According to Law no. 163/2018 on amending and supplementing Accounting Law no. 82/1991, Companies Law no. 31/1990, as well as on amending Law no. 1/2005 on the organization and functioning of cooperative companies (“Law 163/2018”), published in the Official Gazette of Romania, Part I no. 595, as of 12.07.2018, the Romanian companies are allowed to distribute dividends quarterly to shareholders, under the conditions stated below.
Conditions for the quarterly distribution of dividends
If the shareholders of a company opt for the quarterly distribution of dividends, the following conditions must be met:
- Dividends may be distributed during the financial year only based on the interim financial statements approved by the General Meeting of Shareholders; Therefore, companies that opt for the quarterly distribution of dividends are required to prepare interim financial statements, based on which the dividends will be paid to the shareholders, as follows: (i) pro rata with their contribution to the paid-up share capital and (ii) within the deadline set by the General Meeting of Shareholders or by special laws.
- The interim financial statements must be verified by (i) auditors, if the company is required under the law to do so or has opted to audit its financial statements, or (ii) by statutory auditors (in Romanian: “cenzori”), in the cases provided by the law;
- The dividends thus distributed must be recorded in the accounts and reflected in the interim financial statements as receivables against the shareholders;
- The amounts of the dividends allocated during the financial year are adjusted upon the approval of the annual financial statements and any dividends distributed and paid in excess during the financial year must be returned within sixty (60) days following the approval of the annual financial statements for the ended year. The failure to make the required adjustments will lead to the accrual of legal interest.
Moreover, the quarterly distribution of dividends is performed within the limit of the quarterly net accounting profit, plus any potential retained profits and amounts withdrawn from reserves available for that purpose, less any incurred losses and amounts deposited in reserves, in accordance with the legal or statutory requirements.
Payment of dividends from fictitious profits
In order to reflect the amendments above, the Companies Law provision on the unlawful distribution of dividends was also changed and it now states that a representative of the company who receives or pays dividends, in any form, from fictitious profits or pays dividends that are not supported by the interim financial statements or the annual financial statements shall be punished by imprisonment from one (1) to five (5) years.
Prior to the changes brought by Law no. 163/2018, the distribution of dividends was possible only annually, pursuant to the approval of the annual financial statements, for the ended year.
Once Law no. 163/2018 has entered into force, legal entities shall be able to distribute dividends to shareholders either: (i) quarterly, on an optional basis, pro rata with their contribution to the paid-up share capital, based on interim financial statements, as detailed above; or (ii) annually, after the adjustments performed according to the annual financial statements, unless otherwise provided in the Articles of Incorporation.