EURESEAU
 

Bulgaria

1.) Types of entities

1.a) Which are the different types of entities according to the domestic corporate law? (e.g. partnerships vs. companies vs. other legal entities). Please describe the main features of each of those types of entities. Which type/s of entities – if any – is/are more often used in corporate law practice in your country?

Bulgarian law provides for several classifications of legal entities depending on the activity carried out by the entity and the legal branch which governs it:

  1. Legal entities of Civil Law. These entities are not aimed at generating and distributing profit. Non-profit legal entities (associations and foundations), political parties, religious organizations, among others, fall into this category. The abovementioned entities are entitled to conduct business activities, provided that the funds are used to finance their core activity (which can be public or private oriented).
  2. Legal entities of Commercial Law. The various types of commercial companies fall into this group. It is a characteristic feature of them that their activities are profit-oriented. All types of commercial entities are subject to registration with the Bulgarian Commercial Register, kept by the Registry Agency to the Ministry of Justice.
    In Bulgaria, a basic distinction is applied between partnerships and capital companies. A classification criterion is what factor is at the core: the partner's personality or the capital.

    • Partnerships - the partners have unlimited personal liability for all debts of the partnership; these legal entities do not form capital; the resignation of a partner usually leads to the termination of the company (unless otherwise specified). Types of partnerships are:

      • General partnership - the partners are liable with all their assets as joint debtors. The liability of the partners is personal, unlimited and subsidiary regarding the obligations of the general partnership.

      • Limited partnership – this type of company consists of two groups of partners: general partners (with unlimited liability) and limited partners (they are liable up to the amount of their contributions).

    • Capital companies - this kind of legal entities necessarily form capital in a minimum amount determined by the Commercial Act of the Republic of Bulgaria (“CA”). The importance of the capital is related to the responsibility of the company and its creditworthiness. Partners/shareholders in the company have a share in the capital, which proportionately determines their voting rights and their entitlement to a share of the profits. In these legal entities, the resignation of a partner/shareholder does not result in the dissolving of the company. Most importantly: the partners/shareholders are not responsible for the company's liabilities - their risk is narrowed to the amount of their capital contribution. Types of companies:

      • Limited liability company (OOD/EOOD);

      • Joint-stock company (AD/EAD);

      • Partnership limited by shares (KDA).

    • At present, capital companies have greatly displaced partnerships due to their multiple disadvantages in relation to the liability of the partners/shareholders. In Bulgaria, the business formations that are used most often are the Limited Liability Company - for smaller and medium-sized businesses and the Joint-Stock Company - for a larger commercial activity, which requires the formation of larger capital.

  3. Other possibilities to do business in Bulgaria:

    • Branch of a foreign company – it is not considered a separate enterprise and a legal entity, but it has certain autonomy under Bulgarian law for accounting and tax purposes. 

    • Representative office of a non-resident entity - It is not a separate legal entity and is not entitled to conduct business in Bulgaria, but the foreign entity (principal) may conduct commercial activity through its representative office on the territory of Bulgaria. The representative office is established by way of registration with the Unified Register of the Bulgarian Chamber of Commerce and Industry. 

1.b) What are the different types of companies? Please describe the main features of each of these types of companies: capital, transfer of shares or stakes, contributions in kind, management, etc. Which type of companies - if any - is / are more often used in corporate law practice in your country?

  1. Limited Liability Company (OOD/EOOD)

    • General Characteristics: 
      OOD is a contractual capital company whose capital is divided into shares. It is a hybrid form of a business association, where not only the capital, but also the personal participation of the partners is important. The partners are liable up to the amount of their shares in the capital of the company.
      OOD may also be formed as a Limited Liability Company (EOOD) with sole ownership, where the capital is owned by one natural person or legal entity. The sole owner resolves the matters within the competence of the General Meeting. 

    • Capital of OOD:
      The capital is a value that has a permanent character. It is determined by the Articles of Association and should be registered with the Bulgarian Commercial Register. The minimum capital of OOD required by law is BGN 2 (c. EUR 1). It consists of the shares of the partners. The capital is formed by the contributions of the founders and/or the new partners. It serves as a guarantee to the creditors. The company is obliged, at any moment, to possess such rights (valued in money) that are equal to or exceed the value of the registered capital.

    • Shares:
      The registered capital is divided into shares with nominal value BGN 1 at minimum. Partners may not receive their shares back while OOD exists, or while they are still part of the company. Partners are entitled to a portion of the profits, in proportion to their individual shares, unless otherwise agreed in the Articles of Association. Each partner has as many votes in the General Meeting as the size of his/her share in the capital is (unless otherwise provided for in the Articles of Association).

