Corporate Governance in Moldova

1. Corporate Structure Of The Companies

1.1. General Legal Framework

Moldovan legislation provides for different types of legal forms of business entities. Conventionally, these could be divided into three broad categories:

(1) Companies (General Partnership, Limited Partnership, Limited Liability Company, and Joint Stock Company)

(2) Cooperatives (entrepreneurial and productive), and

(3) Enterprises (state and municipal enterprises).

The most common forms are Limited Liability Companies (LLC) and Joint Stock Companies (JSC). From a foreign investor’s perspective, the choice is usually an LLC due to simple and flexible registration and operation. According to the information provided by the Agency of Public Services, as of November 1, 2022, there are 94,742 LLCs and 1,822 JSCs from a total number of 125,375 legal entities (profit and non-profit).

Both the LLC and JSC legal forms may be incorporated by one or more shareholders (which can be both individuals or legal entities, Moldovan residents, or non-residents). An LLC can have a maximum of 50 shareholders, while the maximum number of shareholders in a JSC is not limited. In both cases, the shareholders are responsible for company obligations within the limits of their contributions to the share capital.

Law on LLC No. 135/2007 and Law on JSC No. 1134/1997 provide a similar structure of corporate bodies:

a) Supreme decision body: General Meeting of the Shareholders (GMS) or the Sole Shareholder;

b) Supervisory body: Supervisory Board or Council;

c) Executive body: one or more Administrators; and

d) Control body: a Censor or a Censor Committee.

The Supreme decision body and the Executive body are required in all legal forms of business entities. The Supervisory body is mandatory in JSCs with more than 50 shareholders. The Control body is mandatory in LLCs with more than 15 shareholders.

Moldovan legislation does not provide for any differences in respect of corporate bodies depending on the company’s size: whether this is a micro, small or medium-sized company. In this regard, it is worth mentioning that in Moldova, this classification is done depending on the number of employees and the number of the company’s total assets.

Public interest entities are required to comply with certain specific requirements in respect of their corporate bodies. These requirements are provided in special legislation on the capital market, banks’ activity, and insurance companies.

1.2. The Function of the Supervisory Board

The Supervisory Board represents the interests of the shareholders in the period between the general meetings and, within the limits of its powers, exercises general management and control over the company’s activity. The Supervisory Board is subordinated to the GMS.

The main powers of the Supervisory Board are as follows:

• decides on the convening of the GMS, and also decides on the drawing up of the list of candidates for the election of the management bodies of the company;
• approves the market value of the goods which are the subject of a large transaction;
• decides on the conclusion of large-scale transactions and of transactions with a conflict of interest not exceeding 10% of the value of the company’s assets;
• concludes contracts with the managing organization of the company;
• approves the prospectus of the offer of securities to the public;
• approves the report on the results of the issue of the shares and thereby modifies the company’s charter;
• decides, during the financial year, on the distribution of the net profit, the use of the reserve capital, and the special funds of the company;
• provides to the GMS proposals on the payment of annual dividends and decides on the payment of intermediate dividends;
• approves the amount of remuneration of the company’s employees.

Matters falling within the competence of the Supervisory Board may not be referred for examination to the company’s Executive body. If the company’s Council has not been established, does not meet the necessary quorum, or its powers have ceased, the duties of the board, except for those of convening and holding the general meeting of shareholders, shall be exercised by the GMS.

The members of the company’s Supervisory Board are elected by the GMS for a term that does not exceed one year in LLCs and four years in JSCs. The same people can be re-elected an unlimited number of times. The Supervisory Board has not less than three members and, in case the JSC has more than 100 shareholders, a minimum of five members.

The member of the Supervisory Board may not be the person who:

• is convicted of fraud, theft of property by appropriation, embezzlement or abuse of office, deception or abuse of trust, forgery, false deposition, giving or taking bribes, as well as for other similar crimes;
• is a member of five councils of other companies registered in the Republic of Moldova;
• is a member of the executive body of the company or a representative of the company’s management organization;
• is a member of the audit committee of the company.

Meetings of the company’s Supervisory Board are held no less than once per quarter.

By the decision of the GMS, the powers of any member of the company’s Supervisory Board may be terminated at any time, before the expiration of its mandate.

The Law on JSCs contains an entire chapter on the responsibility of the officials: members of the Supervisory, Executive, and Control bodies. The officials are obliged to act in the interests of the company and are liable for the damage caused to the company, in accordance with civil, criminal, contravention, and labor legislation.

