How to establish a limited liability company (OOD)?
A limited liability company is the most common form of association, due to the possibility of low initial capital and the possibility of participation in it by one natural or legal person (sole owner of the capital) or several, as liability is limited to the amount of the contributed capital.
The procedure is regulated in the Commercial Act (CA), the Commercial Register and Non-Profit Legal Entities Act (CRENA) and Ordinance No. 1 of 14.02.2007 on keeping, storing and accessing the Commercial Register and the Register of Non-Profit Legal Entities (Ordinance No. 1).
The law defines a Commercial Company as a union of two or more persons to carry out commercial transactions with common funds. As an exception, in the cases provided for by law, this can also be done by one person. It is characteristic of a limited liability company that the shareholders are liable up to the amount of their share contribution to the capital, i.e. creditors do not have the right to be satisfied from the personal property of the shareholders. Founders can be Bulgarian and foreign individuals and legal entities. If the founder of a limited liability company is a legal entity, then his rights as a shareholder or single proprietor are exercised by the person who has the right to represent him or by an explicitly authorized person.
Procedure for establishing a Limited liability Company
The establishment of a Limited liability Company consists of precisely regulated legal and factual actions, namely: deciding to establish; adopting a company agreement (constituent act); electing a manager(s); raising capital; preparing an application for registration of the company in the Commercial Register.
The following decisions must be made at the constituent meeting:
- To establish a Limited liability Company;
- To adopt an Articles of Association;
- To elect a manager(s).
When the constituent meeting is held, minutes are kept, which contain the above-mentioned decisions and are signed by all shareholders.
When a limited liability company is established by one person, a written protocol is drawn up, in which the constituent act is approved and the manager(s) are appointed. It is important to note that with the changes introduced in the Commercial Act with issue 105 of the State Gazette of 2016, in some cases the drawn-up protocol should have a notarized signature and content unless otherwise agreed in the partnership agreement/Constituent Act. These are the decisions under Art. 137, para. 1, items 2,4,5, proposal one, and item 7 of the Commercial Act, namely the decisions regarding: admission and exclusion of shareholders; granting consent to transfer a company share to a new member; reduction and increase of the capital; election of manager(s); acquisition and alienation of real estate and property rights thereon. Decisions taken in violation of this rule are null and void. This rule may be derogated if the Articles of Association / Memorandum of Association explicitly stipulates that these decisions be made without notarization of the signature and content.
The minimum required content of the partnership agreement is defined in Art. 115 of the Commercial Act. It includes:
- the company name, registered office and address of management of the company;
- the subject of the activity and the term of the agreement;
- the name, respectively the company name, and the unique identification code of the shareholders;
- the amount of capital; when the entire amount of capital has not been paid in upon incorporation, the agreement shall specify the terms and conditions for its payment; the term for the payment of the entire amount of capital may not be longer than two years from the date of registration of the company, respectively from the date of the increase in capital;
- the amount of shares with which the shareholder participates in the capital;
- management and the method of representation;
- the advantages of the shareholders, if agreed upon;
- other rights and obligations of the shareholders.
The partnership agreement is concluded in writing and is signed by all shareholders. In the case of a single owner of the capital of a limited liability company, the partnership agreement is replaced by articles of association, which has the same content, but is signed only by the single owner of the capital.
When a shareholder is a legal entity, his representative at the constituent meeting must possess documents authorizing him with representative authority, namely: a decision of the collective management body of the legal entity (general meeting, board of directors or management board); a document certifying the establishment of the legal entity ( memorandum of association, partnership agreement, statutes) and, if applicable, a notarized power of attorney.
The capital of a Limited liability Company cannot be less than 2 leva, and the share contributions of the shareholders cannot be less than 1 leva. In practice, the raising of capital is carried out through a special bank account. It is also possible to make non-cash contributions (in kind).
The manager(s) must sign several declarations, which are a prerequisite for the company’s entry in the Commercial Register: Declaration under Art. 141, para. 8 of the Commercial Code, Declaration under Art. 142 of the Commercial Code and Declaration under Art. 13, para. 2 of the Commercial Law. Provided that the circumstances under Art. 142 of the Commercial Act are present, the shareholders must submit a declaration or decision that they agree with the appointment of the manager despite the presence of these circumstances.
The procedure for establishing a Limited liability Company begins on the initiative of the manager or a person expressly authorized by him. If more than one manager is appointed, then each has the right to represent the company given the scope of their representative authority. If the Company Agreement or the Articles of Association provide for joint representation and management by two or more managers, the application is signed and submitted by all of them jointly. Provided that they have the right to manage and represent the company separately, the application can be submitted by each of the managers. The newly appointed manager is obliged to request the entry within 7 days of the conclusion of the company agreement (the adoption of the Articles of Association).
The entry of the newly established company in the Commercial Register has a constitutive effect, i.e. from this moment the legal entity of the commercial company arises. For registration of a Limited liability Company, it is necessary to apply “Form A4” with the following documents attached:
In the event of changes in the registered circumstances, the manager(s) is obliged to request their registration in the Commercial Register within 7 days. The following changes are subject to registration: in the scope of activity; registered office, address of management; company; increase and decrease of capital; admission, exclusion or termination of the membership of a shareholder, etc.
In case you need consultation or assistance in establishing a limited liability company, contact us.