Legal Framework for Alternative Investment Funds in Bulgaria

Corporate Clients, Private Equity, Venture Capital

Alternative Investment Funds (AIFs) have become increasingly important vehicles for pooling capital, including VC, and investing in diverse asset classes including but also going beyond traditional shares, stocks and bonds. In Bulgaria, the regulatory framework for AIFs is defined by both domestic legislation and European Union directives, creating a robust environment for fund structuring and operation.

Structuring an AIF requires careful consideration of multiple factors which go to the fund’s operational efficiency, tax treatment, regulatory obligations, and attractiveness to investors. The structuring choices typically involves considerations such as:

• What is the intended investment strategy – the choice of fund structure should align with the intended investment strategy, 
• Who forms the investor base – including institutional investors, high-net-worth individuals, and retail investors each have different expectations regarding governance, reporting, and liquidity 
• Tax Efficiency – Different fund vehicles may offer advantages in terms of corporate taxation, withholding taxes, capital gains treatment, and the ability to utilize double taxation treaties. Cross-border investors will particularly scrutinize the tax efficiency of the structure.
• Governance and Control – The fund structure determines how investment decisions are made, how the fund is managed, and what rights investors possess. 
• Regulatory Burden – Different structures come with varying levels of regulatory oversight, reporting requirements, and compliance costs. 

Corporate structure of Alternative Investment Funds Under Bulgarian Law

Bulgarian law provides several legal forms that can be used for structuring alternative investment funds, including VC funds, each with distinct characteristics, advantages, and limitations.

Limited Partnership (Командитно дружество – КД)

The limited partnership is one of the most popular structures for VC AIFs in Bulgaria, and Bulgaria’s legal framework supports this vehicle through the Commerce Act. Limited Partnership suits small VC funds with few LPs due to low barriers and pure GP control, but lacks shares for easy capital pooling.

A Bulgarian limited partnership consists of two types of partners – General partners (GPs) bear unlimited liability for the partnership’s obligations and typically manage the fund’s operations. Limited partners (LPs) have liability limited to their capital contributions and function primarily as passive investors. This offers significant flexibility in governance arrangements and profit distribution. The clear separation between management (general partners) and investment (limited partners) aligns well with typical fund structures. 

The unlimited liability of general partners necessitates structuring, often involving a corporate general partner to limit personal exposure of fund managers. Limited partnerships must maintain a commercial register entry and comply with accounting requirements under Bulgarian law, though these are generally less burdensome than those for joint-stock companies.

Limited Partnership with Shares (LPS) (Командитно дружество с акции – КДA) or Joint-Stock Company (JSC) (Акционерно дружество – АД)

A Limited Partnership with Shares in Bulgaria is a blend of a limited partnership and a joint-stock company. It is a capital company where two types of partners exist: general partners who bear unlimited liability and are responsible for company management, and limited partners who have limited liability only up to their share in the company and ones with voting rights in the general meeting. The law provides for a mandatory requirement of at least three limited partners.

The formation process of a LPS involves two stages: firstly, the general partners form the company through a written and notarized agreement; secondly, limited partners are chosen and shares are subscribed. The governance system is similar to that of a joint-stock company, with a general meeting consisting of both types of partners and a board of directors made up solely of general partners. The board handles management and represents the company legally, with its responsibilities being non-limitable by the general meeting.

Joint-stock companies present the traditional corporate form and can serve as AIF vehicles, particularly for funds requiring greater formality or which plan to list securities.

A Bulgarian joint-stock company has a share capital divided into shares, with shareholders’ liability limited to their contributions. The company requires formal governance structures including a one-tier management system (board of directors) or a two-tier system (board of directors and a supervisory board), and shareholders’ meetings. Minimum capital requirements apply (50,000 BGN for private joint-stock companies).

On one hand the joint-stock company provides strong investor protection through established corporate governance mechanisms and clear shareholder rights. It offers straightforward mechanisms for transferring ownership through share transfers and can facilitate complex capital structures with different share classes. The corporate form is well-understood internationally and provides credibility with institutional investors. Joint-stock companies can more easily raise additional capital through share issuances.

