In June 2023, an amendment to the Commercial Law was passed on second reading. This amendment created a new type of commercial company – a variable capital company. The amendments were published in State Gazette No. 66 of 01.08.2023. The start-up community of investors is in particular need of such a flexible legal form of organisation.
The concept, which lies behind the creation of a company with variable capital is to ensure easy and accessible way to make investments by third parties in a single company, while simultaneously protecting both the interests of the investor, as well as the interests of the persons committed in a more sustainable manner to the idea and the goals standing behind the current company with variable capital. The idea of the founders most- often boils down or to this in a single future moment the company to become public and to offer shares on a public market, or be sold in its entirety.
In general terms, it can be said that the newly created variable capital company is a hybrid model of a company that borrows from both limited liability companies and joint stock companies. Some of its elements are similar to those of personal companies, but it also has its own unique regulations. The main advantages of the newly introduced variable capital company in the legislation are the opportunities it provides for: 1) registration and operation with low initial capital; 2) extremely broad scope for maneuvering in terms of management; 3) the possibility of changing the size of the capital without complying with established formalities for such changes; 3) the provision of tools for easily attracting foreign investment.
Variable capital company – legal framework
In order to regulate the new company, a new Chapter 15a has been created in the Commercial Law. The first specific requirement for a limited liability company, which does not apply to any other form of commercial company, is that it must be established as a small or medium-sized enterprise. Within the meaning of the Small and Medium-Sized Enterprises Act, this means that any company with variable capital upon its establishment “may only be an enterprise with an average number of employees of less than 50 and an annual turnover not exceeding BGN 4,000,000 and/or assets not exceeding BGN 4,000,000.”
If the established variable capital company ceases to meet these requirements, the legislator provides a one-year period for it to be transformed into a limited liability company or a joint-stock company. A specific feature of this transformation is that it creates a legal obligation for any company with variable capital to be treated as a personal commercial company during the transformation.
The law also specifies standard requirements that the company’s name must indicate that it is a variable capital company or a sole proprietorship, and the only restriction is that the founders of such companies cannot be legal entities that have been declared insolvent.
Specific characteristics of DPC
Personal or capital?
What is interesting about this type of commercial company is that the legislator has not specified whether it is a partnership or a joint-stock company. It is stated that, upon its transformation, it is treated as a partnership, but this definition does not allow for an unambiguous conclusion to be drawn about the legal nature of this new commercial company.
This company has no registered capital in the commercial register, but on the other hand from another party is not specifies its partners or part of them yes bear responsibility for the obligations of the company with all their property, on the contrary— it is stated that it is liable to creditors with its own property. It follows that the conclusion should be drawn that this is a hybrid form between personal and capital commercial companies and therefore it is not a48> is specified as part of neither of the two groups. A definitive answer to this question will be given judicial practice in interpreting the new legal framework.
Book of the partners
For these companies, the legislator introduces an obligation to maintain a “shareholders’ register.” It is borrowed from joint-stock companies and the “shareholders’ register” that must be maintained by them. The aforementioned internal company document should list the partners, the size of their shares, any privileges of a partner, if any, the transferor of the respective share, etc. The partners listed in the book are then used to determine the quorum for holding a regular general meeting, the majority required for decision-making and the validity of those decisions, as well as which partners have the right to vote at the company’s general meeting, depending on when they were entered in the register.
Company bodies
Here, too, the legislator establishes that the supreme body of any company with variable capital is the General Meeting, in which all partners have the right to participate and which makes the most important decisions for the company. The legislator provides for the possibility for the General Meeting to be held or for some of the partners to participate only through various means of telecommunication. The only requirement here is that the participating person can be identified with a sufficient degree of certainty. It would be good to extend this option to other commercial companies as well, because since the adoption of the Commercial Law, technology has developed significantly in this direction and such a permission would greatly facilitate the functioning of commercial turnover.
The form of management of the company may vary, which should be stipulated in the articles of association. The company may be managed by a manager(s) or by a management board. Again, based on the decisions of the partners who have signed the articles of association, there is a possibility for both a term of office for the management and for the exclusion of such a term.
