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Transformation of trading companies in Bulgaria

Contrary to the liquidation, the transformation of a trading company is a special form of dissolution that does not require liquidation proceedings and where the transforming companies continue their legal life in a new legal form. As a consequence of the transformation the legal subjectivity of the company is amended or the company is re-established by legal succession.

The transformation is regulated in chapter 16 of the Commercial Act. All types of trading companies, including companies that are subject to insolvency or liquidation proceedings may participate in such a transformation provided that certain conditions are present.

There are two kinds of transformation – the reorganisation and the transformation from one company form into another (amendment of the company form).

There are 4 forms of reorganisation – merger by acquisition of another company (Article 262 of the Commercial Act), merger by consolidation (Article 262a of the Commercial Act), separation (Article 262b) and division (Article 262c).

  • Regarding the merger by acquisition of another company, one or more companies are dissolved and their assets are transferred to another company through a universal legal succession. The assets of the transforming company as a unit of rights and obligations are incorporated in the incorporating company.
  • Regarding the merger by consolidation, one or more companies are dissolved and their assets are transferred to a new company that is established. A universal legal succession takes place as well.
  • Regarding the separation, the total assets of the transforming company are transferred to several newly established or existing companies. The transforming company is dissolved without liquidation proceedings.
  • Regarding the division, parts of the assets of the transforming company are incorporated by several newly established or existing companies (division by re-establishment). Here, a partial legal succession takes place. As a consequence, the transforming company keeps on existing.

For amendments of the company form all combinations are possible.

Regarding the transformation of a trading company, there is a legal succession concerning the assets of the company on the one side and a legal succession regarding the membership of the partners. This is why Article 261b of the Commercial Act provides an exchange ratio. The exchange ratio requires an equal participation of the partners of the transforming company regarding the assets of the incorporating company. According to paragraph 1 a remuneration that amounts to more than 10 % is inadmissible.

The legal steps of the transformation include private and public law elements.

I. Conditions for the merger:

1. Transformation agreements between the parties being involved in the transformation. These agreements are not agreements with a commercial nature but of organisational. The subject matter of the agreements is regulated in Article 262 of the Commercial Act. The agreements enter into force depending on the subsequent resolution of the respective bodies of the involved companies in favor of the merger.

2. Report of the managing body about the economic and legal situation of the participating companies.

3. Verification of the agreements and the report by an independent examiner. The verification has to be published in the commercial register.

4. Resolution on the realisation/execution of the transformation. The following peculiarities must be observed:

  • If after the transformation it is planned that one partner will bear unlimited liability, his explicit consent is required. Such partners are entitled to withdraw from the company.
  • If after the transformation a new company is created, new Articles of Incorporation must be concluded.
  • If there is an accepting company, it must amend its Articles of Incorporation.
  • If it is necessary to change the capital value after the transformation, the prior resolution of the respective bodies of the company is required.

5. Registration in the commercial register that has constitutive effects.

II. Conditions for separation and division:

In this respect the following differences should be noted:

  • If the transformation is in the form of a separation or division with re-establishment, a plan and not a preliminary contract must be drawn up;
  • If the transformation is in the form of a separation or division without re-establishment, a preliminary contract must be concluded.

The execution of a separation or division requires:

  1. A transformation plan of each company that is involved in the transformation;
  2. A report of the managing body;
  3. A verification of the transformation plan and the report by an independent examiner;
  4. A resolution of the involved companies on the transformation;
  5. The registration in the commercial register.

The legal consequences of the transformation are regulated in Article 263i of the Commercial Act that provides as follows:

  • The trading companies are dissolved without undergoing a liquidation procedure.
  • Due to the transformation one or more new companies may be created.
  • Regarding all forms of transformation there is a legal succession that consists of the transfer of the company’s assets to an existing or newly established company.
  • Subject matters of the legal succession may be rights and obligations, real relationships, factual situations, etc.