Choice of legal form, registration documents and procedure
 

This section provides the following information:

  • Sole proprietor (SP);
  • Registration as a sole proprietor;
  • Sole owner limited liability company (SOLTD)/ Limited liability company (LTD);
  • Incorporation of SOLTD and LTD;
  • Sole owner joint-stock company (SOJSC)/Joint-stock company (JSC);
  • Incorporation of SOJSC and JSC.

The choice of the legal form is related to the specifics of the future business to be carried out, depends on the goals set, the number of partners starting the business, the taxation and other factors listed below.

The legal forms used most frequently in Bulgaria include:

  • Sole proprietor (SP);
  • Sole owner limited liability company (SOLTD) / Limited liability company (LTD);
  • Sole owner joint-stock company (SOJSC) / Joint-stock company (JSC).

The other legal forms stipulated in the Commerce Act (CA) include general partnership (GP), limited partnership (LP) and partnership limited by shares (PLS).

The advantages and disadvantages of each of the above listed legal forms should be examined and considered carefully so that the entrepreneur would make an informed decision prior to starting a business. Each individual should assess which legal form meets their objectives and interests best.

 

I. Sole proprietor (SP)

The sole proprietor is a natural person, whom the law assigns the capacity as a “proprietor” to, whereby that person falls in the “self-employed” category and as such she/he are obliged to pay social security, health insurance and taxes.

Annex No 4 of the Local Taxes and Fees Act (LTFA) provides a full list of all patent activities the performance of which requires SPs pay patent tax. Some of them include services of the following type: carpentry, tailoring, tannery, furriery, knitting, shoemaking, hair dressers, typewriting, beautician, watchmaker, upholstery, car repairs, carwashes, repair of electric and water supply installations, glass-making, manufacturing of precious metal items, maintenance and repair of household appliances, etc.

Important to know
Important to know

If a sole proprietor carries out an activity falling in the category of patent activities, she/he owes patent tax, if the two conditions listed below are met:

  • Her/his turnover in the preceding year does not exceed BGN 50 000;
  • She/he is not registered under the Value Added Tax Act (VATA).

 

What are the key benefits?

  • This is the simplest legal form, as there is no capital requirement and no requirement to have partners;
  • The deregistration (termination) procedure for a sole proprietor is relatively uncomplicated;
  • The items acquired by the spouse – sole proprietor during the marriage for the purpose of exercising the business activities and included in the business (e.g., production assets, machinery, equipment, devices, etc.) are their personal property and do not represent matrimonial community of property. This means that in case of a divorce these assets are not divided between the spouses but remain property of the spouse – sole proprietor (art. 22, para 3 of the Family Code).

 

What are the key disadvantages?

  • The sole proprietor is liable without limitation as to the liabilities undertaken, i.e. liable with their entire property, including the personal property, except items that are not subject to sequestration1;
  • The sole proprietor shall pay social security, health insurance and taxes at the year-end.

 

How do you register as a SP?

In accordance with art. 56 of the CA, any able2 natural person, having residence in the country, may register as a sole proprietor. However, there are certain exceptions set out in art. 57 of the CA. It should be pointed out that, if an individual:

  • Is undergoing bankruptcy proceedings;
  • Is bankrupt without restored rights;
  • Has been sentenced for bankruptcy;
  • Was general manager, member of management or controlling body of a company terminated due to bankruptcy during the last two years preceding the date of the decision for announcement in bankruptcy, if unsatisfied creditors have remained;
  • Was general management, member of management or controlling body of a company, for which it has been established by virtue of an entered into force penal pronouncement for non-performance of his/her obligations to create and maintain the required reserves under the Crude Oil and Petroleum Products Reserve Act, must not carry out activities as a sole proprietor.

A person who would like to register as sole proprietor shall declare the absence of the above circumstances by providing a statement which is attached to the registration application – the sole proprietor shall register with the Commercial Register on the grounds of registration application filed with the Registry Agency. Specimen from the proprietor and statement that he/ she has not been banned to exercise commercial activities are also provided together with the application.

A template of the application for registration in the Commercial Register may be found on the website of the Commercial Register (form А1).

