Matters concerning the inheritance of shares in companies registered in Bulgaria hold significant importance and are frequently encountered. These issues present a multifaceted challenge, encompassing a diverse array of complexities and complications.
The Bulgarian law may be an explicit choice of applicable law for the inheritance when exercising a choice of law under the Regulation (EU) No 650/2012 of the European Parliament and of the Council dated 04.07.2012 and/or be the applicable law under that Regulation. This is valid in cases where the European Union law applies. In other cases, the Bulgarian law may or will be applicable pursuant to the rules of the private international law. If the Bulgarian inheritance law proves to be or is chosen to be applicable, its rules should also be further taken into account, including but not limited: for succession by law or by will, reserved and disposable parts, circles of succession, etc.
This article is not exhaustive but is only intended to give an initial idea of the inheritance of shares in Bulgaria. The Article takes into consideration the companies of most practical relevance.
1 Limited liability company
1.1 Limited liability companies (“LTD”) in Bulgaria are capital companies. LTD continues to exist after the decease of a shareholder. However, LTD has certain personal element where shareholders actively work for the business. Only an adult can be a shareholder.
If the heir is already a shareholder in the LTD, then his share at the share capital will increase with the share of the deceased shareholder.
The decease of a shareholder does not lead automatically to acceptance of the adult heir non-shareholder as a shareholder with the respective rights – rights to vote, control, contribute to the company’s activity, etc. It is the share that is inherited and not the shareholder relationship.
The heir non-shareholder may become a shareholder, only after his request for that is accepted by the company. If he does not submit such a request or it is not accepted, he is entitled to the liquidation quote (property equivalent to the inherited shares).
Children however can never be shareholders in a limited liability company. When the heir is a child, he inherits only the right to the respective liquidation quote.
1.2 And what happens to a Sole Owner limited liability company (“Sole Owner LTD”), when its sole owner and only manager dies?
An Interpretative Judgment of the Bulgarian Supreme Court of Cassation (“SCC”) dated 31.05.2023 and the Commerce Act give a reply to that question.
The decease of the sole owner of the share capital will not lead to automatic termination of the Sole Owner LTD. Two negative conditions will also have to be at hand:
- anything else should not be provided in the constituent act;
- the heirs should have not requested that the Sole Owner LTD continues its activity.
Since the decease till the express of the will of the heirs a pending situation is at hand. In case 3 months pass and the Sole Owner LTD still does not have a manager, the Sole Owner LTD may be terminated by a claim of the prosecutor. A compulsory liquidation procedure will then be opened. The decease of a manager in this case will be the same as lack of a manager registered with the Commercial Registrar.
The heirs may protect themselves by:
- constitute the bodied of the company and register a manager until the completion of the oral contests before the courts on the substance – then the claim will be rejected;
- profit from the possibility explicitly and legally provided to continue the activity of the already dissolved company in the liquidation proceedings.
Where there is only one heir after the decease of the sole owner and only manager of the Sole Owner LTD, and that heir is a child, the child will be entitled to receive the liquidation quota through the judicial liquidation proceeding.
2 Joint stock company
The questions that most often arise in cases of inheritance of shares in a joint stock company (“JSC”) are how the rights of the deceased shareholder are exercised in the event of more than one heir.
Shares can be ordinary and preference, physical and dematerialized, etc.
Where physical shares are inherited by more than one heir, they are not mechanically distributed among the heirs in compliance with each heir’s share. Each of the heirs acquires an ideal part of each share corresponding to his inheritance share and not an actual number of shares – the heirs acquire each share in joint ownership. This follows from the Interpretative Judgement of the SCC dated 31.07.2020. Disputes between shareholders-joint heirs, as well as between shareholders-heirs and the JSC, can be resolved in court, including through inheritance disputes and company claims. It is acceptable that the two claims are dealt with jointly as a way of achieving better protection of the shareholders.
Some of the rights conferred by the share can be exercised independently by each of the heirs. But other rights in the case of joint ownership – by appointing a common representative.
Physical shares can only be subject to voluntary partition (not judicial partition).
The heirs are registered as follows:
- in the case of physical bearer shares – in the Shareholders Book;
- in the case of dematerialised shares – with the Central Depository.
The shares in a JSC could be inherited both as property and shareholder rights. Unlike LTD, children can inherit shares and become shareholders in the JSC. If the heir is a child, these rights will be exercised through the living parent.
3 Company with variable share capital
The amendments to the Commerce Act, promulgated in the State Gazette on 01.08.2023, introduced a completely new type of company – a company with variable share capital (“CVSC”).
A CVSC may only be an enterprise which has:
- an average number of employees of less than 50 people and
- an annual turnover not exceeding BGN 4,000,000.00 and/or
- an asset value not exceeding BGN 4,000,000.00.
The CVSC combines the advantages of а LTD and a JSC. The CVSC is close to a capital company in terms of its characteristics with enhanced personal elements.
The share capital of the CVSC is variable and is not subject to registration with the Commercial Registrar. The amount of the share capital is settled by a resolution of the ordinary annual general meeting convened to consider the annual financial statement.
The shares in the share capital of a CVSC may vary in amount from class to class. Shares of the same class shall have the same nominal value, which may not be less than one stotinka.
A share in the share capital of a CVSC may be inherited.
3.1 Inheritance of a shareholder’s share
Upon the decease of a shareholder in a CVSC, his heirs may express a wish to enter the company, unless otherwise agreed in the articles of association. The heirs shall make their request to enter in the CVSC within 3 months of the opening of the inheritance.
If the heirs do not wish to become shareholders, the CVSC shall pay them the value of the heir’s share at the time of his decease. The succession must be entered in the Shareholders’ Book in order to have effect against the CVSC.
3.2 Inheritance of a share on the part of an individual hired by the CVSC
The general meeting of the CVSC may establish in favour and by individuals hired by the company a right to acquire shares. The type of the agreement (employment, civil, etc.) or legal relationship between the CVSC and the individual is irrelevant.
The right shall be exercised only by transfer of the CVSC’s own shares. The total number of shares thus acquired may not be more than 15 % of the total number of the capital shares.
The Commerce Act provides for the procedure for the establishment, exercise and limitation of the right.
The right to acquire shares is non-transferable. The heirs of the individual in whose favour the right was established may exercise it within 6 months of that individual’s decease. However, the conditions for the exercise of the right must have occurred by the date of decease.