Amendments to the Law on Limited Liability Companies

In brief

A bill (Law No. 229/2023) proposing significant amendments to the legislation governing limited liability companies (LLCs) (Law No. 135-XVI/2007) to foster business development has been approved by deputies in its first reading in the Parliament of Moldova. The changes include the removal of the 50-shareholder cap for an LLC, streamlining of the company formation process by consolidating the articles of incorporation with the company’s bylaws, eliminating restrictions on the share capital and allowing for its increase through contributions of assets, including consumables. The changes also facilitate the organisation of shareholder meetings online, without complex convocation procedures, and permits the storage of documents in electronic format.

In detail

Amendments to the number of shareholders of an LLC

It has been clarified that the number of partners in a limited liability company will no longer be limited. (Article 11 of the Law on LLC)

Articles of association

The articles of association will become the instrument of incorporation, thus acquiring the value of a contract of incorporation until the company has been registered, and they will have to be approved and signed by all the founders. One significant change is that members co-opted after the company registration will have to sign a declaration of acknowledgment and adherence to the statutes.

The Law also introduces an important provision relating to the arbitration agreement into the company’s articles of association. In essence, this amendment provides clarity on the application of the arbitration agreement within companies. The main points covered by this amendment are:

• Arbitration clause for disputes: The articles of association may contain an arbitration clause establishing the use of arbitration as a means of dispute resolution. This applies to all or some of the disputes that may arise between members or between members and the company.

• Opt-out: The founder or associates have the option to vote against the inclusion of the arbitration clause in the articles of association. If a founder or associate vote against this inclusion, this must be recorded in the minutes of the associates meeting.

• Exceptions for existing associates: In the case of existing associates, if the articles of association do not make the arbitration agreement compulsory, it does not apply to them.

(Article 12 and Article 13¹ of the Law on LLC)

Registration of disposal / disposal of shares

Clear rules have been established for the submission to the state registration body of the legal act of alienation or acquisition of shares, depending on the manner of conclusion of this act, as follows:

• If the legal act is in electronic format and signed by qualified electronic signatures of the parties, the responsibility for its submission lies with the acquirer.

• For paper documents in authenticated form, the acquirer is also responsible for submission.

• For paper documents with the holographic signatures of the parties, they must be accompanied by the deed of delivery receipt, in which the signatures of the parties are notarised, and the acquirer is responsible for submission.

• If the legal document is in the form of a paper document with the holographic signatures of the parties, but the representatives of the signatory parties are authorised by a power of attorney in authentic form or have a power of representation granted through the automated information system “Register of Powers of Attorney based on electronic signature” (MPower), these representatives are responsible for submission.

(Article 30 of the Law on LLC)

Changes to the capital incentive

The possibility has been introduced for a company to build up incentive capital for the benefit of individuals, such as employees, to motivate them to perform more effectively and actively contribute to the success of the company.

Incentive capital is formed from the company’s net profit and can be used to make payments at a specific point in time or in connection with a foreseen future event.

Incentive payment recipients do not obtain the same rights and obligations as ordinary shareholders, but they have access to the company’s relevant financial information, as determined by the company bodies.

Incentive capital payments are treated as dividends, meaning that they can be distributed to the beneficiaries in a similar way

(Article 31¹ of the Law on LLC).

Distribution of net profit

It has been established that the share of the net profit distributed to the associates constitutes a dividend. A provision has also been added regarding the payment of interim dividends based on interim financial statements indicating the availability of funds.

A limit has been introduced on the amount of annual/intermediate dividends to avoid exceeding the net profit at the end of the management period plus the undistributed profits from previous years, reduced by both the losses from previous years and the amounts deposited in the reserve capital. Annual dividends may not be lower than the approved interim dividends.

(Article 39 of the Law on LLC)

Payment of dividends

Dividends are to be paid to the associates in cash within 30 days as of the date of adopting the resolution for their distribution, except when the general meeting of associates decides otherwise, or the articles of association provide otherwise.

A company’s obligations regarding the payment of dividends arise on the date of announcing the resolution regarding their payment.

A company is not entitled to guarantee the payment of dividends.

The resolution concerning the payment of dividends must specify the date on which the list of associates entitled to dividends is drawn up, the amount of dividends for each share, and the form and deadline for the payment of dividends.

The company’s administrator must prepare a list of associates entitled to dividends for each payment thereof.

The declared dividends for each share must be equal, regardless of the timing of the acquisition of the share, unless otherwise provided by law.

The resolution regarding the payment of dividends must be brought to the attention of each associate within seven business days from the date of adoption and may be made public in the manner determined by the general meeting of associates.

Dividends that have not been claimed by associates within three years as of the expiration date of the communicated payment deadline are to be transferred to the company’s income and cannot be claimed.

(Article 39 of the Law on LLC)

Withdrawal of an associate

An associate holding less than 33% of the share capital may withdraw from the company at any time without the consent of the other associates. They are entitled to a withdrawal value of their share, calculated in proportion to the balance sheet value of the company’s net assets as of the date of the withdrawal notification.

The withdrawal notification is to be submitted to the company’s administrator, who has 15 days to issue a certificate to the associate regarding the withdrawal value, along with the corresponding calculation. Upon the associate’s request, the company must provide the supporting documents used for the calculation.

The withdrawn associate then submits the application and the withdrawal notification to the state registration authority, and the associate is considered withdrawn as of the date of their removal from the State Register of Legal Entities. The company is obliged to pay the withdrawal value within the agreed-upon term and in the manner determined by the associates, but no later than three years as of the date of the associate’s removal. The withdrawal payments cannot exceed 5% of the balance sheet value of the company’s net assets in a single month.

Any associate or the company itself may request that the state registration authority register the associate’s withdrawal procedure in the State Register of Legal Entities at any stage of this procedure.

(Article 47¹ of the Law on LLC)

[Source: Law No. 229 of 31 July 2023 on the amendment of some normative acts, published in the Official Gazette No. 325 - 327 of 22 August 2023; in force as of 22 October 2023]

The takeaway

Legislation introducing important amendments to the Law on LLCs No. 135-XVI/2007 will come into force on 22 October 2023.