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Stories From The Field

This is a section for real entrepreneurs running real business in Moldova to share their experience, frustrations, lessons and insights with the community at large.

Category contains 27 blog entries contributed to teamblogs
"How much does it cost?" - The Process of Hiring Moldovan Services

If you're the type of person who scans to the end I'll save you the trouble. The answer to the title question is "No One Knows"
...or perhaps "I won't ever tell!" (which is also the name of a rather unfortunate song from Fat Joe). 

Ok, what are we actually talking about here? Let's start at the beginning. Ever business needs services. Some of these are easier to farm out than to do internally - often legal and accounting fall into this category. This post is about our experience trying to hire an accountant. This process has turned out to be rather difficult in Moldova. Partly this is because most accountants are uninterested in working with a restaurant due to the high numbers of transactions but it is also because of meetings like the following. 

So, we go to meet the senior accountant at a small firm. She came highly recommended to us by a friend who's parent's company contracts with her and she speaks English Russian and Romanian well. Seems perfect. When we arrive we are ushered into a room with her and her firm's Director. It is possible I have mentioned the status of directors in Moldova in the past. In short their importance in an enterprise is only surpassed by their self importance. 

 

RUSSIA 2569148b

"Why yes I am the director of the village kindergarden"

 

This woman did not speak English and promptly suggested we all learn "Moldovan" so that we may communicate together. Leading any business meeting with a highly political joke never failed right?

 Diversity-Day-michael-scott-492791 796 498

...right?

 

Ok, I'm being overly critical. The reality was that over the next hour and a half we got a lot of great information about how accounting in Moldova works and what their services are. Yes, it is true that since they had no information about this in writing we had to haphazardly circle around in the hopes of finding the right question. Yes a brochure would have been nicer. Yes we spent an absurd about of time bickering about silly things totally unrelated to accounting (e.g. Vlad explains that we will all be company directors when our documents finish. The "director" explains this is impossible because there is only one "director." We explain that it is very possible under Moldovan Law. Bickering ensues... and this is totally unrelated to accounting). Nonetheless it was pretty good information. Until this happened, (paraphrased - it took MUCH longer than this with a lot of repetition from all sides)Me: wonderful. Thank you for the information. What are your prices?

The Director: Well, you see that is very complicated... [much information here about all the papers the will (presumably) need to stamp 4+ times]

Me: Ok, I understand. That sounds like quite a lot. What are your prices?

The Director: It's complicated, you see we need to go to this and that office for approvals... etc etc etc

Me: What are your prices?

The Director: [more about complications] well it will cost you 2000 lei (about $140) for a 3 month startup period

Me: Great. Thank you for that. How much will it cost monthly after that

The Director: Well that is terribly complicated. Every business is different after all!! [more about complicated documents]

Me: so you can't tell us what it will cost to hire you?

The Director: well it won't just be one cost but based on a number of factors!

Me: ok, what are they?

The Director: it's often based on number of transations [more verbal vomiting about complications]

Me: I understand. What would a sample cost be per transaction and how many such transactions can we expect per month?

The Director: [more verbal vomiting about complications]

Matt: Please, can you just tell us what a normal price is for a small cafe similar to us? (during this time Matt and Vlad have also spoken a lot - Vlad translating everything - but this is all the gist)

The Director: [more verbal vomiting about complications]

Me: I'm confused. Are you telling us that you are unable to give us any information about how much it costs to hire you?

The Director: [more verbal vomiting about complications]

Me: Is it a mystery? (this elicited a chuckle from the accountant but had no effect on the director)

The Director: [more verbal vomiting about complications]

Me: I'm confused...

The Director: [more verbal vomiting about complications]

Me: WAIT!! let me get this straight. We hire you for 3 months at 2000 lei and after that. After signing the contract. You tell us how much your services will cost us ongoing. Furthermore you are 100% unable to provide the slightest glimpse as to what this price might be until we have signed that contract?!?

The Director: Yes.

The Director: [more verbal vomiting about complications]

The Director: [more verbal vomiting about complications]

The Director: [more verbal vomiting about complications]

triple facepalm

Lacking the Nazi uniforms this is exactly how we looked.

 

Any Peace Corps Volunteer can tell you how difficult it can be to get a real answer from someone in a meeting here. What I realized in this process is how much different it feels when I'm talking about my money. Which is when it clicked. 

