Welcome to MADE IN BULGARIA LEGAL ADVICE How to Set up a Business ESTABLISHING A COMPANY FORMS OF BUSINESS ORGANISATIONS: The Commercial law recognises two distinct types of business enterprise Partnerships Corporations The legal differences between them concern the allocation of liability and the legal identity of the entity. Corporations established by foreign joint venture partners with or without a Bulgarian partner are treated as Bulgarian corporations (local persons) and are entitled to all rights available to Bulgarian companies under the Commercial law. Foreign investors may establish a company in either of these two forms, although all forms of business organizations, permitted by law, may be used: Limited Liability Company Joint Stock Company These business types exist as separate legal entities and offer their shareholders limited liability. Joint Stock Company (AD) Joint stock company is defined as a company having its own trade name and a predetermined amount of capital divided into shares. The liability of the shareholders is limited to their capital. The structure and organisation of joint stock companies are subject to regulation by the Commercial law. However, the founders of joint stock companies are afforded significant flexibility in drafting the articles of association, thereby serving the needs of the specific venture. A minimum of two shareholders, who may be either natural persons or legal entities, are required for the formation of a joint stock company. Joint-stock company which capital is owned by one person is called single-member joint-stock company (EAD) The overall share capital must be a minimum of 50 000 BGN and the minimum capital contribution (the minimal nominal value of a stock) by each shareholder is 1 BGN. The capital of a joint stock company is divided into shares of equal value which are treated as negotiable commercial paper. The shares may be issued in registered or bearer form. Both of them might be preference shares. Registered shares are transferable by means of endorsement and must be recorded in the registered stockholders register. Other conditions for the transfer of registered shares might be stipulated in the company's articles of association. Bearer shares are freely transferable by means of delivery. Decision making in a joint stock company is by majority vote. There are certain provisions for protection of the minority interests. Limited Liability Company (OOD) Limited liability companies may be composed of natural persons or legal entities and consist of at least 2 partners. A single-member limited liability company (EOOD) is a limited liability company which capital is owned by one person. The overall share capital must be a minimum of 5000 BGN and the minimum capital contribution by each shareholder (the amount of each share) is 10 BGN. The quotas of the members of the company might be unequal. All partners are personally liable for the debts of the company up to a maximum of their contribution, however, partners are not held liable for the unpaid portions of others' contributions. Shares held in a limited liability company are non-negotiable and may be transferred only with the approval of the other partners. Transfers must be approved by at least 75% of majority vote, with at least 75% of the total capital represented. Limited liability companies are also prohibited from engaging in banking or insurance business. A limited liability company differs from the joint stock company in that its capital is not divided into shares of stock nor represented by share certificates. There is no board of directors for a limited company. Instead, the appointed manager or managers have authority to run the company. How foreigners can acquire ownership rights on land in Bulgaria? Foreign persons can acquire full land ownership rights, including ownership rights on agricultural land by registering or joining a company incorporated under the Bulgarian legislation. These circumstances must be entered into the Commercial register of the relevant district court. Company Law and Business Organizations in Bulgaria Company Law and Business Organisations in Bulgaria Forms of Business Organisations The following forms of business organisation exist under the Bulgarian law: an unlimited (general) partnership a limited partnership a partnership limited by shares a limited liability company a joint-stock company a public company a sole trader a joint venture a branch a holding a co-operative a representative office The forms of business organisation, save representative offices and co-operatives, are governed by the Commerce Act 1991, as for certain types of companies (e.g., banks, insurance companies, public companies) special rules apply. Representative offices and co-operatives are regulated respectively by the Foreign Investments Act 1997 and by the Co-operatives Act 1999. The most appropriate types of companies for conducting business in Bulgaria are the limited liability and the joint-stock company, including in the form of a single-member company. These types of companies must be entered into the commercial register of the relevant district court. LIMITED LIABILITY COMPANY (OOD) is a commercial company, the capital of which is formed by the quotas (sometimes