Advantages of a Bulgarian Variable Capital Company

Corporate Clients, Corporate and M&A, Fintech

Our previous articleThe Bulgarian Variable Capital Company provided a detailed explanation of the newly established form of company in Bulgaria, the Variable Capital Company (VCC), and how it differs from existing business forms (known by their Bulgarian abbreviations CD, KD, OOD, AD and KDA). This article will explore the various advantages that the VCC offers to seed and growth businesses.

The Bulgarian Variable Capital Company has been introduced to provide early stage start-ups with a flexible and streamlined corporate vehicle. Once a VCC grows in size, the shareholders are obligated to convert it into a standard capital company (see our previous article The Bulgarian Variable Capital Company for a description of the thresholds at which conversion must occur). The VCC is hoped to bridge the gap between early foundation and full-scale capital companies. This would ease the burden on founders until they have proven themselves and can take on greater regulatory responsibilities. To this end, the new form offers a number of attractive features.

Greater Flexibility, Faster Incorporation and Wider Governing Powers for the Bulgarian Variable Capital Company

The VCC offers founders flexible and bespoke governance and structuring. The governing bodies of a VCC are prescribed as the General Meeting of Shareholders along with either a Board of Directors or a single director. With the right to choose between a single director and a Board, shareholders can choose between a governance structure similar to that of a private limited company (OOD) i.e. single director, or that of joint-stock companies (AD) i.e. a Board, whichever best suits their development. Moreover, the legal framework includes no requirement for a minimum number of board members. The appointment of board members is left to the shareholders, as per the process set out in their Deed of Incorporation. This differs from other company types, like ADs, which have a legal minimum and maximum number of members. 

In a simple but consequential change, board members now have the option to convene and participate in general shareholder meetings remotely, as long as an appropriate voting mechanism has been established. This innovation facilitates foreign investment.

Members of VCCs will also appreciate the flexibility of expanded decision-making governing powers and new types of shares. Among the new management powers is the right to free negotiation between VCC shareholders when signing Articles of Association or adopting a Deed of Incorporation. A further example is the express provision for Employee Stock/Share Ownership Plan (ESOP) schemes in order to incentivise employees and contractors.

New share types allow businesses to tailor their share issuances to their needs and strategy. Shares can carry a variety of privileges including veto rights, multiple votes in shareholder meetings, and additional dividends. The amendments also make changes to the rights of transfer and inheritance that different shares confer. 

Finally, a significant advantage of the VCC is its faster and simpler incorporation. The incorporation process of pre-existing Bulgarian company forms is cumbersome by comparison. A smaller set of necessary documents is required, which leads to lower fees for its founders.

Fewer regulatory hurdles

A number of regulatory requirements applicable to other forms of company have been removed from the VCC framework. 

Most importantly, as the name suggests, the capital in a VCC is variable and there is no requirement for any of the capital to be paid in cash. This allows for the incorporation of a company with low initial capital (shares can be less than 1 lev, subject to a floor share value of 0.01 lev). Other advantages are the removal of the requirement to open a capital-deposit account. Second, the transfer of shares does not require notarisation and can instead be completed by a simple written agreement. This avoids the need for all shareholders to be present for a share transfer. Not only do these provisions streamline potentially onerous corporate processes, but they operate nicely with the remote governance provisions to encourage foreign investors. Finally, VCCs are exempt from registration in the national Commercial Register and Register of Non-Profit Legal Entities, a minor relief for governing bodies. 

The possibility of establishing a Bulgarian Variable Capital Company has been changed from the initially announced date of June 30, 2024, to March 31, 2025.