The Law on LLCs provides that the rules regarding the diligence, loyalty, and liability of the executive body are accordingly applicable to the members of the Supervisory Board.

1.3. The Function of the Executive Board

The Executive Board shall cover all matters relating to the management of the company’s business, except for matters falling within the competence of the GMS or of the Supervisory board.

The Executive Board is formed of one or more Administrators, designated by the Supervisory Board or the GMS, according to the procedure established by the company’s Charter. The individuals appointed as Administrators of a company must be registered in the Register of Legal Entities. 

The Executive Board ensures the fulfillment of the decisions of the GMS and Supervisory Board and is subordinated either to the company’s Supervisory board or to the GMS (if this is provided for by the company’s Charter).

The Administrator is entitled, within the limits of his duties, to act on behalf of the company without a power of attorney, including carrying out transactions, approving the staff lists, to issue orders.  If more than one Administrator is appointed by GMS or the Supervisory Board, such Administrators will have equal powers of company’s representation, except when otherwise is decided by the GMS, Supervisory Board or is stipulated in the company’s Charter. 

The Executive Board shall submit reports on the results of its activity on a quarterly basis to the Supervisory board or to the GMS.

The Law on JSCs provides the same restrictions, limitations, and responsibilities for members of the Executive Board as for the members of the Supervisory Board.

The Law on LLCs expressly provides that the Administrator must manage the company so that the purposes for which it was established are achieved as efficiently as possible. In the exercise of their duties, the Administrator will show diligence and loyalty. The Administrator bears full material liability for the damage caused by them to the company.

1.4. Conflicts of Interest and Related Party Transactions

The Law on JSCs contains extensive provisions dedicated to transactions with conflict of interest. According to Art. 84 (1), the conflict-of-interest transaction is a transaction or several mutually related transactions that meet the following cumulative conditions: (a) it is carried out, directly or indirectly, between the company and the interested person and/or its related persons; and (b) the value of the related transaction(s) exceeds 1% of the value of the company’s assets.

Members of the Executive Board, Supervisory Board as well as the shareholders that hold alone or together with the affiliated persons more than 25% of the voting shares are considered interested persons. They must inform the Executive and Supervisory Boards of the existence of the conflict of interest. Failure to comply with this requirement could lead to compensation to the company for the failed income.

Any transaction with a conflict of interest may be concluded or modified by the company only by a decision of the Supervisory Board (if the value of the transaction does not exceed 10% of the value of the company’s assets), or by a decision of the GMS.

The transactions with conflict of interest are subject to disclosure.

The Law on LLCs contains basic provisions in respect of conflict-of-interest transactions. The main requirements refer to the (a) approval by the GMS of any legal act between the administrator or a person affiliated with the administrator, and the company, and (b) an interdiction to exercise the right to vote for the shareholders in cases related to the legal acts concluded between them or their affiliated persons and the company or regarding his liability towards the company.

1.5. Legal Framework for Large Companies

According to the Moldovan legislation, banks, insurance companies, private pension funds, and entities whose securities are admitted to trading on a regulated market are considered public interest entities. These are specifically regulated by provisions of Law No. 171/2012 on the Capital Market, Law No. 202/2017 on Banks’ Activity, Law No. 407/2006 on Insurance, and specific regulations approved by the National Commission of Capital Market (NCCM) and the National Bank of Moldova (NBM).

The management body of a bank is represented by its Supervisory and Executive Boards. All members of the management body shall be approved by the NBM. Similarly, the officials of an insurance company have to be approved by the NCCM.

Unlike the general rule, the legislation regulating the corporate governance of banks, credit organizations, and insurance companies may establish specific rules regarding the formation of corporate bodies.  For instance, the Executive Board of a bank shall consist of three individuals, elected for a term specified in the bank’s Charter. The Law on Banks’ Activity contains extensive regulation of the application of governance principles. Detailed provisions on the management bodies, competence criteria, and evaluation procedure of the officials of the banks and insurance companies are established in Regulations approved by the supervisory authorities.

2. Corporate Governance Framework

2.1. Transparency and Public Disclosures

Public interest entities, including issuers whose securities are traded on the regulated market, are subject to special disclosure obligations. The information that is to be disclosed by a public interest entity is expressly regulated by the Law on Capital Market and includes:

1) annual and quarterly reports of the entity;

2) interim statement of the entity’s management;

3) information about events impacting the economic and financial activity of the entity; and

4) the entity’s articles of incorporation. 