referred to as shares) of its members (shareholders). The liability of a member is limited to the amount of the capital the member has subscribed. A limited liability company is founded or owned by one or more persons, including foreign natural or legal persons. The minimum authorised capital is BGN 5,000. Each share must be with a value of at least BGN 10, as any higher value must be divisible by 100. At least 70% of the capital must be paid up before registration. Contributions to the foundation capital can be paid in cash or in kind. The general meeting of members, which must be held at least once a year, and a manager (or managers), are the statutory bodies of a limited liability company. A single-member limited liability company (EOOD) is an OOD owned by one person, including a foreign individual or legal entity. The sole owner of an EOOD exercises the powers of both the general meeting and the manager, unless another manager has been appointed to run the company. OODs must prepare a balance sheet and financial statements each year. JOINT-STOCK COMPANY (AD) is a company, the capital of which is divided into shares, each of a par value of at least BGN 1. Any higher par value must be determined in whole numbers in BGN. The company is liable to its creditors to the extent of its assets. An AD may be founded or owned by one or more persons, including foreign individuals or legal persons. The minimum capital of an AD is BGN 50,000. A higher minimum capital is required to establish certain special companies like: Banks - BGN 10,000,000 Insurance companies - BGN 2,000,000 for life insurance and personal accident insurance - BGN 3,000,000 for property insurance - BGN 4,000,000 for reinsurance Investment companies – BGN 500,000 Voluntary health insurance companies - BGN 2,000,000 (initially has to be in cash, subsequently can be in kind) Voluntary pension security companies - BGN 3,000,000 (paid in cash) In general, contributions to the foundation capital of an AD may be paid in cash or in kind. At least 25% of the value of each share must be paid up on foundation. A joint-stock company may issue either registered, bearer or preference shares. Management bodies of an AD are the general meeting of shareholders, which must be held at least once a year, and a board of directors (one-tier management system) or a general meeting, supervisory board and managing board (two-tier management system). A single-member joint-stock company (EAD) is an AD owned by one person, including a foreign individual or legal entity, as in this case the sole owner of the capital exercises the powers of the general meeting of shareholders. ADs must prepare a balance sheet and financial statements each year. There are some specific additional requirements as to the foundation and running of certain types of company (e.g., banks and insurance companies). PUBLIC COMPANY – this is a type of joint-stock company initially introduced by the revoked Securities, Stock Exchanges and Investment Companies Act 1995 and currently regulated by the of the Public Offering of Securities Act 1999 (POSA). The events, which trigger the obligation of a company to register as public, are preserved in POSA. A company must register as public where (i) it makes a primary offering of shares; or (ii) its shares are registered for trading on an organised securities market. Another way to create a public company is through a business combination involving at least one public company - the surviving company will be public, too. HOLDING COMPANY - A holding company is any joint-stock company, partnership limited by shares or limited liability company. A holding company can hold interest in any form or participate in the management of and control over other companies. As per the Commerce Act control is exercised where the holding company (i) holds at least 25% of the shares or interest in a subsidiary company; or (ii) is in a position to appoint, directly or indirectly, more than 1/2 of the board members of the subsidiary. A holding can conduct its own business, as the activities it can perform or is disallowed to perform are exhaustively enumerated in the Commerce Act. BRANCH - foreign legal entities registered abroad, as well as foreign individuals or persons other than legal entities, can register a branch in Bulgaria if duly incorporated and entitled to conduct business activities under their national law. A branch of a foreign person is part of its parent company, but has a different seat. A branch is not a legal entity. However, it must keep account books just like independent legal entities do. The branch of a foreign company has to prepare a balance sheet. No authorised capital is required to found a branch. REPRESENTATIVE OFFICE - Representative offices can be set up by foreign persons entitled to engage in business activity under their national law. Representative offices are not legal entities and may not engage in economic activities. JOINT VENTURE - it is a company formed jointly by a Bulgarian and a foreign partner. The extent of the foreign participation in a joint venture is not limited. Joint ventures must take one of the forms of business entities under the Commerce Act. Establishing a joint venture is one of the forms of investing in Bulgaria.