Company with variable capital

A Variable Capital Company (VCC) is a new type of commercial company introduced into Bulgarian law by amendments to to the Commercial Acteffective from June 30, 2024.

It was created to facilitate startups and investors by allowing flexible capital management without the initial and subsequent registration of every capital change in the Commercial Register.

For a company to be incorporated or transformed intoa variable capital companyit must meet two conditions simultaneously: its annual turnover and/or asset value must be below the euro equivalent of BGN 4,000,000 , and its average number of employees must be under 50. If any of these conditions change, the company must be transformed into a Joint-Stock Company (JSC) or a Limited Liability Company (LLC).

What is a variable capital company?

A variable capital company is a new type of commercial company in Bulgarian law, introduced by an amendment to the Commercial Act aimed at facilitating the operations and financing of small and medium-sized enterprises, and it is particularly suitable for startup companies. Its main distinguishing feature is that the company's capital is variable and and is not subject to registration in the Commercial Register, both upon initial incorporation and upon any subsequent change.

Unlike a Limited Liability Company (LLC) and a Joint-Stock Company (JSC), there is no obligation to register the company's capital. It is variable and is determined at the end of each financial year by a decision of the regular annual general meeting of the company, after reviewing the annual financial statement.

The variable capital company combines elements of an LLC and a JSC while providing significantly greater flexibility in raising capital, distributing shares among partners, and especially in the participation of investors and employees in the company's capital structure.

How is a variable capital company (VCC) incorporated?

The incorporation of a variable capital company (VCC) resembles the traditional procedure of a classic LLC, but the process is significantly streamlined.

The main facilitation is that the creation of a VCC does not require opening a bank account to deposit the share capital – this eliminates one of the slowest steps in the registration of commercial companies, especially when the company's representative or one of the founding partners is a foreign person.

Documents for incorporating a VCC

The procedure involves the preparation and submission of a set of documents to the Commercial Register, the main ones being:

Articles of Association, or a Memorandum of Association if there is only one founder;
Incorporation protocol with a decision on the election of a manager or a board of directors;
Notarized consent and specimen of the signature of the manager or the members of the board of directors;
Declarations by the founders in accordance with the requirements of the Commercial Act;
If necessary, a power of attorney for a representative before the Registry Agency.

The team at KGK Law Firm provides full assistance in preparing all necessary documents, tailored to the specific characteristics of the company and its future activities, as well as ensuring the smooth registration of the company in the Commercial Register.

Who can incorporate a variable capital company

A variable capital company can be incorporated by one or more natural and/or legal persons, provided that the enterprise simultaneously meets the following criteria:

Average number of employees under 50;;
Annual turnover up to the euro equivalent of BGN 4,000,000 аnd/or asset value up to the euro equivalent of up to the euro equivalent of BGN 4,000,000

A legal entity declared bankrupt cannot be a founder.

Key characteristics of the variable capital company

The key characteristics of the variable capital company include:

Cariable capital that not registered in the Commercial Register;;
Ability to issue different classes of shares;;
Possibility привилегировани дялове с особени права и дялове с различен размер;
дружеството може да придобива собствени дружествени дялове;
опростени правила за участие на инвеститори и служители;
по-гъвкаво управление в сравнение с ООД.

The size of the capital is determined annually at the end of the financial year and upon the adoption of the company's annual financial statement, by a decision of the regular annual general meeting.

Transfer of company shares

One of the key innovations in variable capital companies is the flexibility in transferring shares and changing their ownership.
The legislator has removed some of the restrictions known in classic limited liability companies, allowing the transfer of shares to be carried out under a simplified procedurespecified in the Articles of Association. Thus, if the partners have agreed and it is explicitly stipulated in the Articles of Association, the mandatory notarization for the transfer of shares practically falls away.

This approach facilitates investment processes, allows for the faster inclusion of new partners, and ensures the freer movement of capital within the company.

At the same time, control over stability is maintained – any transfer carried out in violation of the agreement has no effect against the company unless the General Meeting explicitly approves it.

Acquisition of company shares

The new type of company provides an innovative opportunity for employees and partners to participate in the capital.

By decision of the General Meeting, certain persons – including those working under employment or civil contracts – can acquire shares in the company. This is done through a special agreement concluded between the company and the respective participant.

The total amount of such participation is limited to 15% of all shareswhich guarantees maintaining the balance between the owners and the new participants. With this innovation, the highly attractive and increasingly popular tool for motivating key employees and individuals, and building loyalty to the companywhile maintaining control over the capital structure.

A significant difference and novelty compared to an LLC is the possibility for the company itself to own its own shares, if this is stipulated in the agreement. However, they cannot exceed 50% of the total value of the shares, and in case this limit is exceeded, the company is obliged to transfer them within a three-year period.

