THE DUALIST MANAGEMENT SYSTEM OF A JOINT – STOCK COMPANY – A

NOVELTY FOR THE ROMANIAN LAW

(The 6th International Conference of PhD students, University of Miskolc, Hungary, 12-18 august
2007, Published by University of Miskolc, Inovation and Thechnology transfer centre, ISBN 978-
963-661-783-7 Ö ISBN 978-963-661-782-0 )

Bogdan Cristian Trandafirescu

Lawyer, PhD Bogdan Cristian Trandafirescu,
Ovidius University of Constanţa ( Romania), Faculty of Law and Administrative Sciences

ABSTRACT
The dualistic system of administration of a joint - stock company, a novelty for the
Romanian law, is sanctioned for the first time by the recent Law no 441/2006, a law in which
important modifications are made to Law 31/1990 with reference to the commercial companies.
In the present study we are going to analyse the modality of implementing the dualistic system in
the Romanian law ( taking as terms of comparison the specialized German and French
legislations ) and to estimate how this system will be received by the Romanian commercial
practice.

1. GENERAL CONSIDERATIONS

By the Law no 441/20061 important modifications have been brought to the Law of
commercial companies no 31/1990 in the context of the harmonization of the Romanian
legislation with the communitary acquis and with the modern legislations of the European Union
countries. From the numerous novelties brought by Law 441 we are going to deal with the
analysis of the dualistic system of administering a joint – stock company.
Initially, Law 31/1990 consacrated the classic conception regarding the administration of
a joint – stock company ( administration Council and management committee ); Law 441/2006
brings significant modifications to this classic ( monistic ) system and introduces , as an
alternative modality, the dualistic system of administration – the notions of “board of directors”
and “monitoring council” appear for the first time in the content of the law.
The monistic administration system was criticized in the specialized literature2 for the
reasons that a unique authority ( the administration council ) exercises both the function of
management, of directorship and the control of this directorship.
In comparison to the increase of the role of the administration council in the detriment of
the general assembly ( formally the supreme body ), the monistic system of administration tends
to be replaced by the more modern, dualistic system, the latter implying a board of directors (
managers ) and a monitoring council. The board of directors is appointed for a certain period of
time by the supervision council and may engage the company in any kind of legal operations and

1
Law no 441 of 27 November 2006 for the modification and completion of Law 31/1990 regarding the commercial
cocieties republished and of Law 26/1990 regarding the Register of Commerce, Monitorul Oficial , no. 955 of 28
November 2006.
2
CÎRCEI, E. : Societăţile comercilae pe acţiuni, Ed.All Beck, Bucureşti, 1999, p.271; SCHEAUA, M. : Legea
societăţilor comerciale nr. 31/1990.Comentată si adnotată, Ed.All Beck, Bucureşti, 2000, p.302-303.
represents it in court. The supervisors council is elected by the general assembley and has as main
attributions the appointement of the board of directors, the control of its activity, the recalling of
its members and the convening of the general assembly3.
The dualistic system has its origins in the German Law ( the 1937 Law ), the management
of the company being shared, as we showed above, between the directors ( Vorstad ) and the
supervision council ( Aufschtsstrat ). Only exceptionally, this council can intervene for the
authorization of certain very important documents4.
The German System was adopted also by the French legal practice, by the Law 66-537
from 24 July 19665 regarding the commercial companies, but in parallel with the classic system,
the joint – stock companies having the possibility of option between the two types of
administration. At present, the regulation in discussion is included in the French Commercial
Code ( Livre II, Titre II, Chapitre V, Section 2, Sous section 2 – Du directoire et du conseil de
surveillance, Articles L 225-57 à L 225-93) 6.
Although presented as being modern, this system was not as successful in France as it had
been estimated. On the 1st of January 1992, the joint-stock companies administrated by a board of
directors and a monitoring council represented only 1,62%.
This failure was said to be the result of the formalism provoked by the duality of the
bodies and by the difficulty to, practically, separate the management from control. These reasons
even determined some companies which had adopted the dualistic system, to re-adopt the
traditional one 7.

