Transformation of a company by change of the legal form is a form of transformation. A company participating in such transformation (transforming company) changes its legal form, thus converting into a company of another type (newly-established company) – very often General Partnerships transform into Limited Liability Companies (LLC)1 or LLCs transform into Joint-Stock Companies (JSCo.) and vice versa.
The newly-established company becomes legal successor of the transforming company which is terminated without liquidation (which is otherwise needed upon dissolution of an LLC or other company). The newly-established company is allocated a new unified identification code (UIC).
The procedure for carrying such transformation into effect is set forth in Art. 264 et seq. of the Commerce Act.
When initiating change of the legal form, the executive body or managing partners (in the case of a General Partnership) should prepare a transformation plan – in written form with notarization of the signatures. Its required minimum content is set out in Art. 264a, par. 2 of the Commerce Act – special attention needs to be paid to the exchange ratio of the shares or stocks determined as of a specific date. A draft of new Articles of Association or By-Laws of the newly-established company needs to be enclosed to the transformation plan.
The transformation plan should be submitted for announcement in the Commercial Register – if the transforming company is a capital one, the announcement of the plan should be made not less than 30 days prior to the date of the General Meeting’s session which is to be held for resolving on the transformation. Other documents and information should be made available to the shareholders and stockholders as well, such as, for example, a balance sheet as of the last day of the month preceding the date of the transformation plan (unless the most recent annual financial statements refer to a financial year ended less than 6 months prior to that date). Such materials should also be made available at the company’s seat and address of management (if the company is a capital one) not less than 30 days prior to the date of the General Meeting.
Where the newly-established company is a capital one the transformation plan must be audited by a designated auditor appointed by the executive body. The auditor (examiner) should prepare an audit report to the shareholders and stockholders which must contain an assessment as to whether the exchange ratio provided for in the plan is adequate and reasonable, as well as other details in accordance with the Commerce Act. In such situations the amount of the registered capital of the newly-established company may not exceed the net worth of the property of the transforming company and the audit report should also include an assessment as to whether or not such requirement has been complied with.
The change of the company’s legal form should be effected by means of a resolution on transformation – such resolution needs to be adopted by the General Meeting by a majority of 3/4 of the capital (in the case of an LLC) and 3/4 of the represented voting shares (in the case of a JSCo.). Resolutions are also needed for approving or amending the transformation plan, adopting the Articles of Association or the By-Laws of the newly-established company, appointing the latter’s management bodies, etc.
The change of the legal form will be entered into the Commercial Register not earlier than 14 days after the application has been submitted and will take effect from the moment of such entry.
Upon registration of the change of the legal form:
the transforming company is terminated and the new company is established (the termination of the company generally entails the closing of its registered branches, if any);
the rights and obligations of the transforming company are transferred over to the newly-established company (universal succession);
the shareholders and stockholders in the transforming company become shareholders or stockholders in the newly-established company;
permits, licenses or concessions owned by the transforming company prior to the transformation are transferred over to the newly-established company (unless another law provides otherwise).
Where the property of the transforming company includes rights in rem over real estate properties or over movable properties transactions therewith being subject to registration, the certificate evidencing the transformation having been carried into effect should be presented before the respective registration authorities.
A special application needs to be filed with the Commercial Register for the transformation by change of the legal form to be registered – a standard form application V21 (В21 in Bulgarian).
Depending on the specifics of the particular situation it will be also necessary to submit an additional application for entering circumstances regarding the newly-established company (e.g., form A4 is used for the registration of an LLC and form A5 – for the registration of a JSCo.). For the preliminary publication in the Commercial Register of documents relating to the transformation (as already explained here above) a G1 application form is to be used.
The application should be filed by the representative of the new company to be established, including electronically (via the Internet) – by being signed with an electronic signature. A lawyer may be authorized for such purposes as well – the power of attorney should be explicit but does not require any notarization of the signature.
The following documents need to be enclosed to the applications:
Resolution on transformation;
Consents under Art. 264d, par. 2 of the Commerce Act (if applicable), as well as other consents (if any);
Adopted Articles of Association or By-Laws of the newly-established company;
Documents required with regard to the appointed management bodies;
Report of the auditor;
List of the persons acquiring stocks, shares or membership in the newly-established company, as well as indicating the type of the membership;
Declaration of the depository to the effect that the interim certificates or the stocks have been handed over to him/her or, respectively, evidence that the circumstances under Art. 262w, par. 5 of the Commerce Act have been declared to the Central Depository (if applicable);
Certificate that the National Revenue Agency has been notified of the transformation pursuant to Art. 77 of the TSIPC.
Other documents need to be presented as well, such as invitations evidencing the proper calling of the General Meeting, a declaration on the truthfulness of the stated for registration circumstances and acceptance of the submitted for announcement acts, a document for paid state fee, as well as other documents that might be required in view of the specifics of the particular situation.
Fees and Other Costs
Pursuant to Art. 16a, par. 1 of the Tariff on the State Fees Collected by the Registry Agency, the state fee for entering a company’s transformation into the Commercial Register is 180 Levs. Pursuant to par. 2, when the application is filed electronically, including by an authorized to that end lawyer, the due fee would be in the amount of 90 Levs.
The due state fee for publication of documents in the Commercial Register amounts to 40 Levs (or 20 Levs if documents are submitted electronically) – pursuant to Art. 16b of the aforementioned Tariff.
Additional costs will apply as well, such as fees for notarization, retained auditor services, etc. Information about the due attorney fee may be found on page Fees.
1 You may find additional information on the topic in Blog article Specifics in the termination of a membership in a General Partnership, as well as in the answers to the questions posted to that article.