Inheritance of company shares

In the event of the death of a partner, the law guarantees continuity and protection of the heirs' interestsEach heir has the right to declare their accession to the company within three months of the opening of the inheritance. If the heirs decide not to continue their participation in the company, the company is obliged to pay out the value of the shares held by their predecessor as of the date of their death.

This regulation provides a clear and fair mechanism for settling property rightswhile maintaining the stability of the company.

The team of KGK Law Firm assists clients with the evaluation, transfer, and settlement of inherited shares, ensuring the process is smooth, transparent, and legally sound in the best and most appropriate manner for the circumstances.

Management of the variable capital company

The new form of a variable capital company introduces a flexible and modern management structurethat can be adapted to the scale and goals of the business.
The company can be managed either by a sole manageror by a collective board of directorswithout a fixed minimum number of members. This allows for a dynamic organization – from small teams to larger corporate structures.

Members of the management body can be natural or legal persons, and their mandate and powers are defined in the Articles of Association. The possibility for remote participation is now also provided for – general meetings and sessions can be held onlinewith real-time voting and two-way communication.

Thus, the VCC introduces a modern model of corporate governancein which efficiency and digital solutions go hand in hand with legal certainty. Our team assists in drafting statutes, internal acts, and resolutions that ensure flawless organization and transparency.

Facilitated procedure for contributions in kind to the capital

Unlike LTDs, PLCs and CDAs, the non-cash contribution in the case of a CFC is valued by three experts appointed by the board of directors/manager, whereas in the case of classic capital companies, these experts are appointed by the Registry Agency. The latter has become a significant practical problem due to the cumbersomeness and short timeframe of this procedure.

Obligation to convert

In the event it is established that the company no longer meets the legal requirements for a VCC, an obligation arises for it to transform into a capital company under the general procedure for changing the legal form. If the company is not transformed by the end of the financial year following the General Meeting at which the non-compliance was established, it shall be dissolved by the district court upon the request of the prosecutor.

The KGK team has extensive experience and an innovative approach in the field of commercial lawdrafting corporate documents, and resolving complex cases in this matter. Should you require legal assistance in connection with the incorporation or transformation of an existing company into a variable capital company, you can contact us.

*Feature*	*LLC (Limited Liability Company)*	*JSC (Joint-Stock Company)*	*VCC (Variable Capital Company)*
*Minimum capital*	Minimum 1 EUR	Minimum 25,000 EUR (with at least 25% paid upon registration)	*None* minimum requirement
*Registration of capital in the Commercial Register*	Yes – initially and for every change	Yes – initially and for every change	*Not registered* in the Commercial Register. Capital is variable.
*Feature*	Company shares. No separate classes of shares. Minimum share value: 1 eurocent	Shares. Possibility of different classes of shares with privileges (e.g., voting, buy-back). Minimum share value: 1 eurocent	Company shares. Possibility of different classes of shares with privileges (similar to JSC). Minimum share value: 1 eurocent
*Acquisition of own shares*	No	*Yes.* Up to 10% of the capital (except upon acquisition for capital reduction). The company is obliged to transfer its own shares exceeding this amount within 3 years.	*Yes.* Up to 50% of the total value of the shares. The company is obliged to transfer its own shares exceeding this amount within 3 years.
*Transfer of shares*	*Formal transaction.* Requires notarization of the content and signatures of the parties to the purchase agreement and a decision of the General Meeting.	*Ordinary written form.*Transferred by endorsement (share transaction); an agreement in ordinary written form can also be concluded.	*Ordinary written form,* where the transfer is carried out freely. By law, the transfer is carried out with a share transfer agreement in written form with notarization of signatures. BUTthe law allows the Articles of Association to provide for an ordinary written form.
*Registration of partners/shareholders*	Partners are registered in the Commercial Register	Shareholders (except a sole owner) are not registered	*Partners are not registered in* the Commercial Register
*Management body*	Manager (only a legally capable natural person)	Board of Directors / Management Board (can also be a legal entity)	Manager or member of the management body (can also be a legal entity). Flexible management model.
*Granting shares to employees, key personnel, and partners*	Unsuitable form. Complex structure, difficult to adapt in an LLC.	Suitable form	Suitable form. The agreement granting the right to acquire shares is regulated by law.
*Other requirements or limitations*	None	None	Must have an average number of employees < 50 people AND* annual turnover ≤ 4 mln AND/OR asset value ≤ 4 mln. BGN*
*Additional regulations*	–	–	Streamlined procedure for valuation of in-kind contributions and for inheritance of shares. Possibility of holding online meetings and regulating more flexible majorities for decision-making.