Variable Capital Company: A Modern Spin on Bulgarian Corporate Structures

With the promulgation of the Act to Amend and Supplement the Bulgarian Commercial Act on 1 August, a new type of company has been introduced in Bulgaria - the Variable Capital Company (“VCC”). This creation aims to provide entrepreneurs with greater flexibility in their business operations. VCCs can be established by one or more natural or legal persons.

But what exactly is a VCC?

It can be best described as a hybrid between personal and fixed-capital companies, differing from both but sharing some similarities with each. Notably, it doesn't have a registered and fixed capital, and it also does not have unlimited liability partners. It is intended that the company will be liable to creditors with its assets only.

In terms of management, a VCC can be overseen either by a manager or a management board. In the latter case, the management board delegates the company's management and representation to one or more executive members.

Partners in a VCC receive shares in exchange for their participation, with a minimum nominal value of 1 stotinka per share (1 Bulgarian lev comprises of 100 stotinki). As opposed to the regulation of other types of companies so far, the VCC’s Articles of Association may provide for a temporary ban on the disposal of company shares by partners, drag-along rights, tag-along rights, preemptive rights, and other restrictions and privileges, which until now have not been explicitly regulated in any other legal provisions under Bulgarian law.

Another novelty is the possibility for the VCC’s to grant share options to their employees. The mechanism and requirements for the employees to acquire VCCs shares should be regulated by VCCs Articles of Association but in any case the total value of such shares should not exceed 15% of the total VCC shares.

How is the increase of the VCC’s capital carried out?

The General Meeting has the authority to decide on the increase of VCC’s capital, the issuance of new shares and the manner of their acquisition. The quorum requirements should be determined by VCC’s Articles of Association but in any case the decision to increase (the capital) may be adopted if at least half of the voting shares are represented at the General Meeting and the quorum provided for is not less than 2/3 of the votes presented. The General Meeting also decides on the buyback of VCC’s own shares under the terms and conditions provided for in the Articles of Association.

The amount of VCC’s capital is to be confirmed once a year, at the end of the financial year, by a decision of the ordinary annual General Meeting.

Can it be ascertained who the partners in the VCC are?

Regarding the identification of partners in a VCC, the company is required to maintain a shareholders’ book containing information about all shareholders, the number of shares they hold, their class, the value, and the type of contributions against which they are subscribed. All changes in circumstances subject to registration in the shareholders' book must be reflected therein by the management body within 7 days. Partners have the right to access the shareholders' book, while third parties can access it only to inquire about shares held by specific partners.

Who could benefit from this new company type?

The new VCC company type is particularly beneficial for enterprises with less than 50 employees, an annual turnover of less than BGN 4,000,000, and/or asset value not exceeding BGN 4,000,000. It is especially well-suited for businesses looking to raise capital through private investors and pursue rapid and dynamic growth.