With the amendments promulgated in issue 66 of 2023 in the State Gazette, a new Chapter 15a has been introduced into the Commercial Act. With this amendment, a new type of commercial company has been created – a Variable Capital Company (VCC).
The main reason for the creation of a new type of company in Bulgarian commercial law is mostly technology companies, which very often start their activities as startup companies – public companies created by entrepreneurs and financially supported by investments from third parties, the purpose of which is to create an innovative product or service. The ultimate goal of these companies is to be sold or transformed into public companies.
The VCC borrows elements from both the limited liability company and the joint-stock company, as well as from partnerships. However, there are also completely new regulations. The advantages of Variable Capital Company are:
- Low initial capital;
- The different options for managing the company;
- Easy change in capital without any formalities.
The VCC, whose creation is motivated by the specifics of new technology companies, does not limit the scope of activity only to the IT sphere, but can also be applicable to other spheres of activity, due to its simplified bureaucratic structure.
The legal framework of the Variable Capital Company
1.Establishment
A VCC can be established by one or more individuals and legal entities. It is specific that the company should be established as a small or medium-sized enterprise. This means that it must have an average number of employees of less than 50 people and an annual turnover that does not exceed 4,000,000 leva and/or the value of assets less than 4,000,000 leva. When the company ceases to meet these requirements, it must be transformed into a capital company – a Limited liability company or joint-stock company. If this is not done by the end of the financial year at the initiative of the company, it is terminated by the district court at the company’s registered office upon the request of the prosecutor.
A founder of a company with variable capital cannot be a legal entity that has been declared bankrupt.
2. Capital and shares
The capital of a VCC is not subject to entry in the Commercial Register, but its amount is only established at the end of the financial year. The purpose of this variable capital is to make it easier to acquire shares from third parties and thus facilitate the attraction of investments, as well as the functioning of the company.
The capital is divided into shares, which may be of different sizes for the individual classes. The price of one share may not be less than one euro cent. Shares with special rights (privileges) may be created. The privileges may be expressed in the fact that they give the right to more than one vote in the general meeting of partners; provide the opportunity for an additional dividend or liquidation share; the right to repurchase a share.
Shares with equal rights form a separate class.
3. Disposal of company shares
In this regard, the legislator has provided for freedom in the manner in which the disposal of the company shares by the shareholders is determined. If a special order is not provided for in the partnership agreement, the shareholders can freely dispose of their shares. The law provides several options for regulating these rights of the partners, which are to be provided for in the partnership agreement, as these rights are not exhaustively listed in the law and allow the shareholders to choose the order in which this will happen. Moreover, for a certain period of time, the partnership agreement may provide for a ban on the disposal of company shares.
The law also provides for the possibility for the general meeting of shareholders to establish, for the benefit of persons employed by the company, a right to acquire shares, which is exercised only by transferring the company’s shares. This right may also be delegated to the company’s management body, but for no more than three years.
The transfer of company shares takes place with a Purchase and Sale Agreement of company shares with notarization of the signatures.
In order for the company to emerge as a legal entity, it is necessary, after its establishment, to be entered into the Commercial Register.