2. THE DUALISTIC MANAGEMENT SYSTEM OF THE JOINT-STOCK

COMPANIES AS SEEN BY THE ROMANIAN LEGAL AUTHORITY

As we mentioned above, the Law no 441/2006 introduces, beside the unitary system (
Art.137 - Art.152 ), the dualistic sustem of administration of a joint – stock company (Art. 153-
Art. 15311).
We must underline, from the very beginning, that the dualistic system is optional, any
company having the possibility of option, between the classic system ( the unitary system,
according to the new terminology ) of administration and the dualistic one. This form of
management can be settled at the establishment of the company, in its constitutive documents or
afterward, consequent to a modification of the constitutive act by the decision of the
extraordinary general assembly ( art 153 let. 1 and 2 ).
In its present form, the Law 441, like the French Law, does not explicitly restrict the
application of the dualistic system only to the joint-stock companies, creating, thus, the
possibility of extending the application of this system to the other varieties of trade-companies.
But now a normative act is being elaborated which is to modify the Law no 441 and which (
among the other provisions ) expressly restricts the application of the dualistic system to the
joint-stock commercial companies, the initial omission being thus corrected.
The regulation under discussion was inspired by the French Law, as results both from the
organisation of the articles and from the very conception ( the spirit ) of the law.
3
ŞTEFĂNESCU, B.; RUCĂREANU, I.. : Dreptul comerţului internaţional, Ed.Didactică şi Pedagogică, Bucuresti,
1983, p.62.
4
SCHEAUA, M.. : Legea societăţilor comerciale nr. 31/1990.Comentată si adnotată, Ed.All Beck, Bucureşti, 2000,
p.302-303.
5
Loi n 66-537 du juillet 1966 sur societes commerciales, J.O. du 26 juillet 1966, http://www.admi.net/jo/loi66-
537.html .
6
http://www.legifrance.gouv.fr/.
7
SCHEAUA, M.. ,op.cit., p.303.
 2.1. The Board of directors
The management of the joint-stock company is incumbent upon the board of directors
exclusively, which does everything that is necessary and useful for the achivement of the
company’s object of activity, except those legally reserved for the monitoring council and for the
general assembly of shareholders. The board of directors experts its prerogatives under the
control of the monitory council.
The members and their assignment. The board of directors can be formed by one or
several members ( natural persons ), their number having always to be an odd number. When
there is only one member he or she is called single general manager. We must mention, though,
that in the case of the joint-stock companies whose annual financial accounts must be legally
audited, the board is formed of at least three members.
The assignment of the members is incubent upon the control council which, at the same
time, appoints one of them in the position of President of the Board. The constitutive document
specifies the duration of a director’s mandate, which cannot last longer than four years. The
members of the board cannot be members of the monitoring council at the same time.
The members of the board may be recalled whenever the monitoring council considers it
appropiate; the establishing document may also settle that they can be recalled by the general
assembley of the shareholders as well.
In the case their being recalled occurs without a rightful reason, the members of the board
are entitled to claim compensations-payments. In the case of the vacancy of a position of a
member of the board, the monitoring council shall proceed to the assignment of a new member,
without delay, for the period remaining until the expiration of the mandate.
The relations of the board with the third parties and with the joint-stock company. The
board represents the company in relation to the third parties as well as in Court. If not otherwise
stated in the establishing document, the members of the board can represent the company only
when they are acting together. In the case when the members of the board can represent the
society only by acting together, they can, by their unanimous agreement, mandate one of them to
conclude certain operations or types of operations. The monitoring council represents the
company in its relations with the board.
The obligations of the board to inform the monitoring council. At least once every three
months, the board must present a written report to the monitoring council with reference to the
management of the company, to its activity and its possible evolution.
Besides this periodical information report, the board communicates the monitoring
council, in due time, any information regarding any events that could have a significant impact
upon the situation of the company. The monitoring council can ask from the board any
information considered necessary in exercising its control attributions and may do verifications
and investigations corresspondingly. Each member of the monitoring Council has acces to the
information transmitted to the council. The board of directors presents the annual financial
accounts and its annual report as soon as they have been elaborated. At the same time the board
presents the monitoring council its detailed suggestions regarding the distribution of the profit
resulted from the balance sheet which it is going to present in the general assembly.

