Law on amendment and supplement of the Commerce Act¹ was promulgated in issue 66 of the State Gazette, dated August 1, 2023. It introduced an entirely new for the Bulgarian commercial law company form: the variable capital company (VCC). The further exposition of this article will refer namely to the variable capital company - it is not intended to be exhaustive but rather to highlight some of the more interesting moments characterizing the new company.

The introduction of the new legal form is aimed at meeting the needs of the innovative and growth-oriented start-up companies. These are companies whose main goal is to create and develop an innovative product or service having a potential for rapid growth. They are established by entrepreneurs and supported financially with investments from third parties. Their successful development requires easy access to financing and adequate protection of the invested funds, combined with efficiency and flexibility in the company management and freedom in determining the company structure and organization.

The regulatory framework until the amendment of the law does not fully meet these needs. For example, the joint-stock company could offer fundraising tools but its high initial capital and the rules regarding the structure and operation of its management turn out to be complicated and expensive for the small companies at the early stages of their development.

The new variable capital company is designed to combine within itself the freedom of entry and exit offered by the typical capital company with the accessibility and personal nature of the most common company form to date: the limited liability company.

What characteristic features does the VCC have?

The new legal form being suitable for the implementation of entrepreneurial projects and start-up companies is taken into account in the provision stating that only an enterprise with average number of the personnel of less than 50 and annual turnover not exceeding 4 million levs and/or asset value not exceeding 4 million levs may be registered as a variable capital company. If a VCC ceases to meet these requirements it shall be transformed into a capital company not later than the end of the next financial year. Otherwise it shall be dissolved by a decision of the district court of the company’s registered office upon an action by the public prosecutor.

As the name suggests, the new type of company shall have a variable capital structure. The variable capital has value but it is not a fixed quantity and may be different each year - its amount shall be determined by a decision of the regular annual general meeting upon the annual closing of the respective financial year. It is important to note in that regard that there is no requirement for specifying the amount of the capital in the articles of association, nor for entering such amount in the Commercial Register; respectively, upon change it shall not be subject to being updated in the articles or in the file of the company, as is the case with capital companies when increasing or reducing their registered capital.

The fact that the amount of the capital is not subject to being entered in the Commercial Register does not mean that the shareholders shall bear personal and unlimited liability for the debts of the company, but only that they will not have to comply with the capital maintenance rules. The company shall be liable for its debts only with the property it owns, as is the case with capital companies.

The new type of company is based on and combines many of the solutions known in relation to the other company forms - with those of the solutions and legal elements most suitable for start-ups being included in its legal framework. That is why the easiest way to outline some of its specific features would be to make a comparison with the other types of companies and thus to highlight the more interesting from a practical standpoint similarities and differences between them:

Unlike the limited liability company, the shareholders in a VCC shall not be indicated by name in the file of the company in the Commercial Register² - information about them shall be contained in the book of shareholders to be kept by the management of the company. The transfer of shares shall not be subject to being entered in the Commercial Register either; additional conditions for quick and easy transfer of shares are also introduced, such as the possibility of a free transfer without the need for consent from the general meeting and the option to agree on an ordinary written form of the contract for transfer without the need for notarization of the signatures.

The aforementioned differences from an LLC are similarities of the VCC with the joint-stock company, including in terms of the possibility to issue capital shares with special rights (privileges), forming separate classes. However, there are also quite a few differences from the joint-stock company, such as the option to agree in the articles of association on the company being managed and represented by a single director and not by a managing board.

The possibility of the VCC being formed by a single person brings it closer to the capital companies, but its legal framework reveals quite a few similarities with the personal companies as well. For example, the inheritance of shares upon the death of a shareholder is set out in the law in a very similar to the general partnership way³ - with the shareholders being given the option to agree on something different in the articles of association. It is also expressly provided that in the case of a variable capital company being transformed into another type of company the rules pertaining to the personal companies shall apply.

The application of the electronic means of communication is significantly increased with the new type of company. An option is provided for the general meeting to be convened by an invitation sent via electronic means with an express confirmation of receipt, as well as for the written materials relating to the agenda of the general meeting to be made available by providing full access to them electronically - by publishing them on the website of the company or via email. General meetings may also be held by the use of electronic means through real-time transmission or in another way provided for by the law. In addition, the minutes of the general meetings may be kept and drawn up in an electronic form.

When will I be able to register a VCC?

The new legal framework has now been adopted and published, but the option to register a variable capital company will be available no earlier than the spring of 2025⁴. That extended period of time has been provided so that the Registry Agency is able to put in place the software needed to ensure the application of the law and the technical possibility to enter circumstances pertaining to the new type of company.

Meanwhile, the Ordinance for administration, keeping of and access to the Commercial Register and the Register of Non-Profit Legal Entities has been updated to reflect the amendments to the Commerce Act⁵, introducing a new standard form for application A19 and listing the necessary documents to be enclosed to such application when requesting the initial registration of a variable capital company or the registration of changes regarding the latter.

The legislative initiative for modernization of the legal basis in the field of company law is well justified in terms of the pursued objectives, and namely the creation of favorable conditions for development of the start-up companies and entrepreneurship in the country. Practice will show if and to what extent the variable capital company will turn out to be the preferred form for doing business in Bulgaria.