Profile photo of David SmithDavid Smith FSEA asked 2 years ago

Hey gang, when I first opened my SRL 2 years ago my partners and I had a horrible time understanding exactly how these entities are structured. The main issue was that we discovered that shareholder management in Moldova is much more confusing than in the US because of the concept of Statutory Capital (initial investment capital) and a number of nuances surrounding that.
In brief this problem is as follows: When you create a company in Moldova you MUST break the ownership percentage of the company down in terms of everyone’s financial contribution to the SRL’s statutory capital. Then, when adding investors there is no way to dilute shares (aka Person A and B need to sell shares directly to Person C when admitting them to the company rather than just dilute themselves). Anyone aware of the laws surrounding American LLCs will immediately see issues to this process. I wrote a rather extensive blog post about it at the time and included the following example:

An Example to Attempt to Explain Statutory Capital:
Two men want to start a company. One, call him Bob, has $90,000 ($90k) to invest. The other, call him Warren, is an investment genius and has $10,000 ($10k) to invest. In America Bob and Warren could shake hands and agree that while Bob is providing 90% of the startup capital Warren is providing 70% of the value and therefore structure their company that way (Bob 30% and Warren 70%). In Moldova this is not possible because of the statutory capital problem. In Moldova Bob will have to create the company and then sell 70% of the shares to Warren for $10k. This $10k however, is not in Bob’s pocket not in the company. In order to put it back into the company Bob has 2 options. a.) Increase the statutory capital or b.) loan the money to the company for zero % interest. Option a.), however, is a problem because by increasing the statutory capital he is now diluting Warren’s shares with his own money. Option b.) also has problems because the company’s responsibility for that loan is different than the statutory capital investments (e.g. in the event of the company going bust Bob will get his $10k back first even though Warren owns 70% of the company). Furthermore, if the company is in Moldova but Bob is a citizen of another country (in this case Bob could be another foreign company as well) then the loan in Option b.) needs to be reported to the Moldovan National Bank where it will be subject to a 5-7% interest per year.

  • the asterisk was a callout in the blog post explaining that I was unsure if the 5-7% interest rate applied to founder-loans. I later found it did not so that part at least is wrong. 

In order to get around this problem my partners and I founded an LLC in the US which is the primary tool of ours for doing business here. My question here is if other people have discovered other coping mechanisms or, frankly, if I am understanding everything correctly.