Updated last 26.03.2021
In this section you can find the following information:
- What is transformation through merger, consolidation, division, spin-off?
- What are the rules, applicable to the transfer through merger, consolidation, division, spin-off?
The relations between business companies and the dynamics of the commercial turnover may be a precondition for the combination of business companies, interested in carrying out their business operations together. The contrary option is also possible – a company may divide into multiple companies, or separate business companies to spin off. For such situations, the Commercial Act (CA) regulates the transformation procedure by merger, consolidation, division, spin-off. A feature of the consolidation, merger and division is that transforming companies are terminated, without carrying out liquidation procedure , and the property, rights and obligations and the business of the terminated companies are fully or partially transferred to the other existing or newly-established business companies (proxies). A feature of the spin-off is that a part of the property and the company’s business are acquired by another company (companies) without the termination of the transforming company.
What is transformation through merger, consolidation, division, spin-off?
Merger – a form of transformation, where one or more companies (transforming companies) merge into another existing company (recipient company). The merger results in the termination of the transforming companies, without carrying out liquidation, and their property, rights and obligations and the business are entirely transferred to the recipient company.
The shareholders of the transforming companies discontinue their membership therein and acquire shares in the recipient company.
| Important to know | |
 | In case of transformation through merger, the recipient company cannot change its form (e.g. from a limited liability company (OOD) into a joint-stock company (AD) together with the merger. |
Consolidation – a form of transformation, where two or more business companies (transforming companies) consolidate into a single newly established company. In the case of consolidation, the transforming companies are terminated, without carrying out liquidation, and their property, rights and obligations and business activities are transferred to the newly established company.
Division – a form of transformation, where one business company (transforming company) is divided into two or more business companies (recipient companies). In case of division, the transforming company is terminated, without carrying out liquidation, and the respective part of the property, the rights and obligations and business are transferred to the recipient companies. It is possible that some of the recipient companies are newly-established, and other – already existing.
| Important to know | |
| In case of transformation through division, the recipient company cannot change its form (e.g., transforming from a limited liability company (OOD) into a joint-stock company (AD). |
Spin-off – a form of transformation, where a part of the property, the rights and obligations of a company (transforming company) pass to one or more other companies (recipient companies). The transforming company is not terminated and continues to exist. The recipient companies may be both newly-established, and existing.
It is possible that a part of the property and business of a business company (transforming company) is transferred to one or more newly-established sole-owner limited liability companies and/or sole-owner joint-stock companies, where the transforming company becomes the sole owner of their capital (art. 262d (in Bulgarian: 262г) of the CA).
What are the rules, applicable to the transfer through merger, consolidation, division, spin-off?
It should be noted that the procedure for transformation through consolidation, merger, division and spin-off is particularly complex and there may be additional specificities and deviations from the rules, detailed below. Therefore, before commencing the procedure, a thorough analysis of the applicable legal framework is required. The regulatory framework consists of the provisions of art. 262 – art. 263s (in Bulgarian: 263т) of the CA. Please, keep in mind that any violation of the regulatory procedure may give rise to invalidity of the transformation. Before undertaking the procedure, a notice must be sent to the National Revenue Agency (NRA). The Territorial Directorate of the National Revenue Agency issues to the trader or the candidate, a certificate of notification within 60 days of the notification submission date. The notification is a mandatory and is attached to the documents of the application, as per item 7 below.
 | Signing a contract/transformation plan |
The companies, participating in the transformation, must sign a transformation contract. The transformation contract is signed by the persons, representing the company, in writing with signature notarization. The transformation contract may be signed at a later stage – after the transformation decision. In this case, a draft transformation contract is prepared, subject to the same requirements as those for a final transformation contract. When a draft contract is used, the final contract is signed after the decision as per item 6 below.
In case of division and spin-off, when the recipient companies are newly-established, no transformation contract is signed, and the transforming company prepares a transformation plan. The plan is prepared in writing with notarized signatures by the management body of the company (for limited liability company, joint-stock company and limited partnership with share capital) or by the shareholders with management rights (in case of a general or limited partnership). The required contents of the contract and the transformation plan are detailed in art. 262g (in Bulgarian: 262ж) of the CA.
 | Preparation of management body’s report |
The management body/shareholders with management rights of each of the companies, participating in the transformation, prepare a written transformation report. The report must contain a detailed legal and economic justification of the contract/transformation plan and in particular – the relevant considerations, and in case of division and spin-off – the share allocation criteria. When a new company is established in the form of a limited liability company (OOD), joint-stock company (AD) or limited partnership with share capital (KDA), or if the capital of recipient company is increased, the report also contains information on the transferred property, based on which the updated amount of the share capital is calculated. The amount of the capital of the newly established company may not be higher than the net value of the property transferred to that company at the time of the transformation [2].
