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Organizing the Company: SRL vs SA (vs LLC vs LLP vs...)

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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. 

0
(Site Admin, Entrepreneur, Contributor)
David is a native of the great Commonwealth of Virginia and lived there through high school in Fairfax County. After high school he pursued a degree in Electrical Engineering from the Georgia Institute of Technology in Atlanta Georgia. During his studies his traveled to Singapore for a semester and gained a respect and love for traveling and immersing in different cultures. After graduation David joined the United States Peace Corps and was posted first in Kazakhstan as an English Teacher and later in Moldova as a Community and Organizational Development Consultant.

When not working on his startup David can be found maintaining various web based side projects (check out: salutmoldova.org) and working on his 1986 Lada Жигули 2101 named Надя (Nadia).

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