This is about grants

This woman made multiple attempts throughout the conversation to figure out what our "budget" was. Now it isn't that we don't have a budget, just that it's most aptly described as "small and shrinking." In Moldova however when you see a foreigner 9 times in 10 they are not here for business but for international development. This is the crux of the problem. Like I said above (in bold) we're talking about my money here. If I were working off a development grant it would be someone else's money. Moldova is very used to people with the later. Furthermore, the economy practically spins around on trying to find out what price a bureaucrat in a grant giving country decided a service might be worth in Moldova. By figuring out the budgeted price they can charge "exactly that' and they get their maximum price while not technically disappointing a grand giving entity. In fact anyone who has ever worked to spend grant money knows that you get mega points for spending it all exactly as promised and exactly zero points and occasional animosity for saving the granting agency's money

So is this a concrete example of the culture (*cough* addiction) to international aid interfering in the Moldovan services market? I won't go that far but it's made me think for sure.

 

 

 

 

 

 

 

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Posted by on in Stories From The Field
Choosing a Bank

Ok team, this post shall be short and sweet. The title pretty much lets you know what it's about and the lead in pic gives away the end. So, Mobias Bank eh? why?

The answer turns out to be more that there wasn't anything significant to chase us away from it. In order to get there let me list off the main banking options in Moldova as well as their affiliations. 

 

Bank  International Affiliation Notes
Moldova Agroindbank   N/A This is the bank used by Peace Corps which speaks rather highly to it. 
BCR Bank   Erste Group (Germany)  
Mobias Bank  Groupe Societe Generale (France)   
Victoria Bank N/A Owned by and closely affiliated with Vladimir Plahotniuc, sometimes called "Moldova's one and only oligarch." Multiple people have referred to Victoria Bank as the safest bank in the country because of its association with Mr. Plahotniuc. 
Banka de Economia N/A Accused of laundering Russian Magnitsky Case money (see this article) amongst other possible scandals
Procredit Bank  Procredit Group (headquarters in Germany) Relatively small footprint in Moldova

 

I'd like to say that we did exhaustive research here but we pretty much just gathered the above information and decided that we wanted our money in an internationally backed bank which leaving Mobias and BCR. Choosing between them pretty much came down to convenience of location. 

Have any thoughts as to which bank we should have picked? do you have better metrics? comment below!

Coming soon - an equally breif post about picking an American bank for International Business. 

Tagged in: Banking Corruption SRL
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Location Search Part 1: Moldovan Law on Food Service Establishments

This is the first of a number of entries I'll be making dedicated to the process we're going through searching for a location.

Have you found a location yet?

...is a question that I hear literally every day (many times) and so this series of posts is designed to shed some light on the process of searching for and vetting a restaurant / cafe location in Moldova. Upcoming posts in this series will talk about the real estate market (or lack thereof) and our team's critical analysis of "where exactly is most desireable" in Chisinau. For now though we will start at the beginning. What is required of the location? 

On that note team, we're in for a wild ride. 

First off here is the text of the applicable Law (in Russian - much better for google translate than Romanian). I'm not going to hit all the points of that massive and far ranging document here but it's provided as reference. I want to first add a disclaimer that I have never owned, opened, run or worked in a restaurant in the states. I'm a first-timer. I mention that because while it seems to me that there is an incredible level of detail put into where I can or can't store tea vs. flour vs whatever I am sure that other countries have lots of requirements as well. In the interest of sanitation I understand this to be ok. What confuses me is an obsured level of detail in various other aspects that govern your location and the facilities required. The first bit of this is...

What exactly are we trying to open?

This means what can we legally call ourselves? Restaurant? Cafe? Bar? etc. The aforementioned law sets out quite a broad spectrum of different possibilities. Here they are:

1 Complex Catering Supply
2 Restaurant (2.1. National res Thorens 2.2. specialty restaurant 2.3. Restaurant car 2.4. Crum)
3 Bar (3.1. Disco (video) - Bar 3.2. Wine bar (cocktail bar) 3.3. Bar billiards 3.4. Wagon Bar (trains))
4 Cafeteria 
5 Cafe  (5.1. cafe specialized 5.2. Cafe bar)
6 Dining Room (6.1. Transfer)
8 Buffet 
9. Fast-Food 
10 Kryshma 
12. Tasting Room
13. Open-air cafe, terrace 
14. Point of service aboard aircraft of marine vessels
15 Cart service for persons staying at the hotel 
16 Hall for formal events 
17 Shop on the preparation of food for service passengers (for aircraft)

Ok, so lots of stuff. What are the rules? Can bars stay open later than restaurants? are Cafe's allowed to serve alcohol? What about hard liquor? Are there different menu requirements for Buffets? 

