Foreign Direct Investment in Romania: Challenging the Romanian Legal Framework Using the Delaware Model of Company Law
Catalin Razvan Tripon
Ontario Racing Commission
Empirical data suggest that foreign direct investment tend to flow in countries with strong corporate governance. This work explores means to attract FDI from a corporate law perspective. I suggest a comprehensive set of rules that would make Romania more attractive from the perspective of business ventures' institutions. The general policies that are developed here refer to improvement of corporate governance and promotion of partnerships as an alternative for close corporations. The model law that I follow is the one of the US State of Delaware, due the reputation of this State to attract business ventures for incorporation. Its legal system is known to be very liberal, in the sense that partners within partnerships or shareholders of close corporations have a large spectrum of alternatives to shape their business venture as they deem appropriate. Alternatively, large public held corporations tend to incorporate in Delaware because the legislation defends the power of the Board to manage a business without interference from the shareholders, as long as the directors fulfill their fiduciary duties.
The current work is structured in three titles. The first title introduces the reader in the context of FDI, presents the current situation in Romania, and the history of FDI in Romania since its formation as a modern state.
The second title refers to the financial decisions to be undertaken by a foreign person for the purpose of establishing a subsidiary in Romania. Capital formation is approached in a critical manner, by comparing the requirements in Romania and the practices in international environment (or in US), suggesting few changes that should increase the confidence of foreign investors in the Romanian corporate environment. Then, I present the guarantees and facilities that are offered by the Romanian state to foreigners, or the limitations that may be encountered by foreign business people when planning to develop a business in Romania.
The third chapter is the core of the dissertation. After introducing the reader with the theoretical premises of the discourse, I expound the company law in Romania, comparing it with the one existent in Delaware. Aiming to make the entire Romanian company law more attractive then the one in other CEE countries, I start analyzing partnerships as an alternative mean to develop small businesses. I try to circumvent the primary odd of partnerships, the joint liability of general partners, by suggesting exceptions from the rules related to their liability, and expanding the flexibility of provisions dealing with partnerships' organization. Then I explore the corporate entities, following the same line of critical analysis, starting with the need and means to decrease formalism of incorporation process. When I turn to the role of corporate bodies, I stand on two hypothesis: one is the separation of management powers from shareholders' rights; the second is the improvement of transparency in decision making process. I address issues like effectiveness of voting procedures, protection of minority shareholders, prevention of abusive conduct of the Board. All suggestions I make, preserve the context of Romanian and continental European legal traditions.
Keywords: foreign direct investment, emerging markets, corporate governance, corporations, partnerships
JEL Classification: G3, K2, F0, F1
Date posted: October 13, 2003
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