For attendance at a meeting of the governing board, a person with whom there is a two-way communication link, ensuring the establishment of their identity and allowing their participation in the discussion and adoption of decisions, may again be admitted as an attendee. When voting on this article, the chairperson shall enter it in the minutes of the meeting and certify it with his or her signature. The representatives of the DPC are entered in the TR, which is also typical for other commercial companies.
Disposal of shares in the capital of DPC
The legislator has given the partners in this company considerable freedom to decide for themselves how to dispose of their shares in the company’s capital. Unless otherwise specified in the articles of association, disposals of shares in such companies may be carried out without the consent or approval of the other partners or any of the company’s bodies.
Regarding the form of the contract—whether it should be notarized or whether the transfer should be carried out freely—again, there is freedom to regulate this in the articles of association, as is the case with limited liability companies. Even if notarization is required, it is only required for the signatures of the partners, but not for the content, which facilitates such transfers outside the country.
The legislator has provided the General Meeting of Shareholders with the opportunity to establish, in favor of persons employed by the company (regardless of whether they are employed under an employment contract, civil contract, or otherwise), the right to acquire shares in the capital under certain conditions. This is possible through the transfer of company shares owned by the company itself. The possibility has been provided for this power to be delegated to the company’s management body within the limits specified by the legislator.
Capital
The regulation of capital requirements for companies with variable capital reveals their most distinctive feature. The amount of capital in these companies does not have to be disclosed in the Commercial Register. This is specific to this type of company, which makes them similar to personal commercial companies. At the regular General Meeting, which is held every year and adopts the annual financial report, a decision is made to determine the amount of the company’s capital at the end of the financial year and how it has changed compared to the previous financial year.
The purpose of this “floating” capital is to make it easier to acquire shares from third parties and to facilitate both the raising of investments and the functioning of the company.
In any company with variable capital, the capital is divided into shares, as is the case with a limited liability company. However, it is possible to create separate classes of shares. This is similar to the case with joint-stock companies. Shares of each different class should have the same nominal value. These companies are given the option, if provided for in their articles of association, to issue preference shares, which may grant separate rights to the shareholders who hold them.
These exclusive rights may provide for a guaranteed or additional dividend or liquidation quota upon liquidation of the company, the right to repurchase the share, more than one vote at the general meeting of the company. The legislator has also provided for the possibility here that the share amount may be 1 stotinka, a value that is well below the minimum of 1 lev for other companies.
Non-monetary contribution to capital
При този вид дружество, за разлика от капиталовите търговски дружества е предвидена възможност оценката на непаричната вноска в капитала на дружеството да бъде направена от три вещи лица, които се избират и определят от управителя на дружеството или от управителния съвет, в зависимост от избраната форма на управление. При капиталовите търговски дружества тази оценка следва да бъде извършена от вещи лица, които се избират от длъжностното лице по регистрацията. Извършването на непаричната вноска при ДПК е много по- бързо, лесно и отново е улесняващо за дружеството.
Establishment of a variable capital company and necessary documents
A variable capital company is established and its legal status is regulated by a partnership agreement or by a memorandum of association when it is a single-member company. The content of the partnership agreement is specified in the law, and, as mentioned above, the founders are given a lot of leeway in choosing the exact organizational “framework” of this entity.
Another necessary element for incorporation is the election of the company’s governing body—a manager or managers, or a board of directors, depending on the form chosen in the articles of association. In view of the requirements for persons performing management and representation functions, prior to registration, they must submit a notarized declaration of consent and, respectively, of the absence of obstacles.
For to beasts the actual composition under the establishment of the company and the same to a9> appear in the legal world as an independent legal entity, it is necessary a16> be registered in the Commercial Register. Here it seems that the names of the a29> subject to registration the names of the partners or of the founders.
By June 30, 2024, the legislator has delegated to the Registry Agency the task of ensuring the technical capability to implement the amendments to the Commercial Register and the registration of these companies. This essentially means that until that date, there will be no practical possibility for registering such companies.
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