Nope

Honestly, if I've missed something here please post in the comments. These descriptions are not whatsoever related to their functionality but to their appearance. Meaning a "Crum" is located in a basement and has the ambiance of a wine cellar. A "Disco Bar" should have a DJ and an apparatus for showing video. A "Specialized Cafe" should make sure that its menu agrees with its chosen theme. A "Fast Food" establishment should display its menu with illuminated panels and serve its products in disposable containers. A Restaurant should provide their customers a variety of drink and cigarette choices to be selected out of an artistic menu and sell flowers and souvenirs in the foyer. 

This baffles me. 

I don't mind the idea that there can or should be different categories of establishment if there is a difference in their functionality. What confuses me is that there doesn't seem to be at all. Further adding to this strange mix is that you don't get to chose what you are. They look at your business and label you. If you resemble more than one type they pick the closest (and presumably make a note to add a further subcategory). Before someone says this info is likely located elsewhere (and perhaps it is) I want to mention that this is a 42 page law that is so specific that it lays out the exact qualifications for an ideal maitre d'. (more on that later). It seems incredible that they spent 6 pages describing the different types of establishment and then literally never mentioned it again. 

So is it meaningless? No - but I don't fully know what it means. When visiting a different health department (there are 2 and I will post later when it becomes clear to me how and why they differ) they said that there has been an amendment to the law that basically reduced it to Restaurant vs. Cafe for the fee structure (the other categories still exist) and that 50-100 seats is a cafe and 100+ seats is a restaurant. They cost different amounts in yearly registration but do not differ in terms of allowable hours of operation or alcohol service. Here are the yearly fees for registration: 

  Base Price  +Alcohol License  +Non Stop  +Location On a Central Street
Restaurant  11000  MDL (~$785)  +30%  +30%  +10%
Cafe  6000 MDL (~$430)  +30%  +30%  +10%

 

So how does this all tie into a locaiton search? Mostly the duller parts of the law that lay out how the kitchen needs to function and where things need to get stored. This is a bit tedius and I won't go into how many sinks are required or how the windowsills must be designed - feel free to read up if you like. 

I'd rather get back to the part about the maitre d'. It turns out that the Moldovan government has set out a number of hiring requirements. The law does not mention if this applies to each category of establishment (I'm not sure if points of sale on aircraft really need a maitre d') but what is much funnier to me is how much detail they use to describe the job requirements. It lays out roles for the maitre d', waiters, bartenders, chefs, barmen, cashiers, cloakroom attendents, and doormen. Here are some of the parts I found most enjoyable (even beter if you've ever been to a Moldovan restaurant)

  • Everone except cloakroom attendents and doormen are required to attend professional school and take specialized courses
  • Waiters and Maitre ds must be able to function in a foriegn language to accomodate tourists (Bartenders must be conversational in a foreign language)
  • Waiters must be competent in menu design
  • Waiters must known the basics of psychology and service principles
  • The bartender must have memorized the numbers for police, ambulance and taxies
  • The cashier must know how much the products cost
  • The cloakroom attended must be prepared to repair the customers clothes if necessary 

You can't make this stuff up. 

 

Also will Joe Wittig please return to Moldova so he can be our legally appointed sanitation officer ;) 

Ok, I'm done for now. Looking back on this post it's far less about a location search and more about how interesting it is trying to figure things out here. Hope it provided some useful insight. 

 

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Registering an SRL in Moldova

So we shall have an LLC and an SRL. Firstly I'll briefly mention the LLC. We selected Virginia (my home state) as a base for our stateside business because of its favorable business conditions and the proximity of contacts who could act as registered agents. I won't go into the LLC process here because it's covered ad nauseum elsewhere on the web (If you feel there were better options than VA for registration post a comment and we can talk it over). The one interesting portion of this is that one of our partners is Moldovan. Turns out this isn't a problem at all (at least in VA) and really makes no difference at all until it's time to pax taxes at which time Vlad will have to pay American taxes. That'll be an interesting process on it's own I suspect but we'll talk taxes in more depth once they are upon us.

Ok, so we have an LLC (at a cost of about $150 and 8 min out of my day to create it online). What about an SRL? 

b2ap3_thumbnail_IMG_20140820_130028.jpgUnlike in Virginia, a Moldovan SRL cannot be registered online and requires a trip to the government office of The State Chamber of Registration (pictured right - link to website). In this office you go see a small business beurocrat who takes you throught the registration process. So here are some key aspects along with my thoughts...

