The limited liability company in Bulgaria (LLC)
The limited liability company (Bulg.: Дружество с ограничена oтговорност, short: ООД) is a common and popular form of trading company in Bulgaria.
In Article 113, the Bulgarian Commercial Code describes the limited liability company as a company formed by one or more persons which are liable for the company's obligations with their contributions to the company's registered capital. Also in the form of a one-man-company with limited liability (Bulg.: Еднолично дружество с ограничена итговорност, short: ЕООД), hence a LLC with only one company member, the LLC remains a legal entity that is part of the capital companies.
According to Article 115 of the Commercial Code, the LLC is founded on the basis of the Articles of Incorporation and after its registration in the commercial register. The LLC may be founded by natural persons or legal entities. The involved persons may be local or foreign as well. The Articles of Incorporation must be personally signed by the founders or by a representative with express notarial authorisation. To found a company, the record in the commercial register, the deposit of the capital and the nomination of a manager are necessary. The manager is entitled to apply for the registration of the company into the commercial register.
The registered capital is composed of the capital contributions that must be of an amount of at least 2,- BGN (in force since 2009, before it was 5000,- BGN). In regards of the capital’s function of guarantee, it must be distributed by the registered capital and recorded into the commercial register.
I. The organs of the LLC
Like all capital companies, the LLC is structured in organs that take action for the company in commerce. According to Article 135 of the Commercial Code, the LLC has a general meeting and one or more managers (both are obliging) and an optional examiner. The general meeting is the main organ of the company because it is responsible for the company’s formation and declaration of will. According to Article 136 of the Commercial Code, the general meeting consists of all partners that may take action through their representatives with express authority (exclusively regarding partners that are legal entities). The responsibilities of the general meeting are expressly listed in Article 137 of the Commercial Code. They comprise amendments in the Articles of Incorporation, amendments regarding the capital and the company, the admission and expulsion of partners, the nomination of the manager, the distribution of profits etc. When voting, the value of the partners’ votes corresponds to the partners’ respective value of shares in the company. According to Article 139 (2) of the Commercial Code, decisions may be done without holding a general meeting if all partners gave their written consent to it. Usually, the general meeting is convened by the manager at least once a year. The manager is obliged to convene the general meeting, if the company lost more than ¼ of the capital or if the company’s net value is lower than the registered capital.
The membership in the general meeting is acquired:
- simultaneously with the formation of the company;
- by the admission of a new partner by resolution of the general meeting;
- by legal succession within the transfer of shares in the company or by heritage.
The membership in the general meeting is terminated in the following cases:
- death or incapacitation of the partner;
- expulsion due to non-deposit of the share capital or by resolution of the general meeting due to non-fulfilment of the obligations towards the company. The concrete conditions regarding the expulsion from the company are described in Article 126 of the Commercial Code;
- exercise of the right to withdraw by a notice that must have been issued 3 months earlier or by the transfer of shares in company;
- by the initiation of liquidation proceedings (regarding partners that are legal entities);
- the establishment of insolvency.
II. Rights and obligations of the partners
According to Article 123 of the Commercial Code, the partner is entitled to material and nonmaterial rights. The material rights include the right on share in profits and on liquidation quotas. The nonmaterial rights include the right to participate in the management and the right to be nominated manager. This group of rights includes also the individual collective right on information, control rights, the right to convene the general meeting etc. Partners with shares in company of more than 20 % of the share capital are entitled to request the termination of the company if important reasons are present.
The obligations of the partners are to find in Article 124 of the Commercial Code and may be distinguished into material and immaterial ones.
The material obligations include the obligation to deposit the capital contribution. A violation of this obligation may cause the expulsion of the respective partner. If a partner does not deposit of the capital contribution, he loses the right on his share in company and its dividend; besides he must pay the statutory interest and compensation. If the general meeting decides on an additional cover, the partner must pay it up unless he exercises his right to withdraw. After the expulsion of a partner, either the capital gets reduced or the share in company is divided between the partners. The share in company may be offered to one third by the company.
The immaterial obligations include the participation in the management, to fulfil the general meeting’s resolutions, to protect the company’s interests etc. The prohibition on competition applies to the partners of a LLC as well.
III. Rights and obligations of the managers
One or more managers are assigned to represent and manage the company. The manager is nominated by the general meeting and recorded into the commercial register. The registration in the commercial register requires the existence of a notarially certified consent along with a signature specimen. The relationship between the manager and the company are regulated by a contract. The prohibition on competition applies to the manager – he may not effect transactions in his name or in the name of third parties, participate in general partnerships, limited partnerships or other limited liability companies, become a member of other companies’ management bodies if they exercise comparable activities etc. Though, the company may free the manager from the prohibition on competition.
The representative power of the manager may be terminated under the following conditions:
- incapacitation or death of the manager;
- by resolution of the general meeting;
- on request by the manager.
IV. Capital and shares in company
One of the main characteristics of the LLC is the capital. It consists of the partners’ capital contributions and is recorded in the commercial register. Due to the capital’s function of guarantee, the capital contributions must be paid actual. The company itself may not participate in the deposit of the capital. The capital contributions may be higher but not lower than the share capital. The remaining higher capital contributions constitute a reserve fund. The capital shares may be different and unequal. The share in company represents the relation between the respective partner and the company. Shares in company may be transferred, inherited and divided.
The capital must be of a minimum amount which is legally defined. To secure the financial stability of the company and the interests of the company creditors, the Commercial Code implies mechanisms regarding changes in the capital, that guarantee the capital’s minimum surplus with the company’s assets.
The capital increase is regulated in Article 148 of the Commercial Code. Depending on whether it is about an increase due to the transfer of new assets to the company’s assets or about a share in assets that exceeds the capital, it is the case of an effective or nominal capital increase. Article 148 (2) of the Commercial Code permits the nominal capital increase by three legal proceedings: increasing the value of the capital contributions, subscribing new capital contributions or admit new partners. In the first place, the capital increase requires assets from an annual profit that have not been distributed in the following financial year, assets from a former financial year or assets from a reserve fund. Further, the resolution of the general meeting and a record of the increase in the commercial register are required.
The capital reduction is regulated in Article 149 of the Commercial Code. It may be effective or nominal as well. Regarding the effective capital reduction, a share of the assets is removed from the company’s assets; regarding the nominal reduction, the capital amount is reduced from the amount of assets. This proceeding requires the resolution of the general meeting, a previous notification of the creditors and either the security of their claims or the payment of these claims. If the creditors do not declare their dissent within 3 months after the notification in writing, the manager may apply for the record of the capital reduction in the commercial register whereby he must demonstrate the creditor’s consent or their satisfaction. The manager is responsible for the truthfulness of the information regarding the capital reduction. According to Article 149 (3) of the Commercial Code, the capital may be reduced by reducing the value of the share in company, by the cancellation of the share capital of a partner which has terminated its participation or by relieving of the obligation to pay up the unpaid portion of the registered capital.
The both types of capital change require an amendment of the Articles of Incorporation and the record in the commercial register.
V. Dissolution of the company
The termination and the dissolution of the LLC takes place according to the regulations of the Articles 154 of the Commercial Code. They may be made according to the general rules regarding termination and dissolution and also according to special rules. The LLC may be dissolved by the court under the following conditions (Article 155 of the Commercial Code):
- upon request of the partners whose shares in company exceed 20 % of the capital, showing serious case;
- upon request of the prosecution if the company’s activities are illegal;
- upon request of the prosecution if the company is without manager for 3 months.
Dissolution proceedings may be laid down according to the general rules and as well upon request of the examiner or the partners whose shares in company exceed 10 % of the capital.