Doing Business In Bulgaria Comparative Guide

• Published date: 19 March 2024
• Subject Matter: Corporate/Commercial Law, M&A/Private Equity, Corporate and Company Law, Directors and Officers, Contracts and Commercial Law, Shareholders
• Law Firm: Gugushev & Partners Law Office
• Author: Ms Dimitrinka Metodieva, Daniela Petkova, Kiril Gyorev and Mario Kralev

1. Legal framework

1.1 Does your jurisdiction have a civil law system, a common law system or a hybrid system?

Bulgaria has a civil law system which is harmonised with EU law. The main sources of law are:

• the Constitution;
• acts and codes adopted by the Bulgarian Parliament;
• regulations adopted by:
• • the Council of Ministers;
  • individual ministers; and
  • government agencies and bodies; and
• international treaties to which Bulgaria is a party.

The following are considered subsidiary, indirect sources of law:

• case law;
• legal doctrine;
• legal customs;
• moral rules; and
• equity ('justice').

1.2 Which legislative and regulatory provisions primarily govern the establishment and operation of enterprises in your jurisdiction?

The establishment and operation of enterprises in Bulgaria is primarily governed by:

• the Commercial Act;
• the Commercial Registry and Registry of Non-Profit Legal Persons Act; and
• the Public Offering of Securities Act.

Certain types of business are regulated by specific laws, such as:

• the Credit Institutions Act;
• the Insurance Code; and
• the Markets in Financial Instruments Act.

1.3 Which bodies are responsible for drafting and enforcing these provisions? What powers do they have?

Bulgaria's legislative body is the National Assembly. The body responsible for the registration of enterprises in Bulgaria is the Commercial Registry at the Registry Agency. Acts issued by the Commercial Registry are subject to appeal before the court at two instances.

2. Types of business structures

2.1 What are the main types of business structures in your jurisdiction and what are their key features?

The Commerce Act regulates the following types of business structures:

• general partnerships;
• partnerships limited by shares;
• limited liability companies (LLCs);
• joint stock companies (JSCs);
• companies limited by shares; and
• companies with variable capital.

The LLC and the JSC are the most commonly used structures for doing business in Bulgaria. Both are separate legal entities, responsible for their liabilities with their own assets, which can also exist as sole shareholder companies. The exposure of the shareholders is limited to the amount they invest.

The corporate governance structure of the LLC consists of a general meeting and one or more managers. The shareholders are registered in the Commercial Register. The transfer of shares:

• requires an agreement with notarised signatures and notarised content; and
• is registered with the Commercial Register.

The JSC has a more complex corporate governance structure, consisting of:

• a general meeting and a board of directors (in case of a one-tier system); or
• a management board and a supervisory board (in case of a two-tier system).

The shareholders are registered in the Commercial Register only if the company has a single shareholder. The shares are registered only. The materialised shares are transferred by endorsement and the transfer is entered in the shareholders' book. The transfer of dematerialised shares is made via cession and is registered in the Central Depository. A JSC can be private or public (under Bulgarian law, the JSC is the only type of company that can be listed).

A company with variable capital (CVC) is the newest type of commercial entity, introduced in August 2023. The registration of these companies will become possible on 30 June 2024. The capital of CVCs is not subject to registration in the Commercial Register; however, if certain parameters of the CVC exceed a specific amount as defined in the Commerce Act, the CVC must be transformed into an LLC or a JSC. The governing bodies are:

• the general shareholders' meeting; and
• a management board or a manager.

2.2 What capital requirements apply to these different types of business structures?

The minimum capital for LLC is BGN 2; upon company incorporation, at least 70% of the capital must be paid in. The minimum capital for JSCs is BGN 50,000; upon incorporation of the company, at least 25% of the capital and at least 25% of the nominal or the issuing value of each share must be paid by the respective shareholder. The capital must be fully subscribed by the shareholders; the company cannot subscribe shares in its own capital. In both cases, if the capital is not fully paid upon incorporation, a term of up to two years following registration of the company may be specified in the articles of association for payment. Contributions in kind are allowed for both LLCs and JSCs, subject to the assessment of three independent experts appointed by the Commercial Registry. These contributions must be made in full and correspond to the par value of the shares.

