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.