2.2. The Monitoring Council

Members and their assignment. The members of the Monitoring Council are appointed by
the shareholders’ general assembly, except for the first members, who are appointed by the
constitutive act.
The candidates for the positions of members in the monitoring council are nominated by
the existent members of the council or by the shareholders. The members of the monitoring
council can be recalled whenever by the shareholders’ general assembly , with a majority of at
least two thirds from the number of votes of the shareholders present at the meeting. The
monitoring council elects a president of the council from its own members.
The duration of the council members’ mandate is stated in the constitutive act and it
cannot be longer than four years. They can be re-elected if the constitutive act does not stipulate
otherwise. The duration of the mandate of the first members of the council cannot be longer than
two years.
A corporate body can be appointed member of the monitoring council of a joint-stock
company. Once appointed, the legal entity is obliged to assign a natural person as a permanent
representative. This is subject to the same conditions and obligations and has the same civil and
penal responsability as has a member of the monitoring council, a natural person who acts in
his/her own name, but this does not mean that in this way the corporate body that he/she
represents will be exonerated of responsibility or that its solidarity liability is anyhow diminished.
When the corporate body recalls its representative it is obliged to assign a substitute at the same
time.
The main atributions of the monitoring council. The monitoring council has the following
main attributions : a) exerts a permanent control of the management of the company by the board
of directors; b) appoints and recalls the members of the board; c) verifies the conformity with the
law, with the constitutive act and with the decisions of the general assembly of the management
operations of the company; d) reports at least once a year in front of the general assembly of the
shareholders with regard to the monitoring activities it has carried out.
In exceptional cases, when it is required by the interest of the company, it may convemce
the shareholders’ general assembly.
No company management attributions can be transferred to the monitoring council.
Nevertheless, the constitutive act may stipulate that certain types of operations cannot be done
without the agreement of the council. In case the council does not agree with such an opperation,
the board of directors can ask for the agreement of the ordinary general assembly session. The
decision of the general meeting with regard to such an agreement must have a majority of ¾ from
the number of the votes of the present shareholders. The constitutive act cannot fix another
majority and neither can it stipulate other conditions.
The monitoring council may create advisory committees, formed of at least 2 members of
the council, in charge with carrying out investigations and with the elaboration of
recommendations for the council, in domains as the audit, the remuneration of the members of
the board and of the monitoring council and of the personnel, or the nomination of candidates for
different managing positions.
The president of the board of directors can be appointed member in the nomination
comittee created by the monitoring council, without getting in this way, the quality of a member
of the council.
At least one member of each of the created committees must be an independent member
of the monitoring council. At least one member of the audit comittee must have relevant
experience in the implementation of the book-keeping principles or in financial auditing.
In the case of the joint-stock companies whose annual financial balance-sheets make the
object of a legal financial auditing, the creation of an auditing committee within the monitoring
council is compulsory.
The convening and proceeding of the meetings of the council. The monitoring council has
meetings at least once every three months. The president convenes the council and chairs the
meeting.
Also, the monitoring council can be convoked at any moment on the justified solicitation
of at least two of the members of the council or of the board of directors. The council will meet in
not more than 15 days from the convocation. If the president fails to gather the council in
conformity with the provisions mentioned above, those who requested the meeting can convoke
the council themselvs, and decide on the proceedings of the meeting. The members of the board
of directors can be convoked at the meetings of the monitoring council, but without having the
right to vote in the council.

3. CONCLUSIONS

As it was shown in the specialized literature, the unitary system of administration of a

joint-stock company is liable to criticism, having in view the increased role of the administration
council in the detriment of the general meeting ( formally, the supreme authority ). So, both the
management and administration function on one hand and the control function on the other, are
held by the same authority.
In these conditions, the monistic system of management and administration tends to be
replaced by the dualistic system, the latter being more modern and implying a board of directors
and a monitoring council. The dualistic system has its origins in the German Law, the
management of the company being shared between the directors ( Vorstad ) and the supervision
council ( Aufschtsstrat ). The German System was adopted also by the French legal practice, but
in parallel with the classic system, the joint – stock companies having the possibility of option
between the two types of administration.
Much in the spirit of the French legislation, the Romanian legislator introduced ( by
means of Law 441/2006 ) the possibility of administrating the joint-stock company in a dualistic
system, maintaining, at the same time the classical unitary system, so that any joint-stock
company can make its choice between the two.
As we have already mentioned, in France the dualistic system did not enjoy the expected
succes. On the 1st January 1992 the joint-stock companies administrated by a board of directors
and a monitoring council amounted to only 1,62%.
Practice will show if this system will have a similar reception in Romania as well, or
whether it will be largely adopted by the joint-stock companies. The force of tradition will
represent an important obstacle in the implementation of the dualistic system. It is probable that
only the large joint-stock companies and the vanguardists will be tempted to implement the
dualistic system of administration of the joint-stock companies ( this estimation being valid both
for the companies that are going to be founded and especially for the old ones ).