On the other hand joint-stock companies may face more extensive regulatory requirements, including detailed governance rules, mandatory audit requirements, and comprehensive reporting obligations. 

Key Advantages for VC Funds

Limited Partnership with Shares and joint-stock companies are favored for forming venture capital (VC) funds in Bulgaria due to their hybrid structures that separate management from passive investment while enabling capital pooling through shares or commitments. LPS combines unlimited liability for general partners—who actively manage investments—with limited liability for limited partners (LPs), who provide capital without operational involvement or voting rights, mirroring global VC models where general partners (GPs) handle high-risk startup selections.​

• Risk Isolation: LPs risk only their subscribed shares, protecting personal assets during fund losses, which attracts institutional and high-net-worth investors to VC’s high-risk, high-reward profile.​
• Efficient Management: General partners or a board (often GPs) control decisions, allowing professional oversight of portfolio companies without LP interference, streamlining VC operations like deal sourcing and exits.​
• Capital Aggregation: Shares enable pooling large sums from multiple LPs, funding diverse startup investments while offering diversification and passive income via profit shares from successful IPOs or acquisitions.​

Joint-stock companies complement this by providing transferable shares for liquidity, public offerings if scaled, and familiar governance (e.g., boards and general meetings), making them suitable for larger VC vehicles needing investor exits or regulatory compliance under Bulgaria’s Commercial Code.​

These structures align GP incentives with long-term growth, foster innovation funding, and comply with EU-aligned rules, though they require notarized formation and majority consents for transformations.

The Role of the Financial Supervision Commission (FSC) and AIFMD Implementation

The Financial Supervision Commission serves as Bulgaria’s integrated financial regulator, supervising banks, insurance companies, investment firms, fund management companies, and alternative investment fund managers.

The FSC is responsible for licensing and supervising Alternative Investment Fund Managers (AIFMs), approving fund rules and prospectuses, monitoring compliance with investment restrictions and operational requirements, conducting inspections and enforcement actions, and protecting investor interests through regulatory oversight.

Registration Required

An AIF is defined as any collective investment undertaking that raises capital from investors to invest according to a defined investment policy for the benefit of those investors, and that is not a UCITS (undertaking for collective investment in transferable securities). This broad definition captures private equity funds, venture capital funds, real estate funds, hedge funds, funds of funds, and many other structures.

Registration requirements depend on whether the AIFM’s assets under management exceed certain thresholds. Managers with assets under management not exceeding 100 million EUR (or 500 million EUR for unleveraged funds with no redemption rights for five years) may be exempt from AIFMD licensing, but must still register with the FSC and comply with lighter regulatory requirements. 

Timeline and Costs

The timeline for establishing and registering an AIF in Bulgaria typically ranges from three to six months, depending on the structure’s complexity and whether a new AIFM must be authorized. Costs vary significantly based on structure choice, legal and advisory fees, regulatory fees, and ongoing compliance costs.

Conclusion

Structuring an alternative investment fund in Bulgaria requires navigating a complex interplay of legal forms, regulatory requirements, and practical considerations. The choice between limited partnerships, joint-stock companies depends on the fund’s investment strategy, target investors, tax objectives, and operational preferences. 

As the alternative investment industry continues to evolve, Bulgarian fund structures offer a viable option for managers seeking a European jurisdiction with relatively efficient administration, reasonable costs, and full integration into the EU regulatory framework. Careful planning, professional advice, and thorough understanding of the regulatory landscape remain essential for successful fund structuring and registration.

NBLO’s expertise

With substantial experience advising UK and EU venture capital funds, NBLO is committed to support and offer tailored legal solutions to help funds achieve their objectives and maximise investment potential. Whether you’re seeking guidance on compliance and corporate structure, we’re here to support you.

For more information or advice, please contact our team at funds@newbalkanslawoffice.com or use the contact form on our website.