| Important to know | |
| It is not necessary to prepare a report, if all members or shareholders in the companies participating in the transformation have expressed their consent to omit the report in writing. |
 | Announcement of the contract/transformation plan and the report of the management body |
The contract/transformation plan (item 1 above) and the report of the management body (item 2 above) are submitted for publication to the Commercial Register, simultaneously on the files of both the transforming and recipient company. The management body must submit an application, based on a template, to the Registry Agency (Template D1 in Group D (in Bulgarian: Г1 and Г, respectively) in the drop-down menu). The application may be submitted online with qualified electronic signature (QES), and in this case the payable fees are lower.
If one of the companies, participating in the transformation, is a joint-stock company (AD), limited partnership with share capital (KDA) or a limited liability company (OOD), documents have to be published in its file at least 30 days prior to the date of the general assembly, when the transformation decision (item 6 below) is expected to be discussed and approved.
 | Transformation audit and auditor’s report |
The management body/shareholders with management rights of each of the companies, participating in the transformation, have to appoint an auditor [1]. It is possible that at the common request of the management body of the companies, the registration officer of the Registry Agency appoints a common auditor for all companies, participating in the transformation, instead. The auditor prepares a report on the audit findings and distributes it to the shareholders of the respective company. Alternatively, a common report is issued to the shareholders of all participating companies. The report evaluates the adequacy of the prepared contract/transformation plan.
 | Disclosure of information |
Before the approval the transformation decision, all shareholders in the companies, participating in the transformation, must be provided with relevant information, regarding the transformation – the contract/transformation plan, the reports as per item 2 and item 4 above, the annual financial statements and the management reports of the companies, the balance sheets and draft new articles of association or articles of incorporation of each of the newly-established companies, or drafts for amending and supplementing the articles of incorporation or the articles of association of both the transforming and recipient companies. The listed documents must be accessible at the registered office of the companies, as copies of the relevant documents will be made available free-of-charge to each of the shareholders upon request. When some of the companies, participating in the transformation is AD, KDA or OOD, documents must be accessible at least 30 days prior to the date of the general assembly, where the transformation decision is made (see item 6 below).
 | Decision for the transformation |
The transformation decision is approved separately for each of the companies, participating in the transformation. The decision approves the contract or the transformation plan and regulates any and all matters and issues, related to the changes concerning the transformation (e.g., amendments to the articles of incorporation/memorandum of association, capital, etc.), including the newly-established companies, if any.
The necessary majority for approval of the transformation decision is, as follows:
- For the transformation of a general partnership (SD) or limited partnership (KD) the consent of all the shareholders, provided in writing with notarized signatures;
- The decision for the transformation of OOD is approved by the general assembly of the shareholders by a majority of the owners of at least 3/4 of the of company’s capital;
- The decision for the transformation of a joint-stock company (AD) is approved by the general assembly of the shareholders by a majority of 3/4 of the voting shares present at the meeting;
- For the transformation of KDA, the decision of the shareholders with unlimited liability, made unanimously in writing with notarized signatures is required, as well as a decision of the general assembly of the shareholders, made by the majority of 3/4 of the voting shares present at the meeting.
 | Registration of the transformation with the Commercial Register |
When applying for registration of the consolidation or merger, the application is submitted by the management body of the newly-established/recipient company. The application has to be accompanied by the documents, listed in art. 263 of the CA. When applying for the registration of a division or spin-off, the application is submitted by the management body of the transforming company[3] (the dividing company/ the company, from which property is separated). The application is accompanied by the documents, listed in art. 263а of the CA.
| Term | The registration application cannot be filed later than 8 months after the date of signing/acceptance of the contract or transformation plan. The registration takes place not earlier than 14 days after the filing of the application. |
| Important to know | |
| The transformation becomes effective from the moment of registration with the Commercial Register. Art. 263s (in Bulgarian: 263т) of the CA governs any deviations from the general rules in certain specific cases. |
| For more information | |
 | For more information on the transformation procedure and the related regulatory framework, please refer to the websites of the: |
[1] The auditor must be a registered auditor, and cannot be a person, who has been the auditor of the appointing company in the past two years or who has prepared an evaluation of an in-kind contribution. The appointed auditor cannot be appointed auditor of any of the companies, participating in the transformation two years after the date of transformation.
[2] Net value of the property is the difference between the value of the rights and obligations of the company as per its accounting balance sheet (art. 247а of the CA).
[3] Accordingly, by each of the shareholders with management rights in the case of SD and KD.