Draft law for implementing Employee Stock Option Plan in Romania

As part of the European Union's efforts to promote a sustainable, resilient, and digital economy, legislative innovation is crucial. Technology startups are a key element in achieving these goals in the region. In this regard, the European Commission encourages member states to create a conducive environment for developing multiple digital projects, including simplifying the processes of establishment and financing for small and medium-sized enterprises.

One of the relevant legislative amendments is the creation of classes of shares and social parts without voting rights. These can be used for employees or specialized collaborators within the Employee Stock Option Plan (ESOP) or the Board of Advisors, without diluting the voting rights and the company's strategic direction. This will facilitate quick decision-making by consulting a limited number of key associates benefiting the company and all parties involved.

"Facilitating share repurchases and involving employees in programs such as ESOP could increase their loyalty and commitment, stimulating performance and innovation. Furthermore, expanding the possibilities for share repurchases could encourage the development and expansion of tech startups, supporting them in realizing their growth potential and becoming successful players in the international market." - USR Deputy Monica-Elena Berescu, Vice-Chair of the Committee for Information Technology and Communications

Currently, in Romania, according to Law no. 31/1990 on companies, republished in 2004, a company can repurchase its shares based on a resolution of the Extraordinary General Meeting of Shareholders (EGMS). This action is only permitted for joint-stock companies (SA), not for limited liability companies (SRL).

To initiate this repurchase action, certain conditions are required, including the value of the own shares acquired not exceeding 10% of the subscribed share capital, the duration for which the EGMS authorization for the acquisition of own shares is granted not exceeding 18 months, and the payment for the shares must be made from the company's account. Additionally, if the shares are repurchased to be distributed to the company's employees for remuneration, retention, and stimulation purposes, they must be distributed within a maximum interval of 12 months.

According to the European Union recommendations, share repurchases benefit from more flexibility. The duration for which the shares are granted is extended for up to 5 years, and the limit of 10% of the subscribed capital is optional.

Therefore, it is advisable to introduce more flexible legislation in this area to bring Romania's legislative framework in line with European standards. In this regard, a legislative proposal has been initiated by deputies Monica Berescu, Oana Silvia Toiu, Viorel Baltaretu, and Ilie Dan Barna from the USR party.

"Implementing these legislative proposals could have a significant impact on Romania's economy and its tech startup ecosystem. By increasing flexibility and access to shared management tools, the law could stimulate investments and innovation in the private sector. Thus, these legislative proposals could contribute to strengthening Romania's position as a hub of innovation and digital business in the European region," said USR Deputy Oana-Silvia Toiu, Member of the Committee for Labor and Social Protection

The draft law elaborated with the support of the Employers' Association of the Software and Services Industry (ANIS), proposes, among others:

• Granting companies the possibility to issue shares or participation titles to associates or shareholders with different rights, including without voting rights or with multiple votes.
• Extending the validity period to at least 4 years and 6 months out of the 5-year maximum duration.
• Increasing the limits of the nominal value of the company's shares acquired from 10% to 25% of the subscribed share capital.
• Allowing the repurchase of shares from a loan granted by the company's founders.
• Extending the right to repurchase social parts also for limited liability companies.

These legislative proposals aim to facilitate companies' access to flexible tools for managing and stimulating employees, thus contributing to the development of a more competitive and dynamic business environment in Romania.