    • Bodies of the OOD:
      Mandatory bodies of OOD are the General Meeting of the partners and the appointed manager (managers) of the company. The Articles of Association may also provide for the constitution of a controlling body which supervises the activity of the company and its compliance with the Articles of Association.

      • General Meeting (“GM”) – it is the supreme body of OOD. It expresses the will of the partners through its decisions. 

        • Competences
          The GM is entitled to amend the Articles of Association, to accept and exclude partners, it also gives consent for the transfer of shares; the GM adopts the annual financial report, allocates the profit and decides on its payment; passes resolutions for capital decrease or increase; elects the manager(s), etc.
          The GM is summoned through a written invitation by the manager at least once a year. It is also convened at the request of partners whose shares amount to more than 1/10 of the capital, in case the losses exceed ¼ of the capital and when the net value of the property of the company drops under the size of the registered capital.

        • Adopting decisions 
          As a rule, the resolutions are passed by a majority of more than ½ of the capital. Majority of ¾ of the capital is necessary to amend and supplement the Articles of Association, to accept and exclude partners, etc. The decision to reduce and increase the capital is made unanimously. Major decisions of the GM are subject to registration in the Commercial Register.

      • Manager(s) of OOD
        The manager is a mandatory body of OOD.  If, for any reason, the OOD is left without a manager (e.g. death), the General Meeting is to appoint a new one immediately.
        The manager may be a physical person or a legal entity. The manager is not necessarily a partner. There are no requirements regarding citizenship, residence, age, etc., unless such exist under the Articles of Association. The law prohibits a person to be registered as a manager of a company, if he/she has been a manager of another company declared insolvent, where creditors have remained unsatisfied.
        The manager organizes and manages the activity of OOD in accordance with the law and the decisions of the General Meeting. He/she represents the company and may authorize other persons to represent the company before third parties.
        The CA establishes a prohibition for the manager of OOD to conduct competitive activities.

      • Controller
        a specialized facultative body that observes the compliance with the Articles of Association, preserves the property of OOD and reports to the General Meeting.

  2. Joint-stock company (AD/EAD)

    • General Characteristics 
      AD is a typical capital company. It is a company whose capital is divided into shares. Shareholders may be natural and/or legal persons. 

    • Capital of the joint-stock company 
      The value of the capital is equal to the sum of the nominal value of the shares. It is also a guarantee that serves the creditors of the company. It is determined by the Articles of Association and should be registered with the Bulgarian Commercial Register.
      The minimum value of the capital of AD is BGN 50,000 (c. EUR 25,000). A minimum of 25% of capital is to be paid at the time of establishment. The capital of AD may be increased and/or reduced during the existence of AD, provided that the formal requirements laid down in the Commercial Act and the Public Offering of Securities Act (if the AD is a listed company) are met.

    • Shares
      A share certifies that its holder participates with the respective nominal value in the company capital. It materializes the rights that the shareholder has as a member of the AD. It is not necessary for these rights to be equal for all shareholders - the law allows issuance of privileged shares.

    • AD management
      Bulgarian law introduces two possible organizational management structures – one-tier and two-tier management systems. In both systems there is a General Meeting present. The difference between the two regimes is in the executive bodies and their competences. 

      • General Meeting of the Shareholders 
        It consists of all shareholders with voting rights. The General Meeting of the Shareholders amends the Articles of Association, increases and decreases the capital, transforms and terminates the company, appoints the members of the Board of Directors (in the one-tier system)  and the Supervisory Board (in the two-tier system), approves the Annual Financial Statements, etc.
        It is to be convened at least once a year. Extraordinary General Meetings can also take place. In some cases, there is an obligation for the executive manager to summon a GM (e.g. when the losses exceed ½ of the capital). The General Meeting is held at the registered office of the AD, unless otherwise provided for in the Articles of Association (but in any case it takes place on the territory of Bulgaria).
        The General Meeting may not transfer its competence to other bodies. Decisions in the GM are adopted by a majority of the shares represented, but another way can be defined in the Articles of Association (e.g. unanimity). Some decisions require a qualified majority (2/3) – amendment of the Articles of Association, capital increase and decrease, termination of the company.

      • Executive bodies 
        The members of the boards of both management systems are elected for a term defined in the Articles of Association, but not longer than 5 years. If the Articles of Association provide for it expressly, a member may also be a legal entity. There is no requirement for a board member to also be a shareholder.

