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Subscribe to this list via RSS Blog posts tagged in Limited Liability Company

Posted by on in Stories From The Field
Of LLCs and SRLs Part #1

Note 1: This post is an update to our first post about organizing a company in Moldova. While that post was pretty general and explained our initial reasoning this one will attempt to explain the results of that reasoning over the last few months and a few preliminary recommendations for other entrepreneurs (ok, this got long. Conclusions Recommendations will be in Part 2 [COMING SOON]). We will be writing a further update on this topic later on with more solid recommendations. (small update below)

Note 2: This post is covering quite a lot of experience had over a long period of time. The topic is dense and often technical. Please comment if things are unclear and I will add more information. Also, as usual, please feel free to tell us how stupid we are. Everyone can learn from that. 

 

Jump to... (note to use these section links open up the full version of the post by clicking the title or on "Continue Reading" below)

Section 1
Basic Organization 

Section 2
Selling Shares vs Adding a Founder: 
Section 3
The Necessary Documents for Adding a Founder
Section 4
Notarizations, Apostilles, Translations and DHL 

 

 

So Begins a Tale of SRLs and LLCs...

 

 

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The path to success is almost self evident!

 

 

Section 1: Basic Organization


 

I'll begin where the last post ended which was with a discussion of the process that we decided to embark upon. That was to organize the companies basically as follows:

 

b2ap3_thumbnail_SRL-Ownership.jpg

I'll let you all guess which silhouette represents which manager...

  

So to describe what you're seeing there we founded a Moldovan SRL called "Smoke House SLR" (they refused to believe it was one word and we didn't fight it). Additionally we founded an American LLC called "The Moldova Company LLC" in Virginia. The purpose of the LLC, as described briefly in the previous post, is to escape from some of the more challenging bureaucratic differences between a Moldovan SRL and an American LLC. These all...

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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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