Residency / Necessary Documents

In order to do anything at all at the office you need passports to prove the identity of all of the partners / founders. For Moldovans this entails their "internal passport" / national identity document. For Americans (/ foreigners with visa free entry to Moldova) this means your passport. You will need copies of all of these documents including a stamp of entry for passport holders. This can be done at a small shop in the basement of the building (the same one where you get your stamp as mentioned below) for a small fee but it would be easier to have it ahead of time. It is not necessary for foreigners to have residency in order to found a company in Moldova or have ownership of it. 

Foreign Ownership

As previously mentioned foreigners / foreign entities can own up to 99% in a Moldovan company. For the purposes of our registration we divided the company into 33-33-34% chunks and distributed them to ourselves (with the 34% chunk in the hands of Vlad as he will need to hold 1% when we all sell our 33% shares to the VA Based LLC). This now makes us all owners of the company. This is NOT equivalent to the same meaning in the American LLC however where we explicitly created equal partners / managers who all maintain equal signing and decision making abilities. This is because...

Articles of Organization / Operating Agreement

These are different than in VA (in the US all states have different laws governing LLC formation and requirements). In VA it is NOT required legally to have an Operating Agreement for the company (obviously it's far and away the intelligent thing to do though for more see nolo). In Moldova it is required and they provide you with a stock agreement at the time of creation that you could edit but they really would prefer if you do that on your own time and file it with them later. Something we opted for and were assured would be no problem. In reality this is not very important to us as our company will be ceding its control to the VA LLC shortly (there will be a post dedicated to this a bit later and I'll try and touch on Moldovan operating agreements then). The really important part of all of this is that Moldovan companies are structured by default to have central leadership and this cannot be changed. This is because...

Directorship

Being a director is SUPER important in Moldova. If you're interested in the all-powerful never-wrong personally-unflawed cult of personality that pervades the leadership system of almost every traditional entity here google around - I'm sure there are some good articles on how leadership styles differ from east to west. Anyhow, the key here is that they director has special responsibilities under the law and is soley personally liable in the event of criminal activity of the company (I am no lawyer so if I'm wrong about this please comment below - this is just what the man said at the registration office). Additionally the director is initially the only person who has "stamping" abilities in the company (for a humorus take on the power of stamps in Moldova see this blog post). Additional partners may be empowered with the responsibilities of the director (i.e. stamps) but this can only be done if those people have legal work residency in the Moldova. At the time of registering Matt and I did not have this paperwork complete (eventually I'll post about this process as well) so Vlad is by default the director and sole stamper.  

Language Requirements

This was a surprise. It is not required to know the language (Romanian or Russian) to do business here but if you don't you need to have notorized translations of EVERYTHING. While makes some sense and is an attempt (somewhat hamfisted) to protect foreigners from potentially neffarious Moldovan partners it would obviously be very tedius. Luckily Matt speaks Romanian and I speak Russian. The man registering the company for us chose not to take our words for this though and made a point of directing all of his speech at one of us rather than Vlad. This was problematic because he seemed to forget which of us spoke which language and would abruptly redirect his attention from Matt to I or visa versa and change his language mid sentence. We were left trying to cobble together half conversations while trying not to fill each other in on what the other missed too much in English all the while being evaluated on a completely unknown set of criteria. Luckily we passed. Take that Peace Corps LPI! (Language Proficiency Test which may not have granted us the same confidence as this man's "evaluation")

Cost / Turnaround

Ok, back to the serious stuff. The total cost of the process was 1500 MDL (around $110 at time of writing) including same day processing for documents (really next-day) and our very official stamp. This number could have been cut down if we had been willing to wait a week for the documents but we needed them processed quickly as we needed them for visa related applications (Matt or Vlad - do you remember how much it would have cost for 1 week processing?). All in all this is pretty close to the cost for a VA LLC and was almost as painless as long (as you're willing to overlook the tense linguistic examination and the instant online filing in VA).

Stamp Creation

There is a little shop in the basement of the registration office which will make you stamps. Given the aforementioned importance of the stamp I assumed this would be guarded by a contingent of heavily armed police with military units on call as backup. Instead it was two grumpy old women who gave the impression that they would be, if not happy, willing to make you whatever stamp you wanted. Perplexing country.  

A Note on Names

In Moldova you can name your company anything that is either a.) a word in Romanian (or English but I'm not sure about other languages) or b.) REALLY not a word. That means that "Happy Town SRL" and "VDMQ SRL" are totally cool. What isn't cool is something that pretends to be a word. This includes something like " 'Merica SRL" or (due to the limited English of our friend at the registrar) "Smokehouse SRL" which is untranslatable in Russian or Romanian (while Smoke House is translatable but doesn't make sense whatsoever). We originally didn't believe that any English words would be allowed at all so we opted not to reach for our dictionaries on this one and accept the breaking up of the compound word that the man so dearly wanted (2 lines does look better on the stamp...)

