Doing business through a company (corporation, firm) has been well known to societies for centuries. For example the first official data for an organization that resembles today’s commercial companies is from 578 A.D. in Japan. That was the year “Kongo Gumi” was founded – a company specialized in the construction of Buddhist temples. An interesting fact is that the company is still operating as part of the Japanese group of Takamatsu Construction Group.
The motives for establishing a company most often relate to the need of setting a limit for financial liability of those who have decided to conduct commercial activities and to create foundation for their expansion. Before you decide to establish up a new company or acquire a company that is already registered, you should clearly present to yourself: what are your goals, is there a term for execution, can it be done without creating a company, are you prepared to meet the costs if the planned activities etc. Once you have answered these questions, you can proceed with the actual registration of a company. In the late years Bulgaria is becoming attractive destination for doing Business, since it is a member of the European union, low corporate taxes (10% tax on profits), the contemporary education in the field of engineering and computer sciences and etc. If you are planning to establish a business in Bulgaria, here you will find the most important information for setting up a company.
I. Types of companies under Bulgarian law:
• Sabiratelno druzhsestvo “SD” (Personal liability of the partners) known in some jurisdictions as General partnership;
• Komanditno druzhestvo “KD” (Limited and unlimited liability of the partners) known in some jurisdictions as Limited Partnership;
• Komanditno druzhestvo s aktsii “KDA” (Limited and unlimited liability shareholders) known in some jurisdictions as Limited partnership with shares;
• Limited Liability Company Ltd / Sole-owned Limited liability company (Limited Liability of Partners / Sole-owner of the company);
• Joint Stock Company AD / Sole-owned Joint Stock Company “EAD” (Shareholders without liability);
Over the last two decades, the use of commercial companies in Bulgaria in which the partners or shareholders are liable for the company’s debts is very limited. This trend emerged due to the simple reason that in most cases entrepreneurs are trying to separate their personal assets from those of the company and thus limit their liability. In this publication we would examine the most commonly used forms for structuring business ventures – Limited Liability Company and Joint Stock Company.
1. Limited Liability Company “OOD” / Sole-owned Limited Liability Company “EOOD”:
1.1 Characteristics:
A limited liability company is a legal entity which may be formed by one or more persons whom are liable for the company’s debts with their instalment in the capital of the company. After its establishment the company acquires the opportunity to be a holder of rights and obligations and own tangible and intangible property. In plain language the company can enter into contracts, transactions, participate in their execution, be a party to credit agreements, and any other lawful action. It also bears the administrative responsibility for complying with the legal requirements when conducting its activities – keeping accounts, submitting VAT declarations and financial statements, as well as fulfilment of specific requirements in certain activities falling under licence regime – investment, construction activity, etc. In the OOD/EOOD the management activities are carried out entirely by the appointed manager. The manger is the authority which could dispose of the company’s assets, to conclude contracts, appoint and dismiss employees, etc. Limited partners, although they are the nominal owners of the company, do not have the right to legally represent it before other parties, to enter into transactions etc., since as we have pointed out, these activities are within the competence of the manager. The powers of the partners are clearly manifested by their participation in the General Assembly. It is the body that takes the decision for the long-term development of the company – the election and dismissal of a manager, the purchase and sale of real estate, the admission of new partners, etc. Perhaps the most valued characteristic of the company is that its members bear financial responsibility for the company’s liabilities only up to the amount of the cash/material contribution they made in the capital. This responsibility is expressed as follows: (Example) Upon registration of a company with two partners, each one deposits an instalment in amount of 20 BGN in a special company owned bank account. Their liability is limited to the abovementioned deposited instalment. If the amount of 40 BGN is spent by the company and there are no funds to repay the company’s obligations, there is no financial liability for the partners and creditors could not make claims against their personal property. The minimum capital amount for the incorporation of OOD is in amounts of 2 BGN.
