In the life of every company, the need eventually arises to formalize the relationship between the business and the person who effectively manages its operations. This is the role of the Management and Control Agreement (MCA) – a civil law contract through which a company entrusts the management of its affairs to a manager or member of a managing body.
What exactly should such a contract include?
This article highlights the key elements of MCAs and outlines what to consider when drafting or reviewing one.
Legal Nature & Execution
The MCA applies both to limited liability companies (EOOD/OOD) and to joint-stock companies (AD). It is concluded between equal parties – the company (principal) and the manager (fiduciary) – and is not an employment contract. Under this agreement, the manager undertakes to run the company in compliance with the law, the founding documents, and shareholder decisions, assuming personal responsibility for the results of their actions.
The MCA must be concluded in writing and signed by an authorized representative (e.g. shareholder resolution). The agreement is not subject to registration in the Commercial Register.
Core Clauses to Include
The agreement should not be a mere formality — it must accurately reflect the scope of responsibilities expected by the owner. This includes day-to-day operational duties, strategic responsibilities, and limitations of authority. A vague or overly generic agreement may lead to disputes or difficulties in holding the manager accountable. For that reason, it is best practice to include objective performance indicators (e.g., financial targets, project milestones), reporting obligations (e.g., monthly or quarterly business reports), and approval thresholds for key decisions.
An effective MCA should regulate at minimum:
- Scope of Duties: Clearly define the manager’s powers — such as signing contracts, hiring staff, making strategic decisions, and handling regulatory compliance. For instance, the Manager can be responsible for executing the company’s business plan, overseeing personnel, and representing the company before all third parties, including banks and authorities; Clearly defining the manager’s duties is not only essential for operational clarity but also for legal enforceability. A detailed description of the manager’s responsibilities provides a concrete basis for evaluating performance and, where necessary, initiating termination for non-performance, misconduct, or breach of duty. Without specific obligations, it becomes significantly harder to hold the manager accountable;
- Remuneration & Bonus: If the manager is paid, the MCA should outline base monthly salary; any performance-related bonuses (e.g., upon exceeding EBITDA targets); reimbursement of reasonable business expenses; provisions regarding compensation in case of early termination; For example, the Manager can be entitled to a performance bonus equal to up to four times their base salary if annual targets are exceeded by more than 20%;
- Duration & Termination: MCAs can be for a fixed or indefinite term. Common termination grounds include: unilateral notice (with or without cause); death, incapacity, liquidation of the company; material breach (e.g., conflict of interest, gross negligence); performance failures (e.g., failing to meet agreed financial targets). Best practice is to include both notice periods and immediate termination rights with financial consequences (e.g., liquidated damages). Where appropriate, “golden parachute” clauses may also be included — pre-agreed severance payments designed to protect the manager in case of termination without cause. These provisions bring predictability and balance to the agreement, especially when the manager is not a shareholder;
- Limitations on Representative Powers: You can restrict authority for high-risk decisions — such as: signing contracts above a certain value; hiring senior staff; acquiring real estate; taking loans or providing guarantees. Often, such actions require prior shareholder or board approval, which should be explicitly stated;
- Liability & Contractual remedies: A well-drafted MCA should also address the manager’s liability in case of non-performance, misconduct, or gross negligence. This includes both civil liability for damages caused to the company and pre-agreed contractual penalties. The agreement may explicitly state that the manager is responsible for losses resulting from breach of duty, failure to act in the company’s best interest, or violations of specific contractual obligations. Including such clauses ensures that the company has clear legal remedies and leverage in case of disputes or early termination due to poor performance.
Confidentiality, Non-Compete & Non-Solicitation Clauses
The law imposes a baseline non-compete obligation on managers (Art. 142 of the Bulgarian Commerce Act), under which they may not, without the company’s prior consent:
- conduct commercial transactions in their own or others’ behalf;
- participate in general or limited partnerships or limited liability companies;
- hold governance positions in other entities.
However, these default restrictions can and should be expanded contractually. A well-drafted MCA typically includes:
- Confidentiality clauses that prohibit the disclosure or misuse of sensitive company information both during and after the term of office;
- Extended non-compete clauses, prohibiting the manager from participating in or assisting competing businesses for a defined post-termination period (usually 12–24 months);
- Non-solicitation clauses, barring the manager from recruiting the company’s employees or clients after departure.
To ensure enforceability, it is common practice for management agreements to include contractual penalties for breaches of non-compete or non-solicitation clauses. These penalties serve as a deterrent and can apply regardless of whether the company chooses to pursue additional compensation for actual damages suffered.
Common Mistakes to Avoid
- Vague or generic descriptions of the manager’s duties — which can make it difficult to assess performance or trigger termination for cause;
- Missing approval thresholds — leaving the company exposed to unauthorized decisions and financial risk;
- Lack of objective performance criteria — making bonus entitlements or early termination harder to enforce;
- No confidentiality, non-compete, or non-solicitation clauses — increasing the risk of information leaks, unfair competition, or poaching of staff and clients;
- No contractual penalties for breaches — making enforcement slower, costlier, and dependent on proving actual damages;
- Poor alignment with the Articles of Association — leading to governance conflicts and possible invalidity of certain actions.
Conclusion
A well-structured Management and Control Agreement is more than a legal formality — it is a powerful governance tool. Clearly defining the manager’s responsibilities, performance expectations, and decision-making powers protects the company’s interests, reduces operational risk, and ensures accountability.
Including essential clauses such as approval thresholds, performance metrics, confidentiality, non-compete and non-solicitation provisions, as well as clear termination and liability rules, allows business owners to retain control while benefiting from delegated management.
At Ilieva, Voutcheva & Co., we help clients tailor their management agreements to fit the unique needs of their business, ensuring both legal robustness and commercial practicality. If you are setting up or revising a management relationship, our team is ready to support you with drafting, structuring, and risk assessment.
The article above is for information purposes only. It is not a (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.
