The deadline for the Registry Agency to implement the technical capability to register Companies with Variable Capital (CVC) has been postponed until the 31st of March 2025. However, it is advisable for everyone to be acquainted in advance with the specifics and especially the advantages of the new type of commercial company.
Part of the legal framework of CVC refers to or uses the general regulations of other types of companies. This article is intended to address the specifics of the legal form of CVC and some of the advantages it offers.
Acquisition of own shares
A CVC may acquire shares in its own capital. The value of the own shares held may not exceed 50 per cent of the total nominal value of all the company shares. It is noteworthy that the threshold for holding own shares is significantly higher than in the case of joint-stock companies.
Own shares can be used as a tool to achieve various objectives. There is the possibility they can be used in loan agreements that can be converted into company shares. On the other hand, the shares can also be used as a sort of incentive for the employees of the company.
Incentive for company employees
Having the option of acquiring a stake in the employer company is a well-known structure internationally, but this is the first time it is explicitly regulated and facilitated by the current legal framework in Bulgaria.
The amendments to the Commerce Act (CA) provide for this possibility to be exercised through the transfer of the company’s own shares. There is a limit of 15 per cent of the total number of shares acquired in this way. The acquired shares may be designated as non-transferable for a period of up to 5 years from the date of acquisition by a resolution of the competent body of the company.
The right to acquire shares under this procedure is non-transferable. However, within 6 months of the death of the holder of said right, his successors may exercise the option to acquire the shares.
Management
There are two bodies in the structure of the CVC – a general meeting of the shareholders and a management board (manager). The reason why the legislator chose a single-tier management system stems from the idea that such companies would be at a relatively early stage of development and would not need a more complex management structure. Moreover, the shareholders (or the sole owner) have the possibility of freely switching at any time between a sole (manager) or collegial (board) management body.
The management body, regardless of its form, is the sole representative body of the company. No provision is made for representation by the general meeting of the shareholders or individual members. In addition to this main function, the management body of the CVC has another specific authority – to determine the right of acquisition of shares by employees of the company and the conditions and procedure for exercising said right. For this purpose, the latter must be authorized by the general meeting of the shareholders. This authorization is limited to a period of 3 years.
Liability of members of the management body
The regulatory framework of the CVC establishes the liability of members of the management body for damages caused to the company’s creditors – a first in the Bulgarian legal system.
This type of liability was previously established only for certain public obligations under the Tax and Social Insurance Procedure Code.
An important clarification – this special liability is applicable only if the creditor’s interest is not fulfilled by the company itself.
Transformation and termination
The possibilities for transformation and the grounds for termination of a CVC mostly share similarities with the general provisions. The main additional factor to be taken into account are the thresholds under Art. 260a Para. 3 CA. In the event that the company ceases to comply with the requirements of that provision, it becomes obligated to convert into a limited liability company, a joint stock company or a partnership limited by shares.
Exceeding the thresholds for average number of employees, annual turnover and/or value of assets shall be established at the annual general meeting of the shareholders where the annual financial statements are approved. In this case, the company shall have until the end of the financial year following the year of the general meeting to go through with the transformation. If said obligation is not fulfilled, a prosecutor has the option to request the termination of the company before a court.
The successors of a deceased shareholder may inherit his shares in the CVC by applying to join the company within three months of his death. If it is a sole-owned CVC, its activities may also be continued by the successors. In such cases, it is advisable to specify in the articles of association of the company that it will not be terminated upon the death of the sole owner.
The article above is for information purposes only. It is not (binding) legal advice. For a thorough understanding of the subjects covered and prior acting on any issue discussed we kindly recommend Readers consult Ilieva, Voutcheva & Co. Law Firm attorneys at law.
