The primary legal act governing the types, corporate governance structure and the procedure for establishment
of commercial companies is the Commerce Act 1991. Other relevant primary legislation governing specificcorporate matters includes the Corporate Income Tax Act 1997, the VAT Act 1998, the BULSTAT Register Act
2005, the Social Security Code 1999, the Tax and Social Security Procedure Code 2005, the Protection ofPersonal Data Act 2002, etc.
GENERAL REVIEWBulgarian law recognizes the following types of commercial companies exhaustively listed in the Commerce
Act: (i) general partnership; (ii) limited partnership; (iii) limited liability company (“LLC”) or one-personownedlimited liability company; (iv) joint stock company (“JSC”) or one-person-owned joint stock company;
and (v) company limited by shares.A joint stock company can be publicly listed or private. Under Bulgarian law, joint stock companies are the only
type of companies that may become listed, provided that they have conducted an initial public offering or have aregistered share issue for the purposes of trading on a regulated securities market. As public companies further
qualify joint stock companies with more than ten thousand shareholders as of the last day of two consecutivecalendar years. The Public Offering of Securities Act 1999 sets forth the general legal framework of public
companies.In addition to the five types of commercial companies listed above, business may also be conducted in one of
the following organisational forms: (i) sole trader; (ii) holding; (iii) branch; (iv) trade representative office(“TRO”); and (v) co-operative.
Under Bulgarian law, sole traders, partners in general partnerships and unlimited partners in limited partnershipsand in companies limited by shares have unlimited personal liability to the company’s creditors. On the other
hand, the shareholders’ exposure in limited liability companies and joint stock companies as well as the liabilityof limited partners in a limited partnership and in a company limited by shares is capped at the amount of their
shareholding in the company’s capital.ESTABLISHMENT OF A COMPANY
The procedure for incorporation of a company in Bulgaria does not differ when local or foreign personsparticipate in its establishment. Under Bulgarian law there are no restrictions as to the size of the foreign
participation in the capital of a Bulgarian company and, therefore, up to 100% of the registered capital of a localcompany can be held by foreign persons.
All types of commercial companies are incorporated by way of registration with the commercial register held bythe companies’ department of the district court where the seat of the subject company is located. The procedure
and documents required for the establishment of each particular type of commercial company are set forth in theCommerce Act. The court registration procedure would usually take one to two weeks as of filing the relevant
documents. The incorporated company becomes a capable legal entity as of the date of its entry into thecommercial register.
Pursuant to a new Commercial Register Bill the procedure for incorporation of a local company is to betransformed from judicial into administrative. If and when enacted, the Commercial Register Bill will introduce
a fundamental change in the procedure for incorporation of local companies, reducing costs for new businessstart-up and making the process more efficient and transparent.
Although a local company or a branch should register with the court its scope of activities, it is free to conductany type of activities not prohibited by law, even if the respective activity is not expressly permitted in its
registered scope of activities (under Bulgarian commercial law, there is no applicable ultra vires rule in thisrespect). Where a license or permit is required by virtue of special laws for the performance of a specific
activity, such activity may be performed after obtaining the respective license or permit. By way of example,activities subject to licensing/ permit regime include banking, insurance, gambling, trade in medicines, trade in
tobacco, etc.A branch of a foreign company is established by means of registration into the commercial register held by the
companies’ department of the district court where the seat of the branch is located. A trade representative officeof a foreign company is established by means of registration into the commercial register held by the Bulgarian
Chamber of Commerce and Industry (the “BCCI”).Within seven days following registration with court, respectively with the BCCI, commercial companies and
branches, respectively trade representative offices, shall register with the BULSTAT Register, a united nationaladministrative register held by the Register Agency to the Minister of Justice under the BULSTAT Register Act
2005. Thereafter, it is the responsibility of the National Revenue Agency, a specialised state body to theMinister of Finance in charge for the establishment, securitisation and collection of public account receivables,
to register ex oficio the respective entity with its own registers for tax and social security purposes, using thedata from the BULSTAT Register.
MOST COMMONLY USED FORMS OF BUSINESS ORGANISATIONSThe types of business organisations most commonly used for establishment of foreign presence in Bulgaria are
the LLC, the JSC, the branch and the TRO.Limited Liability Company
The limited liability company is the type of business organisation most widely used among investors because ofthe minimum capital requirements and the simplicity of its corporate governance structure. However, qualified
majority or unanimity is required by law for transfer of shares to third parties, admission of new shareholdersand capital increase or decrease, which may decrease the flexibility of the company’s operations.
Two or more shareholders may establish a limited liability company. The Commerce Act allows also soleperson ownership of an LLC. As a type of LLC, the one-person-owned LLC is subject to the same regulation as
the LLC, with certain exceptions relating to its specific structure of shareholding. Shareholders in an LLC maybe Bulgarian or foreign individuals or legal entities.
The corporate governance structure of an LLC consists of (i) a general meeting of the shareholders; and (ii) oneor more managers, who manage the company and represent it before third parties jointly or severally.
The general meeting of the shareholders consists of all shareholders in the company and has the exclusivepower, among other powers, to: (i) amend and supplement the articles of association; (ii) approve new
shareholders and expel shareholders, and give consent for the transfer of shares to a new shareholder; (iii)resolve on the increase or decrease of the registered capital, etc. If the LLC is a wholly owned subsidiary, the
sole owner of the capital resolves all matters within the competence of the general meeting of the shareholders.Under Bulgarian law there are no restrictions for a foreign person to be appointed as a manager of an LLC.
