On 12 July 2018, Law no. 163/2018 has been published, giving companies the option of distributing dividends on a quarterly basis.
The main provisions of the law are described below.
1. Amendments and completions to Accounting Law (Law no. 82/1991)
- The option has been introduced for companies to distribute dividends to shareholders on a quarterly basis during the financial year, within certain limits [i.e. estimated quarterly profit (to be distributed as dividends) = quarterly net profit + reported earnings + amounts withdrawn from reserves - reported losses - amounts deposited in reserves].
- If dividends are to be distributed on a quarterly basis, reconciliation of the distributed amounts takes place after the annual financial statements have been approved. Dividends distributed quarterly and paid in excess must be returned within 60 days of the annual financial statements being approved. Moreover, the company management has to use the necessary measures to recover those amounts.
- Interim distribution of dividends are recorded in accounting and reflected in the interim financial statements as receivables against the shareholders.
- Companies opting for quarterly distribution of dividends are required to prepare interim financial statements.
- Companies that are under the obligation of, or opt for, having their annual financial statements audited will have their interim financial statements audited as well.
- Companies that are under the obligation of having their annual financial statements checked by censors will have the same obligation for their interim financial statements as well.
2. Amendments and completions to Companies Law (Law no. 31/1990)
- Dividends may be distributed: (i) optionally, quarterly within the time limit set by the General Meeting of Shareholders based on the interim financial statements and (ii) annually after reconciliation through the annual financial statements, unless the articles of association state otherwise.
- Differences arising from reconciliation have to be returned within 60 days since the approval of the annual financial statements corresponding to the preceding financial year.
- If this term is not observed, the company or the shareholders will be liable to penalty interest payments calculated as per Government Ordinance no. 13/2011, art. 3, unless a higher interest rate has been established in the articles of association or through the resolution of the General Meeting of Shareholders approving the preceding financial year’s financial statements. The penalty interest rate is currently 6.5% annually, calculated daily, from the due date until the payment date, on the amount representing the differences arising from the reconciliation of the annual financial statements.
- Any company founder, general manager, director, member of the supervisory board or of the board of directors, or legal representative who receives or pays dividends from fictitious profits or dividends that could not have been distributed during the financial year under the interim financial statements and annually, under the annual financial statements or contrary to results included in these financial statements, risks imprisonment for one to five years.
3. Amendments and completions to Law on the organisation and functioning of cooperative societies (Law no. 1/2005)
- Members of cooperative societies are entitled to receive dividends from quarterly or annual profits in proportion to their share capital.
- Any director, company president or executive director who receives or pays dividends from fictitious profits that should not have been distributed in the absence of interim financial statements or annual financial statements risks imprisonment for six months to three years or a fine.
Source: Law no. 163/2018 amending and completing Accounting Law no. 82/1991, Companies Law no. 31/1990 and Law no. 1/2005 on the organisation and functioning of cooperative societies published in Official Gazette, no. 595 on 12 July 2018.
The law enters into force as of 15 July 2018. Starting with Q3 of 2018, companies may opt for quarterly distribution of profits to shareholders. Reconciliation of such amounts happens after the annual financial statements have been approved. Those who opt for the quarterly distribution of dividends are required to prepare interim financial statements. Any differences resulting from the reconciliation are payable within 60 days of the date of approval of the annual financial statements. Failure to meet that deadline results in penalty interest being due.