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:
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.
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.
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.
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.
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.
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.
a specialized facultative body that observes the compliance with the Articles of Association, preserves the property of OOD and reports to the General Meeting.
Joint-stock company (AD/EAD)
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.
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.
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.
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
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).
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.
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.
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.
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.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.
This information was compiled by Dinova Rusev & Partners.