Understanding Limited Liability Company (LLC) in Bulgaria

Article 113 of the Bulgarian Commercial Code delineates the structure and operations of a limited liability company (LLC), portraying it as an entity formed by one or more individuals who are accountable for the company’s obligations through their contributions to its registered capital. Even when structured as a one-person entity, known as a “Еднолично дружество с ограничена итговорност” (ЕООД), or simply an LLC with a single member, it remains a distinct legal entity within the realm of capital companies.

As outlined in Article 115 of the Commercial Code, the LLC comes into existence upon the drafting and registration of its Articles of Incorporation in the commercial register. The founders, whether natural persons or legal entities, may be domestic or foreign. The Articles of Incorporation necessitate personal signatures from the founders or their representatives, bearing explicit notarial authorization. The establishment of an LLC mandates registration in the commercial register, capital deposition, and the appointment of a manager. The manager is vested with the authority to facilitate the company’s registration in the commercial register.

The registered capital, constituting contributions, must amount to at least 2 BGN (since 2009, previously 5000 BGN), ensuring a level of financial security and duly recorded in the commercial register.

I. Organizational Structure of the LLC

In alignment with other capital companies, the LLC operates through distinct organs responsible for commercial endeavors. Per Article 135 of the Commercial Code, these include a general meeting, one or more managers (both mandatory), and optionally, an auditor. The pivotal role of the general meeting lies in its oversight of company formation and decision-making, as stipulated in Article 136. Comprising all partners, actions within the general meeting can be undertaken by designated representatives, particularly for partner entities. Article 137 enumerates the responsibilities of the general meeting, encompassing amendments to the Articles of Incorporation, capital and company modifications, partner admissions and expulsions, manager appointments, profit distribution, among others. Voting power correlates with the value of partners’ shares in the company, as per Article 139(2), allowing decisions to be made sans a convened meeting if all partners provide written consent.

Ordinarily, the manager convenes the general meeting annually, with an obligation to do so if the company’s capital decreases by more than a quarter or if its net worth falls below the registered capital.

Membership in the general meeting occurs through company formation, partner admission via a resolution, or inheritance or transfer of shares. Termination of membership may arise from partner demise, expulsion for capital non-deposit or failure to fulfill obligations (outlined in Article 126), withdrawal with prior notice, liquidation initiation for partner entities, or insolvency declaration.

II. Partner’s Rights and Duties

According to Article 123 of the Commercial Code, partners in a company have both material and non-material rights. Material rights include sharing profits and assets when the company is closed down. Non-material rights involve being part of the decision-making process and even having the chance to become a manager. Partners who own more than 20% of the company’s shares can ask for the company to close if they have a good reason.

Partner’s duties are listed in Article 124 of the Commercial Code. These can be split into two types: material and non-material.

Material duties include putting in the money they agreed to invest. If a partner doesn’t do this, they could be kicked out of the company. They’ll also lose their rights to any profit from the company and might have to pay extra fees. After being kicked out, the company might decide to split their share among the other partners, or sell it to someone else.

Non-material duties include taking part in company decisions, following decisions made in meetings, and protecting the company’s interests. Partners also can’t start a competing business.

III. Manager’s Rights and Duties

One or more managers are chosen to run the company. They are picked by the partners in a meeting and officially listed in the commercial register. The manager’s relationship with the company is defined by a contract. The manager can’t compete with the company and can’t get involved with other similar businesses, unless the company says it’s okay.

The manager can stop being in charge if:

They can’t do their job anymore.
The partners decide to replace them.
They ask to leave.

IV. Company’s Money and Ownership

A key part of a company is its money, called capital. This money comes from what partners put in and is recorded in the commercial register. It’s a safety net for the company and needs to be real money, not just promises. The company itself can’t chip in. Partners can put in more money than agreed, which makes a reserve fund. Partners might have different amounts of ownership in the company, and this can change over time.

The capital needs to be at least a certain amount, set by law, to make sure the company is financially safe. The Commercial Code has rules for changing the capital to keep the company’s assets safe.

V. Closing Down the LLC

Closing down a company follows certain rules, set out in Article 154 of the Commercial Code. It can happen for different reasons, including when partners who own a big part of the company ask for it, or if the company is doing illegal things or has no manager for a long time.

Closing down the company can happen through the courts, especially if partners who own a big part of the company ask for it, or if the company is breaking the law or has no manager for a while.

Conclusion

In summary, these articles serve as a comprehensive guide to understanding the intricate workings of limited liability companies (LLCs) in Bulgaria as outlined by the Commercial Code. From the formation process to the dissolution procedures, they detail the rights, obligations, and structural components vital to the functioning of an LLC. By providing clarity on the roles of partners and managers, the management of capital and shares, and the protocols for company closure, these articles offer invaluable insights for both current and prospective stakeholders in the Bulgarian business landscape. They underscore the importance of adhering to legal regulations to ensure the smooth operation and longevity of LLCs, ultimately contributing to a deeper understanding of corporate governance within the Bulgarian context.

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