparing annual financial statements. The law also outlines the responsibilities of businesses in terms of keeping accounting records, appointing qualified accountants, and submitting financial reports to the relevant authorities.

On the other hand, the fiscal code (Codul fiscal) encompasses the tax regulations and provisions related to the calculation, reporting, and payment of taxes in Romania. It covers various types of taxes, including income tax, value-added tax (VAT), social contributions, and other specific taxes applicable to certain activities or industries. The fiscal code specifies the rules for determining taxable income, allowable deductions, tax rates, and deadlines for tax filings and payments.

3. Joint Stock Company (Societate pe Acțiuni - SA)

The Joint Stock Company (“Societate pe Acțiuni” or “SA”) is a legal structure in Romania commonly used for larger-scale enterprises. It provides a framework for businesses seeking substantial expansion, public offering, or strategic partnerships.

To establish an SA, a higher minimum share capital is required. Publicly traded SAs must have a minimum share capital of 90,000 RON (Romanian Lei), while privately held SAs require a minimum share capital of 25,000 RON. The share capital is divided into shares, which are held by shareholders and represent ownership in the company.

One of the defining features of an SA is the issuance of shares. These shares can be traded on the stock market, allowing the company to attract investment from the public. Shareholders' liability is limited to their contribution to the company's share capital, offering a level of protection for personal assets.

SAs typically have a more complex organizational structure compared to other legal forms. They are managed by a board of directors, responsible for overseeing the company's operations and making strategic decisions. Shareholders exercise their rights through voting and can elect the board of directors.

The SA legal structure offers advantages such as the ability to raise capital through public offerings or private placements. It also provides opportunities for collaboration with other companies, facilitating mergers, acquisitions, and strategic partnerships.

However, establishing and operating an SA involves more complex legal and administrative procedures compared to other legal structures. Compliance with regulations and reporting obligations is crucial, and transparency in financial reporting is required for publicly traded SAs.

Here are some of the main laws that a joint stock company (Societate pe Acțiuni) must comply with in Romania:

• Law no. 31/1990 on commercial companies - This is the fundamental law that regulates the establishment, organization, and functioning of commercial companies, including joint stock companies. The law defines the structure and governance procedures of joint stock companies and establishes the obligations and responsibilities of shareholders, administrators, and governing bodies.
• Law no. 24/2017 on issuers of financial instruments and market operations - This law regulates the issuance and trading of financial instruments and sets out the obligations and responsibilities of joint stock companies that issue such instruments. The law includes provisions regarding the reporting and disclosure of financial information, as well as the rights and protection of shareholders.
• Law no. 227/2015 on the Fiscal Code - This is the main legislative act that regulates taxation and fiscal obligations of joint stock companies. The law establishes rules for the calculation, declaration, and payment of taxes and fees, including corporate income tax, dividend tax, and VAT.
• Accounting Law - This law sets out the rules and principles of accounting in Romania. Joint stock companies must comply with the law's requirements regarding transaction recording, preparation of financial statements, and reporting of financial information to the relevant authorities.

These are just a few examples of the relevant laws and regulations for joint stock companies in Romania. It is important for joint stock companies to stay informed about all applicable laws and regulations and ensure proper compliance with all legal and fiscal requirements to avoid any undesirable consequences.

The Joint Stock Company (SA) legal structure in Romania is suited for larger enterprises with substantial operations and expansion plans. It offers the advantages of raising capital through share issuance and facilitates collaboration with other companies. However, the complexity of the organizational structure and the higher capital requirements make it less common for freelancers or small business owners. Professional advice is recommended to navigate the setup and ongoing management of an SA.

In conclusion, selecting the right legal structure is a crucial decision for freelancers and small business owners in Romania. Each legal structure, whether it's the Sole Proprietorship (PFA), Limited Liability Company (SRL), or Joint Stock Company (SA), comes with its own advantages and considerations.

For freelancers and individuals looking for simplicity, flexibility, and ease of setup, the PFA structure offers a straightforward and accessible option. However, it's important to carefully consider personal liability and growth potential.

On the other hand, the SRL legal structure provides small business owners with the benefits of limited liability, credibility, and flexibility. It serves as a solid foundation for business operations and allows for potential growth and partnerships.

The SA legal structure, although less common for freelancers and small business owners, is suitable for larger-scale enterprises with substantial operations and expansion plans. It offers the advantages of raising capital through share issuance and enables collaboration with other companies.

Regardless of the chosen legal structure, seeking professional advice is highly recommended to ensure compliance with legal and fiscal obligations and to navigate the setup and ongoing management effectively.

Ultimately, the decision should be based on careful consideration of the specific needs, goals, and circumstances of each individual or business. By understanding the available legal structures and seeking guidance, freelancers and small business owners in Romania can make informed choices that align with their objectives and set a strong foundation for their entrepreneurial journey.