Loading...

Choice of legal form, registration documents and procedure

Updated last 26.03.2021

This section provides the following information:

  • Sole proprietor (ET);
  • Registration as a sole proprietor;
  • Sole owner limited liability company (EOOD)/ Limited liability company (OOD);
  • Incorporation of EOOD and OOD;
  • Sole owner joint-stock company (EAD)/Joint-stock company (AD);
  • Incorporation of EAD and AD.

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 (ET);
  • Sole owner limited liability company (EOOD) / Limited liability company (OOD);
  • Sole owner joint-stock company (EAD) / Joint-stock company (AD).

The other legal forms stipulated in the Commerce Act (CA) include general partnership (SD), limited partnership (KD) and partnership limited by shares (KDA). Since 2007, the CA provides for the possibility to establish an European Company within the meaning of the Council Regulation (ЕC) No.2157/2001 on the Statute for a European company (SE) (Societas Europea/SE), which is rarely used in practice.

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

I. Sole proprietor (ET)

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.

Schedule No. 4 of the Local Taxes and Fees Act (LTFA) provides a full list of all patent activities the performance of which requires ETs pay patent tax. Most 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. The list includes certain categories of accommodation and dining and entertainment establishments.

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), except for cases where the ET is registered on the grounds of art. 97а, art. 99, para. 1 – 6 and art. 100, para. 2 od the 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 legally capable2 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 has to be pointed out that, no person may be sole proprietor, if he/she:

  • 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.

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 of the proprietor’s signature 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 has to contain the first and family or middle name of the natural person without abbreviation.

II. Sole owner limited liability company (EOOD) / Limited liability company (OOD)

The difference between a EOOD and an OOD is in the number of the people who own the company’s capital. In the case of the EOOD, the entire capital belongs to one person. An EOOD may be incorporated by one person. In order to incorporate an OOD owned by more than one person, there have to be at least two founders (natural persons or legal entities). There is no requirement for the parties to make equal capital contributions.

The company name must contain the designation “Limited Liability Company”, or “OOD” for short, respectively “Sole Owner Limited Liability Company”, or “EOOD”.

What are the key advantages?

  • The partners in the OOD, the sole owner in the EOOD 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 an ET.
  • The deregistration of EOOD or OOD 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; however, 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 the articles of association/incorporation

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.

Articles of association, respectively articles of incorporation for the EOOD, have to be signed at the constituent assembly and management body has to be appointed for the company. The articles of association/incorporation have to specify:

  • 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 has to 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 a special escrow account is part of the procedure for the registration of a commercial entity. The partners / sole owner shall pay their share of the capital to this account in the way stated in the articles of association/incorporation 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 articles of incorporation, 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, Articles of association or Articles of Incorporation; Minutes for the incorporation of the 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 / the body representing the partner – legal entity for taking part in the company; Document the existence of the partner – legal entity (e.g. Excerpts from Companies Register) and its statutory representatives (only for a partner – foreign legal entity or entity that is not registered in the Bulgarian Commercial Register and Register of Non-Profit Legal Entities); 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 filing of the registration application may be carried out entirely electronically, if the candidate has a QES. In such a case the registration fee to be paid is significantly lower.

Fee
  • Reservation of company name – BGN 40 / electronically – BGN 20;
  • Minimum capital to incorporate the company – BGN 2;
  • Bank fees – depending on the tariff of the respective bank;
  • Notarisation of the specimen of the general manager –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 (EAD) / Joint-stock company (AD)

What is the difference between EAD and AD?

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

In order to incorporate an AD there have to 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 “AD”, respectively “sole owner joint-stock company” – “EAD” has to be included in the company name of a joint-stock company.

What are the key advantages?

  • The shareholders of an AD, the sole owner of an EAD 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.
  • The flexibility of the AD/EAD provides the shareholders with the possibility to realise their assets quickly and easily.

What are the key disadvantages?

  • There is a more complicated registration procedure (as compared to the other forms).
  • The minimum statutory capital required to incorporate an AD/EAD is BGN 50,000 (fifty thousand Bulgarian leva).
  • Relatively higher 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; however anyone can reserve a company name prior to filing a registration application.

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

Holding constituent assembly (AD) / drawing up of articles of incorporation (EAD)

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 (EAD). 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 statutes6 are approved;
  • 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 have to be passed unanimously and minutes have to be drawn thereto.

Art. 165 of the CA sets out in detail what the content of the articles of association/incorporation have to 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 has to 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 interim 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 an AD/EAD, and the management board – in a 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 a special escrow account is part of the procedure for the registration of a commercial entity. The shareholders / sole shareholder pay into that account their contributions into the capital as stated in the articles of association/articles of incorporation 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/articles of incorporation, 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 pre-conditions have to be met before the registration of a joint-stock company in the Commercial Register:

  • The articles of association/incorporation have to be adopted;
  • The total capital has to be subscribed;
  • The value per each share as envisaged in the articles of association/incorporation has to be paid, but not less than 25 percent of the face 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, have to 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 applicant has a QES. In this case the registration fee due is lower.

The articles of association/incorporation have to be submitted to the Commercial Register and are announced. In case of amendment or supplementation of the articles of association/incorporation a copy thereof is filed with the Commercial Register, d certified as of the respective date 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 fees – depending on the tariff of the respective bank;

The registration of an AD / EAD with the Commercial Register will cost BGN 360 (BGN 1,300 for AD/EAD with banking or insurance business), if the documents are filed on site at the Registry Agency. The application may also be filed electronically and the fee will be BGN 180 (BGN 650 for AD/EAD with banking or insurance business), but the candidate must have an electronic signature.

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 A legally capable 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 incorporation.

Share