Nullity of a legal entity

The nullity of a legal entity is regulated by the Romanian Civil Code, and the Companies Law also sets out the grounds and effects of a company’s nullity.

There are two kinds of nullity for legal entities:

a) absolute nullity — the sanction for breaching, when the legal act is concluded, a rule that protects a general interest;

b) relative nullity — the sanction for breaching, when the legal act is concluded, a rule that protects an individual or private interest.

The grounds for nullity are set by the Civil Code, which provides in particular that absolute nullity applies where:

• the founding act of the legal entity is missing or was not concluded in authenticated form where the law requires it;

The Companies Law requires authenticated form for the articles where real estate is contributed to the share capital, for general and limited partnerships, and for joint-stock companies set up by public subscription.

• the object of activity is unlawful or contrary to public policy or morality — naturally sanctioned by absolute nullity because the interest protected is general;
• an administrative authorisation required to set up the legal entity is missing;
• the founding act does not state the registered office, name or object of activity;
• the founding act does not state the founders’ or shareholders’ contributions or the subscribed and paid-in capital;
• the rules on initial assets or minimum subscribed and paid-in capital were breached.

The grounds for relative nullity under the Civil Code are those not sanctioned by absolute nullity, namely:

• all the founders or shareholders lacked legal capacity when the legal entity was set up;
• the minimum number of shareholders or founders required by law was not met;
• other mandatory legal provisions sanctioned by nullity of the founding act were breached.

Some grounds can apply only to associative entities, for example those concerning the shareholders.

The grounds in the Companies Law are similar and concern:

• missing articles, or articles not in authenticated form where required;
• all founders lacked capacity when the company was set up;
• an unlawful object of activity or one contrary to public policy;
• the absence of the registration judge’s decision;
• the absence of a required administrative authorisation;
• articles that do not state the name, object of activity, subscribed capital or contributions;
• breach of the rules on minimum subscribed and paid-in capital;
• breach of the minimum number of shareholders.

Under the Civil Code, the nullity of a legal entity can be found or declared by a court. From the date the judgment becomes final, the legal entity ceases to exist without retroactive effect and enters liquidation.

The judgment also appoints the liquidators and is communicated so that it is noted in the public registers where the legal entity was registered.

The founders or shareholders are liable for the obligations incurred by the legal entity from its formation until the judgment is noted in the public registers.

Relative nullity of a legal entity may be invoked within one year of its registration or formation, but both relative and absolute nullity may be cured if the cause is removed before the end of the hearings at first instance.

Similarly, the Companies Law provides that the nullity of a company registered with the Trade Register may be declared by the tribunal, and that the date the judgment becomes final marks the end of the company without retroactive effect and the start of liquidation.

Nullity may be invoked by an action for annulment, but it cannot be declared if its cause was removed before the parties’ closing submissions on the merits before the tribunal.

A declaration of nullity does not affect acts previously concluded in the entity’s name by its management bodies, directly or through representatives; however, under the Civil Code, the entity, its founders or shareholders may rely on the nullity against third parties only if they prove that those third parties knew of the cause of nullity when the act was concluded.

The Companies Law contains similar provisions, and a declaration of nullity does not affect acts concluded in the company’s name.

If a company declared void continues to exist in fact and carry on its activity, it is only a de facto company — a form of simulation.