How to Set Up and How a Joint Stock Company Works in Bulgaria

A joint stock company (“JSC” or “AD”, in Bulgarian “АД”) in Bulgaria is one of the most common forms of capital companies in Bulgaria. It is a company characterized by capital divided into shares, ideal for raising capital from multiple investors.

Joint stock companies are particularly suitable for large businesses that require a broad financing base and wish to separate ownership from operational management.

However, for those looking to open company in Bulgaria in this form, the process can be quite complex. Let’s analyze in detail how to set up a joint stock company and the rights and obligations of shareholders.

Establishment of a Joint Stock Company in Bulgaria 

To establish a joint stock company in Bulgaria, at least two founders are required, who can be either individuals or legal entities, except for single-member companies which can have only one founder. The founders must subscribe to all shares during the founding assembly. During this stage, the Articles of Association are approved, the management bodies (Board of Directors or Supervisory Board) are appointed, and the incorporation costs are determined.

The minimum share capital must be fully subscribed at the time of establishment, with at least 25% of the value paid immediately. The share capital represents the sum of the founders’ contributions and establishes the necessary financial basis for the company’s initial activities. The remaining share of the capital must be paid within two years from the foundation. Once these steps are completed, the company must be registered in the Commercial Register to operate officially. Registration requires submitting official documents such as the Articles of Association, proof of capital contribution, and the resolutions of the founding assembly.

Read also: Bulgarian Accounting Act: New Rules and Obligations

Management Structure of a Joint Stock Company in Bulgaria 

A joint stock company in Bulgaria can be managed according to two governance models:

• One-Tier System: A single Board of Directors, responsible for the company’s management and representation. The Board of Directors makes strategic decisions for the company and ensures the proper execution of daily operations.
• Two-Tier System: A Supervisory Board that monitors the Management Board, which handles the daily administration. This system allows for greater separation between management and control, with the Supervisory Board ensuring shareholders’ interests are upheld.

The General Assembly of Shareholders is the supreme body of the company and is responsible for approving the financial statements, distributing dividends, appointing members of the Board of Directors or Supervisory Board, and making decisions on fundamental matters. The General Assembly is held at least once a year and must comply with the notice requirements provided by law. Decisions are made based on the votes cast by shareholders in proportion to their participation in the company.

Operation of a Joint Stock Company in Bulgaria 

The company’s capital is divided into shares that can be freely transferred, unless otherwise stated in the Articles of Association. Shareholders are not liable for the company’s debts beyond the capital they have invested, which is one of the main advantages of this corporate form. Different types of shares can be issued to meet the specific needs of the company and investors:

• Materialized Shares: Documented with a physical certificate representing ownership by the shareholder.
• Registered and Bearer Shares: Registered shares are listed in the shareholder’s name, while bearer shares do not include the owner’s name, making their transfer simpler.
• Preferred Shares: They provide additional rights, such as guaranteed dividends or priority in the reimbursement of capital in case of liquidation.
• Non-Voting Shares: These can be issued but cannot exceed 50% of the capital. These shares are often used to raise capital without diluting control of current shareholders.

At the time of establishment, all shares must be subscribed, and at least 25% of the nominal value must be paid. The remaining capital must be paid within two years from the foundation, as stipulated in the Articles of Association and the applicable laws. This staggered payment system helps make setting up a joint stock company more accessible to potential investors.

In addition to shares, a joint stock company can issue bonds, representing credit provided by bondholders to the company. Bonds give the right to receive interest and the return of principal at a set date. This financial instrument allows the company to raise additional capital without diluting the ownership of shareholders. The issuance of bonds requires at least two years from the company’s establishment and must be approved by the General Assembly of Shareholders. Bonds can be issued in different forms, including long-term or short-term loans, and can be secured or unsecured, depending on the company’s needs and the level of risk it intends to assume.

Read also: All Business Opportunities and Investments in Bulgaria

Shareholders’ Rights and Obligations

Shareholders enjoy several fundamental rights that protect their interests and ensure their participation in the company’s management:

• Voting Rights: Participation in General Assemblies to make decisions regarding the company’s management. Voting rights are directly proportional to the number of shares owned.
• Right to Dividends: Participation in the company’s profits. Dividends are distributed based on the General Assembly’s decisions and the year’s financial results.
• Preemptive Rights: The possibility of subscribing to new shares in case of capital increases, thereby maintaining their percentage of participation in the company.
• Right of Liquidation: Receiving a portion of the residual assets in case of company dissolution, once creditors are satisfied.

The main obligations of shareholders concern the payment of the subscribed capital. In the event of non-payment within two years, a shareholder may be expelled and their shares sold. Additionally, shareholders are required to comply with the Articles of Association and not undertake actions that could harm the company or its interests.

The management bodies, such as the Board of Directors or the Management Board, are responsible for administering the company with the diligence of a prudent entrepreneur and in the interest of the shareholders. They must avoid conflicts of interest, ensure confidentiality of business information, and make decisions that promote the company’s growth and financial stability. Members of the management bodies are jointly liable for any damages caused to the company due to negligence or mismanagement, and must deposit a guarantee equal to at least three monthly salaries. Additionally, they must ensure transparency in business operations and report regularly to shareholders on the company’s performance.

Conclusions

The joint stock company is a flexible corporate form suitable for large enterprises seeking to raise capital from numerous investors. It provides the opportunity to separate ownership from management, with shareholders’ liability limited to the invested capital only.

Its articulated management structure, the ability to issue shares and bonds, and the clarity of the regulatory framework make it an ideal choice to face the challenges of the global market.

However, to manage this type of company effectively, it is important to rely on industry experts such as Accountancy Bulgaria, an accounting company in Bulgaria that can handle tax return preparation, bookkeeping, financial planning, and provide support to shareholders on tax matters.