General Impressions

All in all this wasn't a difficult process at all. I would say that given how people were warning that people would be seeking bribes or bothering us about being foreigners or demanding lots and lots of obscure requirements that they don't post anywhere it was almost painless. No one bothered us at all and in general people were really helpful. Seems like a we've begun things on the right foot here.

  

And here we are after having successfully registered and received our all important stamp :)

b2ap3_thumbnail_10449914_10100945206784949_5486261082610405311_n.jpg

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The first real question we were faced with after deciding to start our business was "how shall it be organized?" In America this is usually a question between LLC vs. a Limited Partnership. In Moldova there are some other considerations that needed to be settled. In order of how we explored them...

Can foreigners invest in / own Moldovan companies?

Yes. Non-Moldovans can own up to 99% of what is called a "mixed capital" Moldovan firm. Foreign firms can additionally wholly own subsidiaries in Moldova but this is subject to rules that I don't know anything about. Since we have 2 American and 1 Moldovan partner this seemed like a reasonable stipulation and not one likely to get in our way. Once we understood that it was possible to start a company here without too many hoops to jump through we asked...

**Update 8/18/14** I forgot to mention a really key fact here that is really rather important. In the event that any of your investors are NOT located in Moldova / able to fly to Moldova regurally to sign documents you need be ready to have them send Gold Apostilles every time you need to make a company decision requiring their aproval. A Gold Apostille is a type of international notorization authorized by a 1960s Hague Convention and is issued by competent authorities in every country party to the convention. Every US state does this differently and I've seen evidence of cost ranging from $10 to $200 per document. You can imagine that this has the potential to be a real burden. Thank you Clayton for the comments that inspired this edit :)

How to organize in Moldova - should we start an SRL or an SA?

SRL is a Romanian acronym for Societate cu Răspundere Limitată which basically translates to Limited Liability Company or LLC. An S.A. is similarly a Romanian acronym for a Joint Stock Company. Our instinct was to start an SRL because in US terms this is the most sensible company type for an enterprise of our size and composition. It allows the most flexibility and the least burdensome regulatory and tax structure (for an overview of LLC info see nolo). I won't dwell for too long on the question of SRL vs. SA from a legal standpoint. Our preference was for an LLC structure and because of that the primary question we sought to answer was...

Are SRLs just like LLCs?

Nope. We found from a friend who is an American Entrepreneur in Moldova that, despite assurances of Moldovan businessmen, accountants, and the fiscal authorities they are NOT identical in one critical way. You cannot issue new shares in an SRL. This means that if your company initially allocates "100 units" of stock but wants to seek additional capital in exchange for investment it cannot issue new shares (diluting the old ones) in exchange. The owners are forced to sell their personal shares which then forces them to loan / give the profit to the company as it's seen as a personal gain. Given this situation our friend highly recommended that we start an SA instead of an SRL. So...

What are the requirements for an SA?

No one knows. Funny as that sounds there is some truth to it evidently. After consulting with Chisinau based entrepreneurs and accountants we were told very directly that SAs are so uncommon, especially as a structure for Moldovan startups (as opposed to large foreign firms) that the fiscal authorities literally have almost no experience in dealing with them. This means, we were told, that we would be in for a world of uncertainty and ambiguity from the government (aka a world of hurt) if we started an SA. Which led to...

How in the world do people get around these problems?

They don't create their company under Moldovan business law. Apparently it's quite easy to hop a ticked to the UK for a weekend and set up a company there. This company can then benefit from the UK's legal system and easily accessible and time tested structures. This company then invests in a controlling stake in a Moldo

b2ap3_thumbnail_419229_10100439966894870_1508236593_n.jpgvan SRL (99%). Thus the shareholder management, banking, etc is accomplished in a more developed legal system while the day to day workings of the company remain in Moldova. The profits will be subject to more difficult taxation but this will be a price worth paying* for being able to manage the company under more understandable legal structures. So...


What are we gonna do?

Well it seems silly to go to the UK since we have two American partners. We decided to register an American company which would then acquire the Moldovan one - following the above mentioned procedure exactly but with America substituted for the UK. 

Pictured right: attempts at rationalizing all of this process. David (me) is trying to talk it out. Matt is *concerned*

 

 

 

 

 

 

In the next post we will describe this registration process in some more depth and explain how it all went.  

 

Footnotes:

*I think ;) - we have yet to earn profits or pay taxes so stay tuned. 

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