Joint Ventures – A word of Caution
Entering a new relationship and market is never easy, nor is developing a market in which you have a minimal presence.
Romania Insider
· Updated · 7 min read
Entering a new relationship and market is never easy, nor is developing a market in which you have a minimal presence.
Over the time we have been in business we have advised foreign investors both large and small who have looked at the Romanian market with a view to developing their business and marketing their products. The first step in any new venture must be to examine the market and assess its value. Often, prospective investors come and see us with their prospective Romanian partner/contact with whom they have worked previously or who is encouraging them to enter the Romanian market. Often the Romanian turns out to be their preferred partner who they have met and had some dealings with previously or over a period of time. Often though such a person is new to them and they have little or no knowledge about them. They may have met the Romanian partner through another contact or may have been introduced to them through a Chamber of commerce or similar organisation.
Whilst at this stage we will not get involved in the business aspects of the transaction unless specifically requested the most important initial question will be the structure of the business in Romania and perhaps the relationship between the two parties. They come to the initial meeting with the intention that they wish to go into business together but may not have decided on the structure that they want to use to do their business in Romania.
The question that they address to us is what form the relationship should take. In Romania for a business relationship at this level we advise that they have the choice of two common structures. One is a limited liability company (SRL) and the other is a partnership.
The partnership being an unincorporated arrangement where the parties share the profits and losses between them in an agreed manner. Such an arrangement is possible under the Romanian Civil Code (art 1949). A document is prepared which sets out the parties’ obligations and share of profits. The problem regarding a Romanian partnership is that whilst the concept of a partnership is understood the Romanian partners idea of a partnership can be very different from the understanding of the non-Romanian partner. This misunderstanding arrives not from any malicious intent but rather a misunderstanding between the Romanian concept and the foreign concept of partnership.
Under Romanian law a partnership does not have a separate legal personality and the ownership of the assets (and goodwill) is vested in the individual partners for the benefit of the partnership and not the partnership as such. This can cause difficulties in relation to taxation and indeed ownership of assets if one of the partners enters into insolvency. If one of the partners was providing physical assets and they enter into insolvency there is the question of the continuation of the partnership. Whilst the partnership maybe profitable as a partnership the party in insolvency may have no option other than to withdraw. This would have serious consequences.