There are no minimum capital requirements for a CVC, as the capital is not subject to registration in the Commercial Register; there is also no requirement for this amount to be recorded in the articles of association.

2.3 What is the process for establishing these different types of business structures? What procedural and substantive requirements apply in this regard? What is the typical timeline for their establishment?

All types of companies are established through registration in the Commercial Register. The registration requirements are detailed in the Commerce Act. The registration is completed within one business day of submission of the standard application form, together with the relevant documents for the specific type of entity. The business structure starts to legally exist from its registration date. The unified identification code that the company obtains upon registration is used for all tax, social security, statistical and other public purposes. No secondary registrations are required from the newly incorporated entity to commence business activities.

2.4 What requirements and restrictions apply to foreign players that wish to establish a business directly in your jurisdiction?

No general restrictions apply to foreign players that wish to establish a business in Bulgaria. Foreign investors are treated equally to local investors in all respects, including in relation to:

• company formation;
• shareholder participation; and
• the conclusion of transactions.

Certain restrictions apply to companies that are registered in jurisdictions with preferential tax regimes and entities controlled by them and their ultimate beneficial owners under the Act on Economic and Financial Relations with Companies Registered in Preferential Tax Treatment Jurisdictions, the Persons Controlled Thereby and Their Beneficial Owners. Such entities are prohibited from:

• directly or indirectly participating in licensing procedures under specific laws (eg, the Credit Institutions Act, the Insurance Code, the Social Security Code or the Markets in Financial Instruments Act); and
• acquiring shareholdings above a certain percentage in companies operating in regulated sectors, such as:
• • radio and television; and
  • public electronic communications networks and services.

Foreign nationals are restricted from acquiring agricultural land in Bulgaria. Only foreign individuals who have been residing in Bulgaria for more than five years are eligible to obtain agricultural land. Bulgarian legal entities with foreign shareholders are also eligible to acquire agricultural land if they have been registered for more than five years prior to the acquisition. If this requirement is not satisfied, an entity can acquire land only if its foreign shareholders have been residing in Bulgaria for more than five years.

2.5 What other opportunities, using people/entities not connected with the main person, are there to do business in your jurisdiction (eg, agency, resale); and what requirements and restrictions apply in this regard?

Companies in Bulgaria are free to work with commercial agents and resellers. No specific requirements or restrictions apply in this regard.

3. Directors and management

3.1 How is management typically organised in the different types of business structures in your jurisdiction?

The management structure of a limited liability company (LLC) consists of one or more managers acting jointly or severally (the LLC has no management board). The management structure of a joint stock company (JSC) consists of:

• a board of directors (in case of a one-tier governance system) or
• а managing board and supervisory board (in case of a two-tier governance system).

In the case of a company with variable capital (CVC), the management structure consists of a management board. The company's articles of association can also assign the management and representation of the company to one or more managers, in which case the rules of the management board will apply.

3.2 Is the establishment of specialist committees recommended or mandated for certain types of enterprises? If so, which areas should they cover?

Specific types of enterprises must establish specialist committees. 'Public interest entities' as defined in the Accountancy Act (eg, credit institutions, insurance companies, investment intermediaries and public companies) must have an audit committee. Certain investment intermediaries must establish:

• a nomination committee;
• a risk committee; and
• a remuneration committee.

Significant banks must have a nomination committee to select candidates for the management and control bodies and the remuneration committee. A significant managing company or significant company managing alternative investment funds must have a remuneration committee.

The establishment of specialist committees to support the managing bodies of companies

is recommended for public companies by the National Code for Corporate Governance.

3.3. Is the appointment of corporate directors permitted in your jurisdiction?

The appointment of corporate directors is permitted in JSCs and CVCs; however, such directors must be members of the respective company board.

3.4 What requirements and restrictions apply to the appointment of directors, in terms of factors such as number, residence, independence, diversity etc?

An LLC can...