What are the advantages and disadvantages of a variable capital company?

The Company with Variable Capital (SPC), introduced by the new provisions of the Commercial Law (Chapter Fifteenth “a”, DV, No. 66 of 2023), offers an innovative approach to the management and financing of small and medium-sized enterprises in Bulgaria. One of the main advantages of PPP is the flexibility of capital. According to Art. 260e, para. 1, the capital of the company is variable and is not subject to entry in the Commercial Register. This means that capital can be increased or decreased without complicated administrative procedures, which is especially useful for companies that need quick reactions to market conditions.

Another significant advantage is the possibility of different classes of shares with different nominal values and rights (Art. 260f). This allows DPC to attract investors with different preferences and grant privileged rights, such as an additional dividend or a right of redemption. Preferred shares can provide more than one vote in the general meeting or a guaranteed dividend, making them attractive to certain investors. Also, the rights to these shares arise with payment of the capital contribution, which provides the partners with security and clarity regarding their rights and obligations.

GMP management has also been optimized for greater flexibility and efficiency. The bodies of the company include a general meeting of the partners and a management board or manager (Art. 260n). This allows the company to be managed effectively, taking into account the interests of all partners. In the case of a sole proprietorship, the sole owner of the capital decides issues within the competence of the general meeting, which simplifies the decision-making process.

Despite these advantages, DPC also has some limitations and disadvantages. For example, a company can be established only by enterprises that have an average number of staff of less than 50 people and an annual turnover or value of assets that does not exceed BGN 4 000 000 (Art. 260a, para. 3). This limitation can be an obstacle for larger companies or for fast-growing enterprises that may soon exceed these criteria. In such cases, the company must be converted into a capital company (Art. 260yu), which may require additional costs and time.

The conversion and termination of the DPP are regulated in Art. 260ya and Art. 260yu. If the company does not meet the requirements of Art. 260a, para. 3 at the end of the financial year, it must be converted into a capital company by the end of the following financial year. Otherwise, the district court may terminate the company at the request of the prosecutor. This requirement adds additional administrative burden and uncertainty for DPC owners.

The transfer and succession of company shares are also important aspects of the management of a CSR. According to Art. 260h, the company share can be inherited, transferred and pledged. The transfer of shares is carried out freely, unless the company agreement provides otherwise. This provides flexibility and ease for shareholders wishing to transfer their shares. However, in some cases, the company agreement may provide for restrictions and special rights when transferring shares, which can complicate the process.

It is also important to note that the Board of Directors of the DPC has duties and responsibilities that must be fulfilled with the care of a good trader (Art. 260). The members of the board of directors must prioritize the interest of the company over their own interest and avoid conflicts of interest. They are jointly and severally liable for damages caused to the company and may be held liable to creditors for damages suffered by transactions and actions of the company that are declared invalid.

When is it worth registering a company with variable capital?

The registration of a variable capital company (SCC) can be extremely beneficial in certain cases, providing a number of advantages that make it a preferred choice for some businesses. To determine whether a PPP is the right form for your business, you need to consider the specific circumstances and needs of your enterprise.

Firstly, the CPD is particularly suitable for small and medium-sized enterprises (SMEs), which have an average number of staff of less than 50 people and an annual turnover not exceeding BGN 4 000 000 and/or an asset value that does not exceed BGN 4 000 000. If your business falls within these limits, a DPC can offer significant flexibility in terms of capital and equity management. The flexibility of capital is one of the main advantages of PPP, allowing easy and rapid adaptation to changing market conditions and financial needs.

Secondly, if your business often needs to increase or decrease capital depending on current projects and investment opportunities, the DPC provides the convenience of making these changes without complicated administrative procedures and without the need to enter any change in the Commercial Register. This makes capital management more flexible and efficient, which can be key for businesses operating in dynamic and competitive industries.

Third, if your business plans to attract different types of investors or offer different classes of shares with different rights and privileges, a PPP can be an extremely useful tool. According to Art. 260f of the Commercial Law, a company may issue shares with special rights, such as privileged dividends, a right of redemption or more than one vote in the general meeting. This makes DPC attractive for investors who are looking for specific conditions and opportunities to participate in the company.

Fourth, if your enterprise needs mechanisms for easy transfer and inheritance of shares, the PPK offers significant advantages in this area. The transfer of company shares is carried out freely, unless otherwise agreed in the company contract, which facilitates the change of owners and the attraction of new partners.

Despite these advantages, you should also consider some potential disadvantages and limitations of GMP. For example, if your enterprise is developing rapidly and may soon exceed the SME criteria, you may need to convert a PPP into a capital company, which requires additional resources and time. In addition, managing a company with different classes of shares and privileges can be more complex and require more careful planning and administration.

Registration of the DPP also requires careful drawing up of the company agreement, which must include all the necessary clauses and conditions related to the management of the company, the rights and obligations of the partners, and the mechanisms for the transfer and inheritance of shares. Consultation with an experienced lawyer is highly recommended to ensure that all aspects of the company contract are adequately covered and comply with legal requirements.

In conclusion, registering a variable capital company is worthwhile when your business meets the criteria for a small and medium-sized enterprise, when you need flexibility in capital management, and when you plan to attract different types of investors with different rights and privileges. It is important to take into account all the specific circumstances of your enterprise and consult with professionals in order to make an informed decision on the registration of the DPC.

