July 30, 2023 rcplegal 0 Comments

Provided for by Law no. 31/1990, the shareholders’ pre-emptive right applies whenever there is a question of increasing the share capital of a company.

The rule is that shares issued for the purpose of increasing the share capital will be offered for subscription first to existing shareholders, in the same proportion as the number of shares they hold.

From its location and wording, Article 216 could be interpreted as if the right of pre-emption applies only in the case of joint-stock companies, but there are no legal provisions that prohibit a limited liability company from deciding by its articles of association or by a resolution of the shareholders to grant a right of pre-emption in the event of an increase in share capital, especially given the predominantly intuitu personae nature of the legal nature of this form of organisation. The difference is that in the case of a joint-stock company, the granting of a right of pre-emption is a legal obligation – any increase in share capital made in breach of Article 216 is voidable, whereas in the case of a limited liability company, the application of this right is optional.

The legislator has chosen to protect shareholders against a possible dilution of their holdings in the share capital of a company in the event of an increase in share capital. Therefore, the shares issued for the increase of the share capital will be offered for subscription, first of all to existing shareholders, in the same proportion as the number of shares they hold.

Practical aspects

Since the shares are offered for subscription first to the existing shareholders of the company, without being possible to know the finality of this endeavor, the concrete amount of the share capital that will actually be subscribed is uncertain until the expiry of the period during which the shareholders may exercise their pre-emptive rights. 

For this reason, the capital increase is carried out in two steps: first, a resolution is adopted on the intention to increase the share capital, specifying the shares to be offered for subscription, and then, after the expiry of the period during which the pre-emptive right may be exercised, a decision is taken on the increase in the share capital corresponding to the shares that have actually been subscribed.

According to the law, if the proposed capital increase is not fully subscribed, the capital will be increased in the amount of the subscriptions received only if the conditions of issue provide for this possibility.

Thus, it is important that the resolution deciding on the intention to increase the capital to provide expressly for the intention of the shareholders to proceed with the increase even if not all the shares offered for subscription are subscribed. Otherwise, it may be interpreted that the capital increase will not take place at all. 

The exercise of the pre-emptive right may only take place within the period decided by the general meeting or by the board of directors or the management board, respectively, in accordance with the law (Article 220), if the articles of association do not provide for another period. In all cases, the period granted for the exercise of pre-emptive rights may not be less than one month from the date of publication of the resolution of the general meeting or the decision of the board of directors/management board in the Official Gazette of Romania, Part IV.

Limitation or lifting of the right of preference 

As it is interesting both in theory and for practical objectives, we should also mention Article 217, which stipulates that the shareholders’ pre-emptive rights may be limited or revoked by a resolution of the extraordinary general meeting of shareholders, which means that the law has taken into account that there may be cases where the interest of the company may prevail over the interest of the shareholders and the reduction of their holdings. However, two conditions apply cumulatively in this respect: firstly, the board of directors/management must draw up a written report stating the reasons for limiting or revoking the pre-emptive right. Secondly, the resolution must be taken in the presence of shareholders representing three-quarters of the subscribed share capital, with a majority of the votes of the shareholders present – it can be seen that the quorum requirement in this case is much higher than the quorum normally required by law for extraordinary meetings, i.e. 25% of the total number of voting rights.

Trading of preferential rights on the stock exchange

Another aspect worth considering is the possibility of trading preference rights on the stock exchange. This translates into the possibility for a shareholder to sell his preference rights on the stock exchange instead of using them to buy more shares in the company. And those who would like to buy shares in the company, but cannot because they are not shareholders, can buy preference rights, thereby acquiring the right to buy shares during the capital increase.

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