BULGARIA Law and Practice Contributed by: Marin Sarafov, Petya Norova, Iva Georgieva and Eduard Milchev, G&P Law
The shareholders’ liability is limited to the extent of paying in the amount for subscribing to shares in the capital. After that, shareholders are practically free from monetary liabilities – after the LLC is fully incor - porated, it becomes liable for each and all relations it is a party to, living its separate corporate life. The minimum number of shareholders for an LLC is practically one, with a minimum capital amount of EUR1, while each share cannot be less than EUR0.01. In the case of several shareholders, comprising a GM, internal rules for decision-making are adopted in the form of the articles of association (AoA), which become public when the LLC is established. Major decisions are made via convening a general meeting (GM) and voting. Structural decisions require a share - holders’ majority of three quarters of the capital, while other topics usually require 50% + 1 vote for validity. Shareholders can additionally sign an internal share - holders’ agreement to arrange for other topics like task distribution, deliverables, etc. What to watch out for: Although this is the most common form, its old legal framework and operative issues make it less than ideal for a big business and this can often lead to a deadlock situation, such as: • participation of new shareholders (investors) is dependent on the other shareholders’ confirmation, making it uncertain and remedied only by internally imposed penalties; • share transfers require a special form of notari - sation in Bulgaria (or legalisation procedures for foreign notarisations) and subsequent filings at the registry; • deals concluded by management without the respective GM authorisation are still considered valid and binding for the company, creating risk of unauthorised and damaging deals; and • inheritance of shareholding is largely dependent on the confirmation of the other shareholders, which can leave the heirs of founders out of the company. Joint Stock Company (JSC) Best use scenario:
• project holding companies; and • for a specialised/licensed activity – banking, insur - ance, etc. When to avoid: • for small enterprises or low starting funds; and • when the aim is flexibility in management and speed of decision-making over structure. The JSC remains the most well-regulated (but con - strictive and slow-to-use) option for big businesses and IPO endeavours. In some cases, this is the only option for public companies and specialised enter - prises (eg, banks). Its corporate structure includes a GM as the deci - sions-making body and a board of directors in a one- tier system; or a GM as the decisions-making body and a management board and supervisory board in a two-tier system. The management tier system is freely chosen upon incorporation. The minimum number of shareholders is one, but the minimum capital is in the amount of EUR25,000 mak - ing the entry point a bit higher to reach. Specialised enterprises (pension funds, insurance companies, hospitals, banks, etc) need starting capital of at least EUR4–5 million. Shares in the JSC can be either registered (material - ised, hard copy) or dematerialised (virtual, kept at a specialised authority, eg, a central depository). Shares can also be issued in different classes, with different rights and obligations assigned to each class – like a voting veto or extra dividends. Shareholding must be duly reflected in the shareholders’ book, making it a central document on calculating majority rights for voting. Pre-emptive rights, like right of first refusal (RoFR), drag along, tag along, etc, if implemented, must be fully described in the company’s AoA. What to watch out for: The JSC offers a mix of pros and cons, such as: • a simple share-transfer form, not needing a notary, but RoFR restrictions may apply and the share - holder’s book entry is subject to the executive director’s support;
• big enterprises with IPO perspectives; • public companies in large industries;
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