The application may be filed on site at the reception desk at the Registry Agency and online on the website of the Registry Agency. To file online, you need a qualified electronic signature (QES). The state fee due to the Registry Agency upon the filing of the application amounts to BGN 30, when filing the application on site and BGN 15 when filing the application electronically.

 

What are the requirements to the name (company name) of a SP?

The name under which the sole proprietor will be entered in the Commercial Register should contain the first and family or middle name of the natural person without abbreviation.

 

II. Sole owner limited liability company (SOLTD) / Limited liability company (LTD)

The difference between a SOLTD and an LTD is in the number of the people who own the company’s capital. In the case of the SOLTD, ownership over the capital is held by one single person, the contributor to the capital is one. A SOLTD may be incorporated by one person. In order to incorporate a LTD owned by more than one person, there should be at least two founders (natural persons or legal entities). There is no requirement for the parties to make equal capital contributions.

 

What are the key advantages?

  • The partners in the LTD, the sole owner in the SOLTD respectively, are not directly liable to the creditors3 for the company’s liabilities. If the company is declared bankrupt, the partners, the sole owner respectively, will only lose their partnership share in the company, i.e. they are only liable up to their partnership share4.
  • The minimum capital required amounts to BGN 2, which means that minimum funds are necessary to incorporate a company. The partners may increase the company’s capital. It is also possible to attract new partners who receive a share in the company.

 

What are the key disadvantages?

  • The registration fee is significantly higher than that for the registration of a SP.
  • The deregistration of SOLTD or LTD requires a liquidation procedure which is long and complicated.
  • Additional bank fees are paid to open an escrow account to raise the company’s capital.

Incorporation procedure:

Reservation of a name (company name) Reservation of a name (company name)

This step is not mandatory as anyone may reserve the name of the company prior to the filing of the registration application.

Holding of constituent assembly and signing of partnership agreement/articles of association

Holding of constituent assembly and signing of partnership agreement/articles of association

The constituent assembly is summoned by one of the company’s founding partners. The constituent assembly makes resolution to incorporate the company and it sets the respective share of the company’s capital to be held by each of the founding partners. This share usually depends on the contribution made to the company’s capital by the respective founding partner.

Partnership agreement, respectively articles of association for the SOLTD, should be signed at the constituent assembly and management body should be appointed for the company. The partnership agreement should contain:

  • Company name, registered address and address of management;
  • Object of activities and term of the agreement;
  • Name, company name respectively and unified identification code of the partners;
  • Capital and, when it is not fully paid-in upon incorporation, the agreement should set out the deadlines and terms and conditions for the full payment of the capital. The deadline for the payment of the full amount of the capital may not exceed two years since the registration of the company, as of the capital increase, respectively;
  • The shares that the partner holds in the company’s capital;
  • The governance and mode of representation. One of the partners, the sole owner of the capital or a third person (outsider) may be appointed general manager;
  • Other rights, obligations and benefits for the partners.

It is mandatory to prepare minutes from the constituent assembly, which shall state the agenda of the assembly and list the decisions taken.

Contribution of the company capital to a special escrow bank account

Contribution of the company capital to a special escrow bank account

The opening of an escrow account is part of the procedure for the registration of a commercial entity. The partners / sole owner pay their share of the capital to this account in the way stated in the partnership agreement or articles of association of the company. The funds in the escrow account represent the capital of the commercial entity that has to be incorporated.

An escrow account may be opened in every commercial bank in Bulgaria (the fee for the opening of such an account depends on the tariff of the respective bank). The articles of association or partnership agreement, as well as the minutes from the constituent assembly must be presented in order to open the account.

If you are registering a company with capital exceeding BGN 2, at least 70% of the capital must be paid-in in order to register at the Registry Agency.

Obtaining a permit / license (if applicable)

Obtaining a permit / license (if applicable)

When the object of activity of the company is specific, there may be a requirement to obtain a permit / license issued by a competent authority, in order to commence business (for example, sale of tobacco products).

Entry of the company in the Commercial Register

Entry of the company in the Commercial Register

The entry in the Commercial Register is performed by filing an application in a standard form, which is available at (Form А4).

