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4. Most Commonly Used Forms of Business Organisations

The types of business organisations most commonly used for establishment of foreign presence in Bulgaria are the LLC, the JSC, the branch and the TRO.

 

4.1.      Limited Liability Company

The limited liability company is the type of business organization most widely used among investors because of the minimum capital requirements and the simplicity of its corporate governance structure. An LLC can be established by one or more persons, individuals and/or legal entities. As a type of LLC, the solely 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 may be Bulgarian and/or foreign individuals and/or legal entities.

 

The minimum share capital required by the Commerce Act for incorporation of an LLC is BGN 2 (two Bulgarian Leva) (equal to appr. EUR 1 (one Euro)), distributed in shares with value of not less than BGN 1 (one Bulgarian Lev) each.

The shareholders can make both cash and in-kind contributions. The in-kind contribution is subject to mandatory evaluation by three independent experts, appointed by the Bulgarian Registry Agency.

 

The shares in an LLC are not tradable instruments. They may be transferred by a notarised share transfer agreement. The transfer of shares between shareholders does not require a resolution of the general meeting, while a transfer of shares to a third party, as well as the admission of the new shareholder(s), requires such a resolution.

The corporate governance structure of an LLC consists of: (i) a general meeting of the shareholders; and (ii) one or more managers who manage the company and represent it vis-á-vis third parties. Under Bulgarian law only an individual may be appointed as manager of the LLC. The manager can be a shareholder, as well as a third person and there are no restrictions for a foreign person to be appointed as manager of an LLC.

 

4.2.      Joint Stock Company

The joint stock company is another widely used type of business organisation. It is preferred because of the lack of 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 the one of the LLC and the Commerce Act sets forth mandatory rules governing the formation of a reserve fund, distribution of profit and minority shareholders rights. A JSC may be established by one or more Bulgarian and/or foreign individuals and/or legal entities. As a type of a JSC, the solely owned JSC is subject to the same regulation as the JSC, with certain exceptions relating to its specific structure of shareholding.

 

The minimum registered capital required for establishment and operation of a JSC is BGN 50,000 (fifty thousand Bulgarian Lev), which equals to approximately EUR 26,000 (twenty six thousand Euros). 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 shares with a nominal value of not less than BGN 1 (one Bulgarian Lev) each. At the time of incorporation of the company and as a condition precedent for such incorporation, at least 25% of the nominal value (or issuance value determined in the by-laws) of each share must be paid in and the rest of total amount of the capital shall be paid in within two years. Similarly to the LLC, the shareholders of a JSC can also make both cash and in-kind contributions.

 

The corporate governance structure of a JSC consists of: (i) a general meeting of the shareholders, and (ii) a board 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 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.

 

Registered shares are transferred by endorsement, whereas bearer shares are transferred by mere delivery. The transfer of shares in the JSC is not subject to registration in the Commercial Register. The transfer of registered shares must be entered into the book of shareholders of the JSC to have effect against the company. In most cases new shareholders may easily enter the JSC. Nevertheless, restrictions on the transfer of shares may be provided for in the by-laws 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.

 

4.3.      Branch

The incorporation of a branch is one of the alternatives to the establishment of business operations of a foreign company in Bulgaria. Foreign companies registered abroad, as well as foreign individuals or persons that do not qualify as legal entities can register a branch in Bulgaria, provided that they are properly incorporated and/or entitled to conduct business under the national law of their home country.

A branch of a foreign company is established by means of registration into the Commercial Register. After its proper registration according to Bulgarian law, the branch of a foreign company, although not a separate legal entity, has a certain degree of independence from the parent company. Thus, it is required to keep commercial books as a separate business establishment and prepare a separate balance sheet. However, as the branch is not a separate legal 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 distinct management structure, except for a manager. From tax point of view a branch of a foreign company is considered a “permanent establishment” and it triggers corporate income tax liability in Bulgaria for the foreign parent company.

 

4.4.      Trade Representative Office

A foreign person/ entity can register a trade representative office in Bulgaria, provided that it is entitled to conduct business under the national law of its home country. As mentioned above, a TRO is established by means of registration with the Bulgarian Chamber of Commerce and Industry. 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 or demonstrations, 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 in business 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.