The joint stock company according to Bulgarian Commercial law

The joint stock company is the classical form of capital companies. It differentiates itself from the limited liability company. According to Article 158 of the Commercial Act, the joint stock company is a capital company of corporate kind. The capital is divided in stocks that are always equal, contrary to the company shares – stocks are securities and may be transferred freely. The transfer does not require formal actions but is defined by the kind of the stocks. The stocks are inseparable but may be owned by several persons at once.The participation of the stockholders does not require personal activity. This is why they are not obligated to participate in the management and consequently neither to loyalty towards the joint stock company.

The participation in the company is in a material form; the capital contribution may be monetary or in kind. The partners are not responsible for the liabilities of the joint stock company. The relationships within the company are regulated in the Articles of Incorporation.

The main characteristic of the joint stock company is the stockholder’s participation in the company. The capital of the joint stock company consists of stocks. These are, according to Article 175 (1) of the Commercial Act, securities that attest its owner’s participation in the company. The stock indicates the capital share of the respective stockholder. The stocks have a net value and an emission value, whereby the emission value may not be smaller than the net value. Consequently, these values are at least equal. The Commercial Act defines some categories of stocks: materialized shares – such as registered shares or bearer shares; dematerialized shares that are no securities; simple stocks and prerogative stocks, own shares etc. The sum of the subscribed shares forms the capital of the company. The minimum value of a share may not be smaller than 1 BGN; there are no restrictions for the maximum value of a share. When founding the company, all shares of the capital must have been subscribed and at least 25 % of their value must have been paid up. The remaining part must be paid within 2 years after the foundation. Otherwise, the stockholder may be expulsed. According to Article 181 of the Commercial Act, the stock (voting stock) entitles the holder to the right to vote in the General assembly meeting. All stocks that display equal rights of their holders form one stock group. It is also possible that the joint stock company issues non-voting stocks but these may not exceed 50 % of all stocks. The inability to vote normally refers to prerogative stocks. The stocks may be transferred.

The foundation of joint stock companies supposes the payment of the share capital. All the stocks of the share capital must be subscribed in the commercial register before the registration. According to the general rules, the founders may only be legally competent persons. This condition does not apply regarding stockholders that subscribe stocks later on. The joint stock company may acquire own stocks only under specific conditions and not more than the legally defined amount. If it is not about a capital reduction proceeding or about stocks with repurchase preferences, the value of the purchased own stock may not exceed the limit of 10 % of the capital. The remaining own stocks must be sold or devaluated. To purchase own stocks it is necessary that the stocks have been paid in completely and that the purchase is either gratuitous or settled by invoicing the profit that has not been distributed. As consequence of the purchase of own stocks, the joint stock company may not exercise the rights contained in these stocks.

Instead of stocks the company may issue interim certificates. They are to be distinguished from the stocks. This certificate is also a security that materializes the stockholder’s rights and their rights over the stocks. They are treated and transferred as registered securities.

I. Bonds

Aside of stocks and interim certificates, joint stock companies may also issue bonds. Bonds are credits that the bondholders grant to the company. As lender, they obtain the same rights. Bondholders are not members but creditors of the company. They do not participate in the management and do not bear liability for the consequences of the business activities. Bonds are securities that include two claims: the primary debt and the interest. There are long-term and short-term, interest bearing and no interest bearing, enforceable and not enforceable bonds, alternating bonds etc.

The issuance of bonds is subject to a special proceeding. According to Article 204 of the Commercial Act, the following conditions are required:

  • bonds may be issued through public offering only after the expiry of two years from the foundation of the company;
  • the company must have produces and published two financial statements;
  • the general meeting must have agreed upon issuing bonds. Exceptionally, the board of directors may be entitled by the general assembly to take such a decision.

Further, bonds may be issued only after the complete payment of their emission value. Article 206 (2) of the Commercial Act states that persons that issued bonds must deposit their contributions in a bank chosen by the company. The company concludes a loan contract with the bank and announces the contract as well as the resolution on the issuance of bonds in the commercial register.

Aside of the right on principal claim and interest – personal rights of each bondholder, the bondholders are also entitled to common rights. These relate to their right of participation in the bondholders’ general meeting whenever the company decides to take new bond emissions. This general meeting is not an organ of the joint stock company. It must necessarily be convened in the cases provided by law:

  • If there is a proposal for amendment of the object of the company or the activities of the company;
  • If there is a proposal for the transformation of the company;
  • If there is a proposal for issue of a new issue of preferred bonds;

II. Foundation

The joint stock company is founded by at least two persons. The single-person joint stock company is the exception as it is founded by only one person.

According to Article 160 of the Commercial Act, all persons that subscribed shares during the initial meeting are founders. Article 160 (2) of the Commercial Act contains the prohibition to subscribe shares in a joint stock company regarding persons that have been declared in insolvency. The founders may be natural persons or legal entities. Upon the foundation, the joint stock company itself cannot subscribe shares; it therefore may not be its own founder. If the joint stock company itself subscribed shares, all founders bear joint liability for them. Regarding the deposit of the shares, the indirect representative that subscribes shares in the name and on the account of the company bears liability as well. The founders are jointly and severally liable towards third parties for obligations that they evoked on their behalf before the foundation of the company. If shares were subscribed before the registration, the partners are obligated to pay deposit.

The foundation proceeding consists in several stages. First, a foundation meeting must be held where all persons that subscribe shares must be present or represented. According to Article 163 (3) of the Commercial Act, the foundation meeting takes the following decisions:

  • the resolution regarding the foundation of the company;
  • the approval of the Articles of Incorporation (the content is defined in Article 165 of the Commercial Act);
  • the decision on the amount of the foundation expenditures;
  • the nomination of a supervisory board resp. a board of directors (depending on the management system).