The required set of documents includes: Registration application, Partnership agreement or Articles of association; Minutes for the incorporation of a company; Notarized specimen5 of each of the appointed general managers; Declaration in the meaning of art. 142 of the Commerce Act, signed by each of the appointed general managers; Declaration in the meaning of art. 141, para 8 of the Commerce Act, signed by each of the appointed general managers; Certificate issued by a bank as to the paid-in capital; Resolution of the management body and the body representing the partner – legal entity; Excerpt from Companies Register for a partner – foreign legal entity; Document for paid state fee for the incorporation of a company; Declaration under article 13, para 4 of the Law on the Commercial Register signed by the general manager - candidate; Respective license or permit in accordance with a specific law dealing with the performance of a specific activity(where applicable).

The registration itself may be carried out entirely electronically, if the candidate has a QES. In such a case the fees to be paid are significantly lower.

 

Fee
  • Reservation of company name – BGN 40 / electronically – BGN 20;
  • Minimum capital to incorporate the company – BGN 2;
  • Bank fee – depending on the tariff of the respective bank (approximately BGN 10);
  • Notarisation of the specimen of the general manager – approximately BGN 6 per signature;
  • Fee to the Registry Agency – BGN 110 upon filing of the document on site; BGN 55, if the documents are filed electronically.

 

III. Sole owner joint-stock company (SOJSC) / Joint-stock company (JSC)

What is the difference between SOJSC and JSC?

The difference between SOJSC and JSC is in the number of the persons holding the company’s capital. In the case of the SOJSC the entire capital of the company is held by one person and it is incorporated by one person.

In order to incorporate JSC there should be at least two persons - founders (natural persons or legal entities), with no requirement for them to hold equal capital contributions. The capital of the joint-stock company is split into shares having certain value. The company is liable to its creditors with its property. The marking “joint-stock company” or the abbreviation “JSC”, respectively “sole owner joint-stock company” – “SOJSC” should be included in the company name of a joint-stock company.

 

What are the key advantages?

  • The shareholders of a JSC, the sole owner of a SOJSC respectively, are not directly liable to the creditors for the liabilities of the company with their property.
  • If the company is declared bankrupt the shareholders, the sole owner respectively, will only lose their contributions to the capital, i.e. they are liable to the creditors only with the company’s property.
  • The flexibility of a JSC/SOJSC provides the shareholders with the possibility to realise their assets quickly and easily.

 

What are the key disadvantages?

  • There is a highly formal and complicated registration procedure (as compared to the other forms).
  • The minimum statutory capital required to incorporate a JSC/SOJSC is BGN 50 thousand.
  • Relatively high registration fees.

 

What is the incorporation procedure?

A joint-stock company may be incorporated by one or more natural persons or legal entities. The founders are the persons subscribing the shares at the constituent assembly. Persons declared bankrupt may not participate in the incorporation of a joint-stock company.

Reserving company name (name)

Reserving company name (name)

This step is not mandatory and anyone can reserve company name prior to filing a registration application.

Holding constituent assembly (JSC) / drawing up of articles of association (SOJSC)

Holding constituent assembly (JSC) / drawing up of articles of association (SOJSC)

A joint-stock company is incorporated at a constituent assembly attended by all persons subscribing shares or articles of association are drawn up, respectively, if the company is incorporated by one person (SOJSC). At the constituent assembly a founder may be represented by a proxy holding explicit notarized power of attorney. The shares of the partners are subscribed at the constituent assembly and:

  • A resolution for the incorporation of the company is made;
  • The statutes are approved6 ;
  • The incorporation expenses are set;
  • Supervisory Board or respectively Board of Directors is/are appointed.

The resolution for the incorporation of the company and the adoption of articles of association should be passed unanimously and minutes should be drawn thereto.

Art. 165 of the CA sets out in detail what the content of the articles of association should include:

  • Company (name), registered address and address of management;
  • Object of activity and the term, if any;
  • Capital, as well as the portion thereof, which should be paid-in upon the incorporation of the company, the type and number of shares, the rights assigned to the various classes of shares, the specific terms and conditions for their transfer, if any, as well as the par value of each share;
  • The bodies of the company, their term and number of their members;
  • The type and value of any non-monetary contributions, if any, the persons making them, the number and par value of the shares to be given to such persons;
  • The benefits that the identified founders shall retain for themselves, listed by name, if any are envisaged;
  • The terms and conditions and the procedure for the issuance of shares that are subject to redemption, if any are envisaged;
  • The profit distribution method;
  • The procedure to convene the general assembly;
  • Other terms and conditions in relation to the incorporation, existence and termination of the company.