 

More and more often we receive questions related to opening a company by a foreigner. In the next article we will try to give an answer and explain the procedure for registering a company by a foreign citizen in Bulgaria. Here you will learn which foreigners can register companies in Bulgaria, whether the respective foreigner must live in the country, how much it costs to register the company and others.

When it comes to opening a company by a foreigner in Bulgaria or transferring the management of an existing one in our country, the presence of certain specifics must be taken into account. As the person is not a citizen of the Republic of Bulgaria, slightly different and additional provisions and legal requirements apply to him. Before we talk about them, let’s first focus on the reasons why a foreigner would register a company in Bulgaria.

The pros of opening a company by a foreigner can be divided into two groups – social and economic.

Social benefits

Most foreigners who are not citizens of the European Union register companies in the country for the purpose of residing in the territory. For example, a foreigner from the Middle East can undertake remote company registration and, in compliance with legal requirements and rules, quite legally start living and doing business in Bulgaria.

Economic benefits

Here we mean the low taxes in our country compared to Western EU members. This is the reason why many companies are reorienting their management in our country, as it is very cheap for them. Accounting services can also be negotiated at very good prices in a Bulgarian accounting firm. Another economic factor in opening a company by a foreigner is the extremely low salaries, compared to European ones. That is why it is extremely profitable for the big European producers to redirect their production to Bulgaria.

Which foreigners can register companies in Bulgaria?

All foreign citizens have the right to register their company in Bulgaria. There is no restriction on whether or not the foreigner concerned is a citizen of an EU Member State. We want to mention here that the person does not need to reside in Bulgaria to open a company here. It is also not necessary to understand or speak Bulgarian. In this case, we recommend that the documents be bilingual.

The first step in opening a company by a foreigner, as well as in any registration of a company is to open the so-called accumulation account. You can read more HERE.

Here is the time to note something very important. Recent amendments to the Anti-Money Laundering Measures have complicated the process of opening fundraising accounts. Following these changes, opening a fundraising account for foreign companies has become difficult, and for third-country nationals (non-EU nationals) it has become almost impossible.

What is the procedure?

The procedure for opening a company by a foreigner is in fact no different from that of Bulgarian citizens. Here, too, the minimum capital for registration of Ltd. / Ltd. is BGN 2, the documents submitted to the Commercial Register are also identical. State fees are unchanged. The partners are not responsible for the obligations of the company with their personal property.

Specifics (*this is not all the specifics)

1. When opening a company by a foreigner, it is important that he / she is aware of the content of the documents he / she signs. There are 2 possibilities:

• Registration documents must be translated into the foreigner’s mother tongue or another language he understands. In this case, a bilingual version of the documents is prepared. The translation may not be made by a sworn translator, but then the person who did it should indicate his names, certify the accuracy of the translation and sign it.
• When opening a company by a foreigner, there is the following possibility. The documents may not be translated, but in this case a person who knows the relevant language must declare that he has translated the contents of the documents into a language understood by the foreigner and sign. The foreigner, for his part, must also declare that he understands the meaning of the documents and sign. These actions are performed before a notary.
• Of course, if the foreigner speaks and speaks Bulgarian, the need for translation is eliminated.

2. Another specificity is that the name of the foreigner should be written in Cyrillic.

Is it possible to open a company by a foreigner remotely?

The answer is yes! Foreign citizens can register companies in Bulgaria without being physically present in the country. To open a company by a foreigner, the foreign citizen must notarize the documents in the country where he resides. The role of a notary abroad for Bulgarian documents is performed by the Bulgarian embassies and consulates.

The other option is a local notary. This complicates and makes the process much more expensive. The local notary can certify the documents only if they are in his own language, after which they have to go through translation into Bulgarian and legalization, which also considerably prolongs the process.

The two documents that must be certified in case you will remotely open a company by a foreigner are again the sample signed by the manager, but also a power of attorney to open a fundraising account of the company and deposit capital on behalf of the partners.

We are ready to assist you and advise you on issues related to starting a company by a foreigner in Bulgaria. CONTACT US!

Service	Price
Formation of a Sole Proprietorship Limited Liability Company (EOOD)	100 €	Order
Formation of a Sole Proprietorship Limited Liability Company (EOOD) without presence in Bulgaria Liquidation of a Bulgarian company	300 € 200 €	Order Order
Formation of a limited liability company (LLC)	100 €	Order
Formation of a limited liability company (LLC) without presence in Bulgaria Formation of a Company with Variable Capital (SPC) Formation of a Bulgarian EOOD holding	300 € 100 € 499 €	Order Order Order
Formation of a Bulgarian OOD holding	599 €	Order
Opening of a Bulgarian Trade Representative Office (TRO)	1000 €	Order
Formation of a joint-stock company (JSC)	899 €	Order
Formation of a Bulgarian joint stock holding	1,199 €	Order
Registration of a Branch Office in Bulgaria	699 €	Order
Buying a Bulgarian Ready Made Company	499 €	Order
Registered office address outside of packages	100 €	Order
Change of the company's name	149 €	Order
Change to the company's capital	149 €	Order
Other changes in the company's circumstances	149 €	Order
Help with opening of a Bulgarian company`s bank account	249 €	Order
Bulgaria VAT Registration	199 €	Order
Bulgarian Police Clearance Certificate	99 €	Order
European Health Insurance Card	50 €	Order
Assistance to buy a property in Bulgaria	499 €	Order