Variable capital company – the new proposal aimed at startups in Bulgaria

On June 15, a bill was introduced in the National Assembly to supplement and amend the Commerce Act. The bill aims to create a new type of company - a variable capital company ("VCC"), designated to better serve the Bulgarian business and the growing number of start-up companies that have chosen to develop in Bulgaria. The proposed VCC has no absolute analogue in the law of the Member States of the European Union, but is partially similar to the German Unternehmergesellschaft (UG), the French Société par actions simplifiée (SOS), the Spanish Sociedad Limitada Nueva Empresa (SLNE), the Slovak Jednoduchá spoločnosť na akcieand Polish Prosta spółka akcyjna.

According to the proposal, only micro and small enterprises (SMEs) within the meaning of the Small and Medium Enterprises Act, can be a VCC. In case the VCC ceases to meet the relevant SME requirements after the end of the financial year, it must be transformed into a capital company. There is no minimum capital requirement when establishing a VCC. After the establishment of the VCC, the capital is determined on an annual basis by a decision of the annual General meeting of the shareholders (“GMS”) as at the end of the financial year and a review of its amendment in relation to the previous financial year is made. Accordingly, the management body of the VCC is required to keep a book of shareholders, where all changes are entered no later than 7 days after their occurrence.

With regard to management, two options are provided, namely through a manager or through a Management Board, and management can be performed by both individuals and by legal entities through a nominated representative. The Management Board (should this type of management be selected) assigns the management and representation of the company to one or more executive members.

The VCC issues shares, with the minimum nominal value of one share being 1 stotinka. The possibility for issuing shares with special rights (privileges) has been envisaged in the proposed provisions. Such special rights shares can provide more than one vote in the GMS, a guaranteed or additional dividend, an additional liquidation share, the right to repurchase company shares and others. The bill also provides for the possibility of special rights which reflect specific provisions related to venture capital investments, including drag along, tag along, preemptive right. The proposed VCC provisions allow for the possibility of the VCC to acquire up to 50% of its own shares, which aims to facilitate the establishment of rights to acquire shares for the benefit of employees. According to the explicit provision of the proposed Art. 260j, it is possible to establish the right to acquire shares in the VCC in favour of persons hired by the company, and this right can be exercised only by transferring the company’s own shares. This possibility falls within the competence of the GMS, and this competence can be delegated to the management body by a decision of the GMS, but for a period not exceeding 3 years.

The provisions regulating the functioning of the VCC do not explicitly specify the mechanism according to which the company issues shares and accepts shareholders. A review of the motives behind the bill shows that this is not an omission, but rather aims at greater flexibility in the management of fast-growing companies by providing freedom in determining through the Articles of Association of the VCC the number, composition, operation, and competence of the company's governing bodies according to its specific needs.

The bill is currently at an early stage and has been distributed to committees that have not yet submitted a report on it.