        • One-tier Management System – the executive body of the company is the Board of Directors (“BD”)
          The BD consists of 3 to 9 members. The Board of Directors is to elect a chairman and a deputy chairman from among its members. The BD may entrust the management to one or more of its members (executive members). Their number should be less than the number of the rest of the members of the BD. The BD elects one or more of its members to represent the company before third parties. If no election is made, the general principle will apply where the company is represented by all the members of the BD acting together.

        • Two-tier management system – executive bodies of the company are the Managing Board and the Supervisory Board

          • Managing Board 
            It consists of 3 to 9 members appointed by the Supervisory Board. Members of the Managing Board may be legal entities, if provided for in the Articles of Association. The Managing Board may perform any management actions other than those given to another body (by law or by the company by-laws). 

          • Supervisory Board 
            It has both management and control powers. Its members are elected and dismissed by the GM. The supervisory board may consist of 3 to 7 members. The activities of the Managing Board, the activities of the company as a whole and of its accounting are subject to control by the Supervisory Board. It is important to note that the Supervisory Board is not superior and is not to give orders to the Managing Board.

    • A sole-ownership joint-stock company (EAD
      A sole-ownership joint-stock company is also allowed by law. The capital is formed by the contributions of the sole owner of the company. The capital is necessarily divided into equal shares. The sole owner has the powers of a General Meeting of the shareholders described above.

  3. Joint-stock company limited by shares (KDA)
    KDA is a type of company, which combines features of a limited partnership and of a joint-stock company, being dominated by the features of a joint-stock company. The purpose of the KDA as a company form is to attract capital, while the management of the company is vested in the partners who do not invest in the capital, but assume personal liability for the company's debt. In Bulgaria, the lack of tax advantages with respect to the unlimited liability partners as well as insufficient regulation lead to rare use of this form of association.

    • Participants:

      • General partners
        They found the company and participate in the KDA mainly with their personal efforts in the management and are equally responsible for the debt and liabilities accrued by the business. The law does not lay down requirements regarding their number.

      • Limited liability partners 
        They should be at least three and are approved by the general partners. Their contributions form the capital of the KDA but there is no obstacle for the partners to participate in the capital as well, even though such participation does not affect their responsibility.

    • Bodies
      The KDA is obliged to form bodies as in the one-tier system of management envisaged for AD – i.e. General Meeting and Board of Directors.

      • General Meeting. It includes the limited liability partners and its competences are determined in the Articles of Association. 

      • Board of Directors. It consists of all general partners. The KDA is represented by the Board of Directors or by one or more of its members appointed by the Board of Directors.

2.) Limited liability companies and stock companies: incorporation steps.

2.a) What steps are required to incorporate a limited liability company and a stock company? 

  1. Limited liability companies

    • Constituent meeting
      The founders should summon and approve the Articles of Association of the company.
    • Signing of Articles of Association (for OOD) or a Constituent Act (for EOOD). 
      The document is to be in writing and has a mandatory content specified in the CA. Founders may be only legally capable individuals and/or legal entities - they may be local and/or foreign.
    • Election of manager(s).
      A manager is to be a legally capable individual. The name of the elected manager is to be indicated in the minutes of the Constituent Meeting of the partners. When several managers are elected, they may represent the company jointly or severally, if no specific representative powers are indicated by the General Meeting.
    • Depositing the capital. 
      At least 70 per cent of the capital is to be paid by the founders in a special depository bank account opened in in the name of the company, which is in process of incorporation. The contributions may be monetary and in-kind contributions.
    • Registration with the Commercial Register. 
      An application in a standard form is to be filed with the Registry Agency by the appointed manager(s) or an authorized lawyer, together with a specific set of corporate documents.
    • After the registration with the Commercial Register, it is highly recommendable for the company to be registered as administrator of personal data before commencing any commercial activity.

  2. Joint-stock company (AD)
    The incorporation procedure is similar to the OOD procedure. In case of a two-tier system the Supervisory Board will be appointed first and in its meeting it will appoint the Managing Board. 
    In exchange for the contributions paid, the shareholders receive temporary certificates, which materialize the shareholders’ rights in the company and aim to substitute the shares before their issuance. At least 25% of the value of the shares should be paid in.

2.b) Which specific additional steps (if any) are required for said incorporation in case that any of the shareholders is a foreign or non resident company or individual?

