Geographically situated at the periphery of the eastern part of Europe, creating a gateway between Europe and Asia, Bulgaria is fast becoming an attractive destination for foreign investors and entrepreneurs who would like to start a business there. This is partly because of the low and attractive 10% corporate tax rate on profits and is also due to the highly educated and skilled workforce, affordable transportation and manufacturing facilities and many other reasons.
One of the cornerstone decisions that a business person who would like to start a business in Bulgaria is company formation. However, there are several different types of company structures to choose from. In this article, we’ll explore your options so that you can make a more informed decision.
Types of company registration in Bulgaria you can choose from
There are four primary company types you can choose from when you begin with your company establishment in Bulgaria. These include a limited liability company, a joint stock company, sole traders and partnerships (both general and limited). Let’s explore what each one is and what the requirements for formation involve.
- A limited liability company (OOD)
A limited liability company (LLC) is known as an “OOD” in Bulgaria. This type of business is particularly well-suited to small and medium-sized enterprises (SMEs) and its formation is dependent on several members. The members’ liability is limited to their contribution to the company’s capital. One of the biggest advantages of an OOD business in Bulgaria is that members are not required to submit a minimal share capital at incorporation. This is in contrast to other jurisdictions, which require this by law.
In order to register your OOD in Bulgaria, you will be required to provide the Memorandum of Association (in the event that only one shareholder is involved) and the Articles of Incorporation. Regarding the management of the business, it is run by one director who is appointed by a general meeting of shareholders. As is applicable to most companies around the world, the business name needs to be unique and must be followed by the OOD abbreviation.
- A joint stock company (AD)
If you would like to run a more major business in Bulgaria, then your option should be to choose a joint stock company, whose type is typically identified and followed by the abbreviation “AD”. As a minimum requirement, this type of company needs to be incorporated by at least two individuals or corporate bodies. As opposed to a limited liability or OOD company, this entity is required to provide a minimum share capital of 25,000 EUR (in the case of a closed joint stock company) or 50,000 EUR (in the case of an open joint stock company).
In brief, the main difference between a closed and an open joint stock company is that the latter is the only one which is able to trade on the stock market. Next, the share capital amount should be divided into shares and have “a nominal value of 50 EUR”. The by-laws of the company can be considered one of its cornerstone documents. These by-laws must contain:
- The name of the company
- Its registered address
- The purpose for which it is created
- Details regarding the capital stock and shares
- The names of the advantaged members as well as the types of advantages they will receive
- The method by which a board of directors will be appointed in addition to a supervisory board, and
- Methods for transforming or liquidating the entity.
Once again, the business name needs to be unique and be followed by the “AD” abbreviation.
- Sole traders
Sole traders are single or individual entrepreneurs who can register their business as a sole proprietorship. Legally speaking, such an individual can and will be held personally liable for the company’s entire set of debts. However, this also means that they can fully benefit from all of the company’s profits. Unlike a joint stock company, there is no minimum requirement for share capital for a sole trader.
On the other hand, in the event of the business going into liquidation, no distinction will be drawn between the owner’s personal assets and the business’ assets. An entrepreneur’s personal assets may therefore be affected by such a process.
- Partnerships: General or limited
The two types of partnerships that can be established in Bulgaria include a general or a limited partnership.
Regarding general partnerships, the requirements are that it must be formed by two or members with unlimited liabilities, who are “united under the same name” and have the same economic purpose. Liability for debts in the case of general partnerships will fall on the partners in their personal as well as business capacity, much like the case of a sole trader. The founding document of a general partnership is the Articles of Association. This must include:
- The name and address of each partner
- The name of the partnership
- The amount which each partner has contributed, and
- The method by which profits and losses will be divided between them.
A limited partnership, on the other hand, is formed by two or more partners. One of the partners is considered a “general” partner who is entirely liable for the business’ liabilities. This partner has full decision-making powers and is not required to contribute to the business with a fixed amount of capital. The remaining partner(s) are considered “silent” partners. In terms of liabilities, they are limited depending on their capital contributions. In addition, they do not have decision-making powers. Finally, in the event of liquidation, their personal assets are protected. The Articles of Association form the basis of this business type as well, which must contain at least one of the general partner’s names followed by the abbreviation “KD” at the end.
Company formation in Bulgaria requires preliminary research and due diligence, the preparation of documentation and fees, accounting services, legal representation and more. While it’s an attractive business destination for many entrepreneurs, doing business in Bulgaria may be hindered by the language barrier.
If you’re looking for a completely professional and highly competent team of individuals behind you in your company registration process in Bulgaria, you can rely solely on Motion Advice to assist you with all your business needs. As a comprehensive business consultancy agency that offers all-in-one services, you get complete and ongoing legal representation, your accounting needs will be met by a team of highly experienced professionals who specialise in foreign company ownership in Bulgaria and so much more. Ready to talk to us? Simply get in touch!