In addition, the Law regulates specific ad hoc disclosure obligations, that include notification of corporate developments that have an impact on the issuer’s activity, such as:

• amendments to voting rights related to different categories of securities;
• new issuances of securities;
• payment of dividends;
• conversions, fractioning, or consolidation of securities from previous issuances;
• events that may influence the activity of the issuer or the price of the securities admitted to trade.

The legislation expressly provides the obligation of all JSCs to publish information on any changes in their share capital. Public interest entities must publish in the Official Gazette of the Republic of Moldova and on their website the announcement on the convocation of the GMS, the agenda, and other relevant information. Voting results shall be also placed on the entity’s website.

Moldovan banks must report annually on the conditions under which the bank’s activity management framework is carried out, in accordance with the normative acts of the National Bank of Moldova.

The responsibility for disclosing the information lies with the executive bodies of the company.

2.2. Public Authorities Responsible for Monitoring Corporate Governance

The NCCM is the independent regulatory agency that supervises the securities market, insurance sector, and non-banking financing in Moldova.  Banks’ activity is supervised by the National Bank of Moldova.

A public interest entity must comply with the Corporate Governance Code approved by the NCCM in 2015 (Code). All other companies that are not public interest entities may follow the Code on a voluntary basis. 

Public interest entities are also required to report their compliance with the Code in relation to (i) international corporate governance standards, (ii) protection of the legitimate rights and interests of shareholders, (iii) clarification of the roles of its governing bodies, (iv) functionality of the entity in a non-corrupt environment, and (v) promotion of the interests of managers, employees, and shareholders, as well as by other measures.

The Code prescribes specific independence requirements for the directors of public interest entities. According to the Code, at least 1/3 of the board must be composed of independent directors. The number of board members is to be sufficient to ensure the organization of the board’s activity, including the ability to create board committees and allow shareholders to elect the candidate for which the shareholder has voted. The Code also requires the board to create committees for the preliminary examination of the most important issues related to the entity’s activity, such as a remuneration committee, a risk management committee, etc. 

2.3. ESG

No special ESG considerations are expressly regulated by Moldovan legislation. However, in practice, public entities integrate the ESG considerations in their Corporate Governance Codes, namely:

• social responsibility and relations with interested parties;
• relations with employees and organizations that represent their interests;
• relations with clients;
• relations with investors;
• relations with the regulating and supervisory authorities;
• community responsibility; and
• protection of the environment.

2.4. Internal Controls and Fraud Measures

The mandatory audit of the annual financial statements is carried out at the public interest entity and at the company where the state share exceeds 50% of the share capital. The audit company may not be an affiliate of the audited company and its managing organization.

Any JSC is to publish the annual report and full audit report by April 30 and to take the necessary measures to ensure that the report remains available to the public for a period of at least five years.

3. Shareholder And Board Committees

3.1. What Committees Are Prescribed by Law?

General provisions on JSCs and LLCs are silent on the necessity of the creation of any committees, giving the entity freedom in the creation of their own organizational structure.

3.2. What Committees Are Mandatory for Large Companies?

The Law on Banks’ Activity provides that the bank shall establish an audit committee and a risk management committee, established by the Supervisory Board.

In addition, in large banks, considerable in terms of their size, organization, and nature, extent, and complexity of their activities, the Supervisory Board shall set up the appointment committee and the remuneration committee.

The powers, functions, and responsibilities of the specialized committees, as well as the requirements for their members, are established in the normative acts of the NBM.

3.3. Remuneration of Supervisory and Executive Board Members

The GMS approves the amount of remuneration of the members of the Supervisory Board. Remuneration of the Executive Board is established either by the GMS or by the Supervisory Board, depending on the Charter’s provisions.

The Law on Banks’ Activity contains specific provisions on the remuneration policy. According to Art. 39, a bank is obliged to establish and apply remuneration policies for the members of the executive body and for the persons holding key positions within the bank, as well as for any other employee who receives a total remuneration that places them in the same remuneration category as that of the members of the executive body and of the persons holding key positions, respecting, in a manner and to an appropriate extent in relation to the size and internal organization of the bank, its nature, scale and complexity, specific principles provide by law.

According to the NBM regulations on the requirements for the banks to publish the information, banks must publish the information on the bank’s remuneration policy and practices.  However, the exact remuneration granted to each member of the management bodies in a private company represents confidential information and is not subject to public disclosure.