The Bulgarian legislation does not provide for restrictions or specific requirements regarding shareholders who are a foreign or non-resident company or individual.

3.) Limited liability companies and stock companies: steps for appointment of directors and By-laws modification.

What steps are required to appoint a new director and to modify the By-laws of a limited liability company and a stock company?

  1. Steps for appointment of directors

    1. Limited liability company
      The CA does not provide for the figure of a director when it comes to a limited liability company. Under the law, the General Meeting elects one or more managers. The name of the manager may also be specified in the Articles of Association, but typically the Articles of Association provide only for the number of managers and the way of representation. In order to be duly registered as a manager, the appointed person should provide his/her consent and sample signature in notarized form. The manager has the right to represent the company before third parties after he/she is duly registered under the batch of the company in the Commercial Register.  The internal relationship between the manager and the company is usually governed by a management agreement. The manager may be appointed for a fixed term or without a term.
    2. Joint-stock company

      • One-tier system
        The members of the BD are elected and dismissed by the General Meeting. The BD elects a chairman and a deputy chairman from among its members. The BD may entrust the management of the company to one or more of its members - they are referred to as executive members (directors). Their number is to be less than the number of other members of the board (who have supervisory functions). The internal relations between the company and the executive director can be governed by a management contract. The contract is to be concluded in writing between the company through the chairman of the board of directors and the relevant executive member. The BD may elect one or more of its members to represent the company before third parties. This circumstance should be registered under the batch of the company in the Commercial Register. If no specific appointment is made by the BD, the general rule of the CA will apply and the company will be represented by all its members of the BD acting together.
        In practice, usually the executive director is appointed as representative of the company as well. 
      • Two-tier system
        The members of the Managing Board are elected by the Supervisory Board. The internal relations are governed by management agreements concluded in writing with the company through the chairman of the Supervisory Board (or through a member authorized by him/her). The Managing Board appoints one or more of its members, who may represent the company before third parties. The representatives should be approved also by the Supervisory Board.

  2. By-laws modification

    1. Limited liability company 
      The modification of the company's by-laws is within the competence of the General Meeting or the sole owner of the capital. The General Meeting is summoned as per the rules in the CA and the Articles of Association of the company. The decisions of the General Meeting may be taken in absence, provided that all of the partners have given their written consent to adopt the resolutions. This type of resolutions are subject to announcement in the Commercial Register and take effect after the entry. Amendments to the company’s Articles of Association require a majority of more than ¾ of the capital; and higher majority could be required in the Articles of Association.
    2. Joint-stock company 
      The modification of the company’s by-laws is within the competence of the General Meeting. It is summoned by the Board of Directors or by the Managing Board. It may also be summoned by the Supervisory Board and at the request of shareholders who have been holding shares representing at least 5% of the capital for more than 3 months. The written invitation including the Agenda has to be announced in the Commercial Register. For amendment of the by-laws, a quorum of at least ½ of the capital is required. The resolution is to be passed by a majority of 2/3 of the represented capital. Higher majority and quorum could be required by the Articles of Association of the company.  Such decisions come into force after registration with the Commercial Register.

4.) Limited liability companies and stock companies: liquidation steps.

What steps are required to liquidate a limited liability company and a stock company?

  1. Liquidation of a limited liability company (OOD)
    The company can be terminated due to the expiration of the term, by decision of the General Meeting or by decision of the district court in certain cases. The liquidation procedure is managed by a liquidator. Liquidators bear the same responsibilities for their actions as managers.

    • Determining of a Liquidator by the General Meeting.
      Unless otherwise provided for, the liquidator is the manager.
    • Registration of the liquidator(s) in the Commercial Register.
      The registration has to include notarized consent and a specimen of signature of the liquidator. From that moment on, the rights and functions of the manager are terminated.
    • The liquidator announces the termination of the company. 
      The announcement is made in the Commercial Register. The liquidator also notifies the National Revenue Agency about the commencement of the liquidation.
    • The liquidator completes the transactions, collects the receivables and repays the liabilities of the company. He/she is required to invite creditors to file their claims.
    • After the creditors of the company are satisfied, the liquidator is to distribute the residual assets among the shareholders as per their liquidation quotas.
    • After the distribution, the liquidator requests deletion of the company from the Commercial Register.

  2. Liquidation of a stock company
    There are no special rules governing the liquidation of a joint-stock company. The general regime established in the Commercial Act is applicable. Special rules apply only to certain types of AD - commercial banks, insurance companies and others.

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This information was compiled by Dinova Rusev & Partners.