Companies in Bulgaria – the Bulgarian corporate law
The Bulgarian corporate law is regulated by the Articles 63 ff. of the Bulgarian Commercial Act.
Article 63 of the Commercial Act describes the company as an association of two or more persons for effecting commercial transactions with joint means. According to Article 1 (2) of the Commercial Act, companies are legal entities due to their form of incorporation. The legal types of companies under the Bulgarian corporate law are expressly listed in the Commercial Act – the general partnership, the limited partnership, the limited liability company, the joint stock company and the partnership limited by shares.
Depending on the participation of the company members, companies may be divided into capital companies and partnerships. Capital companies are the following: the limited liability company, the joint stock company and the partnership limited by shares. General partnerships and limited partnerships pertain to the partnerships type. The main differences between capital companies and partnerships are in the liability. Company members of capital companies are not personally liable for the company’s obligations. They participate in the legal entity through their capital contribution; the liability is limited to the amount of the capital contribution. Company members of partnerships are personally and unlimitedly liable with all their assets for obligations of the company.
The corporate law in Bulgaria provides general rules regarding the formation and existence of companies and the corporate relationships arising there from.
I. Incorporation of a Company
Article 65 of the Commercial Act provides that only Bulgarian or foreign natural or legal persons may found a company in Bulgaria. The number of company members varies depending on the type of the company, but there must be at least two members. There is no restriction regarding the number of companies that a person may participate in unless otherwise provided by law. According to Article 67 of the Commercial Act, a company is formed on the date of its registration in the commercial register. With the registration the transactions that have been completed in the name of the company until that moment pass over to the company. By then the company members are personally liable as joint debtors.
II. Voidability of incorporated companies
Article 70 of the Commercial Act provides a list of conditions under which the incorporation of the company is null and void:
- if the Articles of Partnership have not been concluded or they have not been concluded in the statutory required form;
- if regarding joint stock companies and partnerships limited by shares, the conditions for the number of company members or the foundation meeting have not been fulfilled;
- if the purposes of the business of the company contradict the law of good manners;
- if he constituent contract or the statutes do not contain the trade name, the corporate purpose of the company or the size of the contributions, as well as the capital when the law so requires;
- if the part of the registered capital stipulated by the Law has not been paid;
- if less persons than the number required by the law have participated in the foundation of the company.
Some of these violations may be remedied within a suitable term given court in a judicial order, others lead to proclamation of the invalidity of the foundation of the company. The application to the court may be made by the prosecutor and any third parties with a legitimate interest. If the court has not deemed the foundation of the company void, nobody may refer to its invalidity again on the same grounds. The founders of the company are personally and severally liable for all obligations assumed by the void company after the proclamation of its invalidity.
III. Protection of the company members
The rights of the company members may be protected against unlawful decisions or decisions that violate the Articles of Partnership made by the general meeting or actions of other company bodies within a special judicial trial in accordance with Art. 71 of the Commercial Act.
IV. Contributions and capital
The main function of the corporate capital and its announcement in the commercial register is the protection of contractual partners of the company. The capital guarantees that the corporate assets are at least of the same amount as the corporate capital. It is presumed that the assets of each working company are positive.
Capital contributions are separated into monetary contributions and contributions in kind. Regarding capital companies, each company member must have paid a capital contribution before applying for registration into the commercial register. Article 72 of the Commercial Act permits contributions in kind. To maintain equality between the company members, the capital contributions must cover the amount defined in the Articles of Partnership. In order to display a monetary sum and to prevent a debt of the company, contributions in kind are subject to estimation.
Contributions in kind of limited liability companies, joint stock companies and partnerships limited by shares are estimated by three experts nominated by the agency for registrations. The experts’ opinions are attached to the documents for the registration in the commercial register. Contributions in kind must be described in the Articles of Partnership. The description must contain the name of the company member that provided the contribution in kind, an explicit description of the contribution in kind, its monetary value and the rights of the respective company member over it. The contribution in kind is transferred to the company by a description in the Articles of Partnership and by the relevant legally established form for transfer of such rights.
Article 73 (5) of the Commercial Act contains a peculiarity in case that the contribution in kind is immovable property. If so, the notarial certification of the Articles of Partnership and the consent of the contributor are required. These requirements are not applicable for partnerships as they do not have capital.
Regarding the assignment of claims, a verification of the assignment’s notification for the debtor must be attached to the incorporation documents.
In respect of capital companies the contribution in kind is recorded into the commercial register together with the Articles of Partnership.
The non-deposit or non-contribution of the share capital may cause the expulsion of the company member.
According to Article 73 of the Commercial Act the rights on payment and security interests of the debtors have priority over the company member’s rights on share in profits and other payments.
The protective function of the share capital is guaranteed by the legally provided proceedings regarding capital changes and the publication in the commercial register.