Share are subscribed at the constituent assembly against the obligation to pay a specific amount to an escrow bank account, opened in the name of the company by the management board, the board of directors respectively. Following subscription of the shares the founders receive temporary certificates. The shares are received later against these certificates.

 

Important to know
Important to know

The board of directors is a body in a one-tier management system in a JSC, and the management board – in the two-tier management system.

 

Contribution of the company capital to a special escrow bank account

Contribution of the company capital to a special escrow bank account

The opening of an escrow account is part of the procedure for the registration of a commercial entity. The partners / sole shareholder pay into that account their share of the capital as stated in the partnership agreement of the articles of association of the company.

The funds in the escrow account represent the capital of the commercial entity to be incorporated. An escrow account may be opened in any commercial bank in Bulgaria (the fee for the opening of such account depends on the tariff of the respective bank). The articles of association or partnership agreement, as well as the minutes from the constituent assembly have to be presented in order to open the account.

 

Important to know
Important to know

If within three months the management board, the board of directors, respectively, does not prove to the bank that registration of the company has been applied for, the depositors may withdraw the full amount of the contributions made. The members of the respective board are jointly liable for the payment of the contributions.

 

Obtaining a permit / license (if applicable)

Obtaining a permit / license (if applicable)

In case of a specific object of activity of the company, it might be possible to require obtaining a permit / license from a competent authority in order to start a business

Registration in the Commercial Register

Registration in the Commercial Register

The  Following terms and conditions should be met before the registration of a joint-stock company in the Commercial Register:

  • The articles of association should be adopted;
  • The total capital should be subscribed;
  • The value per each share as envisaged in the articles of association should be paid, but not less than 25 percent of the par value or the issue value per each share as envisaged in the articles of association;
  • The board of directors, respectively the supervisory and management board, should be elected.

The registration with the Commercial Register is performed through a registration application filed with the Registry Agency. The steps may be carried out entirely electronically, if the candidate owns a QES. In this case the fees due are lower.

The articles of association are submitted to the Commercial Register and are announced. In case of amendment or supplementation of the articles of association a transcript therefrom is filed with the Commercial Register, in order to be announced as of the respective date, certified by the person or persons representing the company.

A template of the application to the Registry Agency is available on the Agency’s website (Form А5).

The documents that have to be attached to the registration application and filed with the Commercial Registry vary depending on the specific features of the future company. The complete list of documents applicable to form A5 is provided in Ordinance No 1 of 4 February 2007 on keeping, storing and accessing the Commercial Register and the Register of Non-Profit Legal Entities.

 

Fee

Reservation of company name – BGN 40 / electronically – BGN 20;

Capital of the company – minimum BGN 50 thousand;

Bank fee – depending on the tariff of the respective bank (approximately BGN 10);

The registration of a JSC / SOJSC with the Commercial Register will cost BGN 360, if the documents filing is performed on site at the Registry Agency. The procedure may also be performed electronically and the fee will be BGN 180, but the candidate must have an electronic signature.

Notary fees vary depending on the specific features of the company.

 

For more information
Important to know

Additional information is available on the website of the Registry Agency.

 

1The portion of the property that is not subject to sequestration includes items belonging to the person that may not be confiscated to cover debt to creditors. The full list of items is set out in art. 444 of the Civil Procedure Code (CPC).

2 An able person is an individual, who is of age, and not under incapacity mandates.

3 The persons that the company is liable to.

4 The company share is the portion of its property that one partner holds.

5The specimen is a document by virtue of which the general manager gives consent to manage the company and which contains a sample of his / her signature.

6Sole owner joint stock company is established by virtue of articles of association.

print this page
 
 


Post comment
 
Write to us
Ministry of Economy
8, Slavyanska Str., Sofia 1052, Bulgaria
BULSTAT: BG176789453
phone: +359 2 940 7001

fax: +359 2 987 2190
 
Operational Programme
Contacts: 8, Slavyanska Str. Sofia 1000, Bulgaria tel: +359 2 940 7001 e-mail: e-docs@mi.government.bg
Follow us: Facebook Профил на Министерство на икономиката Twitter Профил на Министерство на икономиката