The minimum share capital required by the Commerce Act for incorporation of an LLC is BGN 5,000 (fivethousand), distributed in shares with value of not less than BGN 10 (ten). At the time of incorporation of the
company and as a condition precedent for such incorporation, at least 70% of the registered capital must be paidin, and every shareholder must have paid in at least 1/3 of its shareholding, but not less than BGN 10 (ten).
The shares in an LLC are not tradable instruments. They may be transferred by a notarised share transferagreement. The transfer of shares between shareholders is free, while transfer of shares to third parties requires a
resolution of the general meeting of the shareholders for accepting a new shareholder.Joint Stock Company
The joint stock company is another widely used type of business organisation. It is preferred because of the lackof statutory restrictions on the transfer of shares and the absence of personal engagement of the shareholders in
the operation of the company. However, the corporate governance structure is more complex compared to theone of the LLC and the Commerce Act sets forth mandatory rules governing the forming of a reserve fund,
distribution of profit and minority shareholders rights.A JSC may be established by one or more Bulgarian or foreign individuals or legal entities. As a type of a JSC,
the one-person-owned JSC is subject to the same regulation as the JSC, with certain exceptions relating to itsspecific structure of shareholding.
The corporate governance structure of a JSC consists of: (i) a general meeting of the shareholders, and (ii) aboard of directors (in the case of a one-tier governance system), or a supervisory board and a managing board
(in the case of a two-tier governance system). The powers vested by law in the general meeting of theshareholders of a JSC are similar to those of the general meeting of an LLC. These powers include, among
others: (i) amendment and supplement of the articles of association of the company; (ii) increase and decrease ofthe registered capital; (iii) appointment and dismissal from office of the members of the board of directors, or of
the supervisory board, respectively, etc. If the JSC is a wholly owned subsidiary, the sole owner of the capitalresolves all matters within the competence of the general meeting of the shareholders.
The members of the board of directors, or the managing board, respectively, represent the company jointly,unless the articles of association provide otherwise. The board of directors (in the case of the one-tier
governance system), or the managing board subject to the approval of the supervisory board (in the case of thetwo-tier governance system), may authorise one or more persons to serve as executive director(s) of the JSC and
to represent the company before third parties. The law does not impose any restrictions for appointing foreignpersons as executive directors of a JSC.
The minimum share capital required by the Commerce Act for incorporation of a JSC is BGN 50,000 (fiftythousand). However, special legislation may require higher minimum share capital for carrying out certain types
of activities, for example banking or insurance activity. The share capital of a JSC must be distributed in sharesof nominal value of not less than BGN 1 (one). At the time of incorporation of the company and as a condition
precedent for such incorporation, at least 25% of the nominal value (or issuing value determined in the articlesof association) of each share must be paid in. Share capital contributions may be made in cash or in kind.
The shares of a JSC are tradable instruments. The shares of a JSC may be: (i) registered or bearer shares; (ii)common or privileged shares, (iii) materialised or book-entry-form shares. The articles of association of a JSC
may provide that privileged shares grant to the respective shareholder additional voting rights, a guaranteed oradditional dividend or liquidation quota, or special management rights, such as veto rights. Shares granting
equal rights form a separate class of shares, as the rights of different shareholders from one and the same classmay not be restricted.
Registered shares are transferred by endorsement, whereas bearer shares are transferred by mere delivery. Thetransfer of registered shares must be entered into the book of shareholders of the JSC to have effect against the
company. Restrictions to the transfer of shares may be provided for in the articles of association of the company,and such restrictions shall be binding on the company and on the shareholders. Restrictions on transfer may
relate to any type of shares.Branch
The incorporation of a branch is one of the alternatives for the establishment of business operations of a foreigncompany in Bulgaria. Foreign companies registered abroad, as well as foreign individuals or persons other than
legal entities can register a branch in Bulgaria if they are properly incorporated and/or entitled to conductbusiness under the national law of their home country.
A branch of a foreign company is established by means of registration into the commercial register held by thecompanies’ department of the district court where the seat of the branch is located. After its proper registration
according to Bulgarian law, the branch of a foreign company, although not a separate legal entity, will have acertain degree of independence from the parent company. Thus, it will be required to keep commercial books as
a separate business establishment and prepare a separate balance sheet. However, as the branch is not a separatelegal entity, its assets and liabilities are deemed to be assets and liabilities of the parent company. Therefore, the
branch is not required to comply with capital registration requirements or to have separate by-laws or a distinctmanagement structure, except for a manager.
From tax point of view a branch of a foreign company is considered a “permanent establishment” and it triggerscorporate income tax liability in Bulgaria for the foreign parent company.
Trade Representative OfficeForeign persons can register a trade representative office in Bulgaria if they are property entitled to conduct
business under the national law of their home country. As mentioned above, a TRO is established by means ofregistration with the BCCI. A TRO is not a separate legal entity and it may not carry out business activities.
Thus, a TRO is meant to carry out non-proprietary activities such as organising promotions, exhibitions ordemonstrations, training or advertising of products or services, etc. Consequently, in general a TRO does not
generate income and is not subject to corporate income taxation in Bulgaria. However, should a TRO engage inbusiness activities in the country, it would qualify as a “permanent establishment” for tax purposes and the
foreign parent company will be liable in Bulgaria for corporate income tax on the profit made as a result of the business activity of the TRO.