1.2 Registration requirements.
For registration, it is necessary for the sole owner of the capital / partners to determine the following parameters of the company:
1. Name the company – firm.
2. Drafting and adoption of the Founding Act / Company’s contract.
3. Choose and appoint a Manager which would be its legal representative.
4. The amount of company’s capital and to deposit it in a special accumulation bank account.
5. The management address of the company.
6. The subject of activity of the company.
After the fulfilment of the aforementioned conditions and preparation of the documents and declarations required by the law, registration could be requested. The registration is done before the Commercial Register at the Registry Agency and their territorial divisions. The Commercial Register provides for the functionality to submit the necessary documents for registration electronically.
1.3 Establishment of the company.
The Company is legally “born” from the moment of its registration by the Commercial Register. Upon registration, it receives a Unified Identification Code (UIC) and a separate file directory containing all subsequent changes – change of managers, acceptance of new partners, change of seat and management address, etc. The commercial register in Bulgaria is public, which allows to easily review the basic parameters of each registered company – firm, address, subject of activity, manager, capital, partners / sole owner of the capital, etc.
2. Joint stock company “AD” / Sole-owned Joint stock company “EAD”
2.1 Characteristics:
Joint Stock Company (Aktsionerno druzhestvo) is the company which capital is divided into shares and it is owned by one or more shareholders. In practice the liability of the shareholders for the company’s financial obligations is not different from those of the partners in OOD. Once incorporated, the company is in charge of its assets acquired against the shares distributed, and the shareholders does not have any financial obligations. Unlike the form of OOD, the Joint stock company is characterized by a hierarchical structure of management – a one-tier system (board of directors) or a two-tier system (management and supervisory board). In AD the members of the company bodies have to be professionally prepared and with rich expertise in the sphere in which the company will operate, since they would be the driving force. They are the persons who will manage the everyday tasks of the company and will take operational decisions. Under the one-tier system of management, the board of directors is elected by the General assembly of shareholders and consists of a minimum of three and a maximum of nine persons. Under the two-tier system the supervisory board is elected by the General assembly of the shareholders and may consist of three to seven persons. After its formation, the supervisory board elects the management board of directors consisting of three to nine persons. It is important to note that the management functions are concentrated on the board of directors / management board. The shareholders are distanced from ruling the company, their role is related to long-term management, by choosing the governing bodies, accepting the financial and business reports of the boards, authorizing large-scale transactions, etc. AD is suitable for carrying out activities related to significant fund flows and / or the need of creating complex structures involved with a large number of employees. The requirement of collective bodies, consisting of at least three people, aim to create conditions for balanced and motived decision-making. Bulgarian legislation defines “AD” as mandatory for carrying out certain activities. These include for example banking, certain activities in the energy sector, insurance sector etc. The minimum capital of the company amounts to 50 000 BGN (25 500 EUR) and at the time of its incorporation a minimum of 25% of it (BGN 12,500) must be deposited.
2.1 Registration requirements:
For registration the shareholders/sole shareholder should determine the following parameters of the company:
1. Name the company – “firm”.
2. To draft and adopt the Statute of the company.
3. Specify the types of shares issued by the company, the privileges of the individual classes, and the special requirements for the transfer of shares, if any.
4. To elect a Board of Directors / Supervisory Board of the Company.
5. The amount of the capital and to be deposited in a special accumulation bank account.
6. The management address of the company.
7. The subject of activity of the company
8. Conduct a constituent assembly.
After the fulfilment of the aforementioned conditions and preparation of the documents and declarations required by the law, registration could be requested. The registration is done before the Commercial Register at the Registry Agency and their territorial divisions. The Commercial Register provides for the functionality to submit the necessary documents for registration electronically.
2.3 Establishment of the company.
The Company is legally “born” from the moment of its registration by the Commercial Register. Upon registration, it receives a Unified Identification Code (UIC) and a separate file directory containing all subsequent changes – changes in management, increase or decrease of capital, change of registered office and address of management, etc. The Commercial register in Bulgaria is public, which allows to easily review the basic parameters of each registered company – firm, address, subject of activity, board of directors / board, capital, sole shareholder, etc.
* In case you want to start a company or you need consultancy when choosing a suitable type of company and structuring it, do not hesitate to contact us.
