This article was originally published in the schoenherr roadmap`10 - if you would like to receive a complimentary copy of this publication, please visit:

The minimum share capital requirement for establishing a limited liability company in Bulgaria has been practically abandoned.

The general view amongst lawyers in Bulgaria has been that from the creditors' perspective, a company's registered capital gives some measure of its creditworthiness. That view premised a number of statutory rules meant to protect such expectations, e.g. rules:

  • seeking to ensure that there is a certain minimum share capital as a prerequisite to setting up a company; and
  • prohibiting companies from granting financial assistance to shareholders and prohibiting shareholders from receiving propriety benefits from the company other than dividends and liquidation quotas.

The share capital requirements, as well as the financial assistance and capital maintenance rules, are different for the two major types of companies with capital under Bulgarian law1 – the limited liability company, largely analogous to the Austrian Gesellschaft mit beschränkter Haftung, and the joint stock company, similar to the Austrian Aktiengesellschaft.

Share capital requirements

The minimum share capital needed to set up a limited liability company was BGN 5,000 (ca. EUR 2,600). This threshold was regarded by some experts as hindering entrepreneurial activity insofar as it could prevent those lacking such funds from starting to offer their services or products on the market.

In order to promote the activities of small and medium businesses, in October 2009 a piece of legislation was enacted whereby the minimum share capital for limited liability companies was reduced to the symbolic sum of BGN 2 (ca. EUR 1). It was submitted by the government when proposing the new share capital threshold before the Parliament that a high share capital would not protect creditors. Reference was made to a survey by the World Bank providing statistical evidence that the average sum a creditor would actually recover in case of insolvency is not dependent on whether the insolvent debtor is from a country with high share capital requirements or from a country where no such requirements exist.

In reality, when extending credit, professional creditors do not rely on the registered capital of debtor companies, but rather on the property possessed by them, and such creditors would usually require some security over the company's valuable pieces of property. The existence of registered capital may even be misleading if that capital has been extracted or eroded as a result of unprofitable trading or other business events and if the debtor company has no valuable assets. Reliance on the registered capital in such a case may hold creditors back from requiring a truly effective security. In this sense, the minimum share capital requirement, when regarded as a means to protect creditors, is something of an anachronism.

The share capital for joint stock companies in Bulgaria must be at least BGN 50,000 (ca. EUR 26,000). Though the logic behind the above considerations is equally applicable to joint stock companies, it is not possible to abandon this higher capital requirement because it comes from the Second EU Company Law Directive and Bulgaria has no discretion over whether to adopt it or not.

Indeed, there are certain even higher minimum thresholds set for certain regulated businesses, e.g. banks, insurance companies, pension funds, etc.

Prohibition on financial assistance and capital maintenance rules

There are certain capital maintenance rules in relation to joint stock companies, as well as an absolute prohibition on such companies to grant loans or provide security for the acquisition of their own shares by a third party. That prohibition was imposed by way of transposition of the EU Second Company Law Directive rules in Bulgaria. Although on the EU level the prohibition was relaxed by the subsequent Directive 2006/68/EC, Bulgaria has not yet availed itself of the option to impose, in turn, a looser framework on financial assistance.

There is no similar prohibition on financial assistance or explicit capital maintenance rules with respect to limited liability companies. However such a prohibition and such rules may arguably be construed out of the explicit statutory provisions, which:

  • prohibit shareholders from claiming back their capital contributions while the limited liability company is still a going concern; and
  • limit the proprietary rights of shareholders vis-à-vis the limited liability company to dividends and liquidation quotas (should the company be wound-up).

Those rules are identical to the corresponding Austrian provisions. While there is no court practice in Bulgaria elucidating the above rules, the Austrian counterpart provisions have been construed by Austrian courts as promoting capital and assets maintenance and, therefore, invalidating transactions between limited liability companies and shareholders where, for example, the company has parted with some of its assets without receiving an equal consideration in return.

In Bulgaria, it remains unclear whether the above rules aim to preserve (i) the company's assets as a whole or (ii) its registered capital only2. The new minimum share capital requirement of EUR 1 for limited liability companies has rendered any speculation on option (ii) pointless. With respect to option (i), market players are well advised to mind the capital (and assets) maintenance principles proclaimed by Austrian courts under an identical legal framework when structuring a transaction between a Bulgarian limited liability company and its shareholders. This will avoid any risk of the transaction being deemed unenforceable.

Market players are well advised to mind the capital (and assets) maintenance principles when structuring a transaction between a Bulgarian limited liability company and its shareholders.

This article was originally published in the schoenherr roadmap`10 - if you would like to receive a complimentary copy of this publication, please visit:


1 Other capital companies in Bulgaria include the partnership limited by shares similar to the German Kommanditgesellschaft auf Aktien, as well as the European Company under Council Regulation (EC) No 2157/2001, but they have minor practical significance.

2 Option (ii) has been raised by Bulgarian legal scholars, making reference to the German rules applicable to limited liability companies. The German statute, however, explicitly proclaims only the maintenance of the registered capital and, therefore, its principles cannot be equally applied in Bulgaria, whereas in Austria, the rules are broader.

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