The last condition for the foundation of the joint stock company is the registration in the commercial register. It requires that:

  • the Articles of Incorporation have been approved;
  • all shares of the capital have been subscribed;
  • the deposit defined in the Articles of Incorporation has been paid in with not less than 25 % of the share value of the capital;
  • a supervisory board resp. board of directors has been nominated;
  • the other legal requirements have been met.

III. Rights and obligations of the stockholders

The rights and obligations of the stockholders derive from the respective stock. According to Article 181 (3) sentence 2 all stockholders of the same stock class must be treated equally; on the contrary, the stockholders of different classes may be entitled to different rights. The single stock and the rights that derive from it – consequently, rights and obligations are transferred simultaneously. Exceptionally, it is possible to transfer specific rights under legally defined conditions. According to Article 185 (3) of the Commercial Act, voting rights may be transferred for a certain time period if the stock has been transferred as well. The rights of the stockholders may not be infringed unless the respective stockholders gave their consent when subscribing the share. The right of dividend is an irresolvable right of the stockholders. Also here, a division into material and immaterial rights and obligations is possible. Besides, the stockholders enjoy different individual and collective rights.

Material rights:

  • Right to a share of the profits, whereby a right on additional or secured share in profits may exist. This right is irresolvable and requires the following: a completed financial year, profit, an approved financial report and a resolution of the general meeting to dividend disbursement;
  • Right on liquidation quotas;
  • Right on disbursement of interests on the performed deposits if such a right is envisaged in the Articles of Incorporation;
  • Preferential right that consists in the stockholder’s possibility to subscribe an equal proportion of stocks that are to be issued newly;
  • Right to exchange registered stocks against bearer stocks.

Immaterial rights:

  • Rights regarding the management of the company: consist in participation in the general meeting and is exercised through the voting right;
  • Right of control;
  • Collective rights (minority rights) – rights that do not exist in favour of a stockholder but of a legally defined share in capital. These are e.g.:

           - The right of the stockholders that own at least 20 % of the capital value to extent the subjects of discussion in the agenda of the general meeting after its announcement or delivery of the invitations – Article 223 of the Commercial Act;

            - The right of the stockholders that own at least 20 % of the capital value to convene the general meeting;

           - The right of the stockholders that own at least 10 % of the capital to chose the examiner.


The stockholders are not obligated to participate personally in the management of the joint stock company but to perform the deposit for the subscribed stocks according to Article 188 of the Commercial Act. The law prescribes a maximum time period of 2 years that may not be extended by the Articles of Incorporation. In case of non-performance, the tardy stockholders that did not pay their deposit within the additional grace period of 1 month are subject to pay compensation and may even be expulsed. As a consequence either the capital may be reduced or the offer to sell new stocks of the same value may be made.

The Articles of Incorporation may also include the deposit of securities for the part of the deposit that has not been paid.

IV. General meetings of the stockholders

The general meeting of the joint stock company consists of all stockholders that hold voting rights. The stockholders may participate in person or through their representative. The competence of the general meeting is regulated in Article 221 of the Commercial Act. Rights of this competence may not be transferred unless provided by law (e.g. upon request by the general meeting, the capital raise may also be executed by the board of directors). According to Article 222 of the Commercial Act, the first general meeting is hold at the latest 18 months after the formation of the company and the annual general meeting is hold at the latest 6 months after the expiry of the reporting year. The general meeting is convened by the permanent organs of the company or the stockholders that own at least 20 % of the capital. The general meeting takes place within 30 days after the announcement. The legally provided quorum amounts to half of the capital. The general meeting takes decisions by majority of the represented stocks. Decisions that require a qualified majority require the consent of 2/3 of the capital and only the resolution on the transformation of the company must be taken by a majority of ¾. Regarding some resolutions, the registration in the commercial register is required.

V. Management Structure

Another peculiarity of the joint stock company according to corporate law is its management structure. There are two kinds of management structure regarding joint stock companies – the single-stage (board of directors) system and the two-stage (supervisory board and management board) system. Another permanent company organ is the general meeting which is not of big importance with regards to the management.

VI. Management

Depending on the management structure, the board of directors resp. management and supervisory board (all permanent organs of the joint stock company) are entrusted with the management of the company. General rules concerning the two management systems are contained in the Articles 233 to 240 of the Commercial Act. The term of office is limited to 5 years, but there is no regulation regarding the number of periods in office. Regarding decisions, a quorum of half of the participants is required, a smaller quorum is not permitted. Resolutions are made by simple majority of the directors that are present. These organs are collective; natural persons as well as legal entities may take part in them. Each management organ has a defined number of participants. If this number is not maintained, the prosecution may request the dissolution of the joint stock company. The relationships between the company and the members of the organs of the company are regulated by a management contract.

The members of the organs are elected – the management board by the supervisory board and the board of directors by the general meeting. The election requires the written and notarially certified consent of the respective members of the organs. The members of the respective organs have their own rights, obligations and liabilities.

Firstly, the members of the respective organs enjoy equal rights depending on the legal provisions and the internal division of functions. Furthermore, they must fulfill their obligations with the due care and diligence of a prudent businessman and in the interest of the company and all stockholders. Specific obligations of the members are not explicitly listed. Some of them are the obligation to provide information, the prohibition to exercise a rival activity, the obligation to keep business information secret, to avoid conflicts of interest etc. According to Article 240 of the Commercial Act, all members are jointly and severally liable and must lodge a security to the amount of at least three monthly remunerations.

The board of directors, resp. the management board bear responsibility for the management. Their duty is to administrate the joint stock company and to represent it towards third parties. According to Article 235 of the Commercial Act, this is a joint representation though the Articles of Incorporation