Published on and written by Cyril Jarnias
The transfer of company shares in Bulgaria is increasingly attracting foreign investors and local entrepreneurs looking to restructure their investments or divest their stakes in Bulgarian companies. However, this process, although potentially lucrative, is subject to numerous legal regulations that require in-depth understanding. In this article, we will explore the key steps of the legal process, the obligations of the involved parties, and potential pitfalls to avoid, while highlighting the important distinctions that make the Bulgarian legal framework unique in Central and Eastern Europe. Whether you are an experienced entrepreneur or a new investor in the Bulgarian market, adopting an informed approach and anticipating legal subtleties can prove essential to ensure the success of a share transfer transaction and avoid unforeseen complications.
In Bulgaria, the transfer of company shares is primarily governed by the Commercial Code. This fundamental text establishes the essential rules for transactions involving shares in Bulgarian companies. It notably defines the conditions for the validity of transfers, the necessary approval procedures, and registration obligations.
The process of transferring company shares in Bulgaria involves several key steps:
- Drafting a written share transfer agreement
- Obtaining consent from other shareholders
- Registering the transfer with the Commercial Register
- Notifying the tax authorities
Legal Conditions and Approval Process
For a share transfer to be valid in Bulgaria, it must be documented in writing. The transfer agreement must clearly identify the parties, specify the number of shares being transferred, and state the transaction price.
Approval from other shareholders is generally required, unless the company’s statutes state otherwise. In limited liability companies (OODs), which are the most common form for small and medium-sized enterprises in Bulgaria, transfer to third parties requires the consent of the majority of shareholders representing at least half of the share capital.
Registration and Publication
Once the transfer is approved, it must be registered with the Bulgarian Commercial Register to be enforceable against third parties. This formality is crucial as it formalizes the transfer of ownership of the shares. The registration period is typically 3 to 5 business days.
The parties must also notify the Bulgarian tax authorities of the transfer within 30 days. This obligation aims to ensure tax transparency and allow for the calculation of any applicable taxes on the transaction.
Transfer Restrictions
The statutes of Bulgarian companies may include restrictions on the transfer of shares. It is common to include pre-emption clauses giving priority to existing shareholders for acquiring shares put up for sale. These clauses aim to maintain control over the composition of the shareholder base.
In some cases, the statutes may also impose additional conditions, such as obtaining the unanimous consent of shareholders for any transfer to a third party.
Consequences of Non-Compliance
Failure to comply with legal transfer procedures can result in the transaction being void. A transfer made without the required shareholder consent or not registered with the Commercial Register is not enforceable against the company or third parties.
Furthermore, failure to notify the tax authorities may lead to financial penalties. The parties also face legal risks if they do not comply with restrictive statutory clauses.
Recent Developments
Bulgaria has recently modernized its regulatory framework to facilitate electronic transactions. Since 2024, it has been possible to submit share transfer documents electronically to the Commercial Register, thus speeding up the registration process.
An ongoing reform aims to further simplify transfer procedures for small businesses, particularly by reducing administrative formalities for transactions between existing shareholders.
Good to Know:
In Bulgaria, the transfer of company shares is primarily governed by the Bulgarian Commercial Code, which outlines the legal conditions necessary to perform this transfer, including approval by shareholders or potentially by the board of directors. To be valid, the transfer must be registered with the Commercial Register, an essential step for its legal recognition. Possible limitations include pre-emption rights of other shareholders, and each company may include specific restrictions in its statutes. Non-compliance with these regulations can result in the transfer being void or legal sanctions for the involved parties. Reform projects aimed at simplifying these procedures and strengthening shareholder protection are currently under discussion, highlighting the importance of staying informed about legislative developments.
Administrative Procedures and Notarial Deed
The process of transferring company shares in Bulgaria involves several crucial administrative steps. First, the parties must prepare a detailed transfer proposal outlining the terms of the transaction. This document must be notified to the company and other shareholders, typically by registered mail with acknowledgment of receipt.
Once notification is made, the company manager must convene a general meeting of shareholders within 8 days. This meeting aims to decide on the approval of the transferee, if they are not already a shareholder. The consent of shareholders representing at least half of the share capital is generally required, unless the statutes specify a higher majority.
The necessary documents for the transfer include:
- The share transfer proposal
- The minutes of the general meeting granting approval
- The updated company statutes
- A compliance declaration signed by the manager
The overall timeframe to finalize a share transfer can range from 2 to 4 weeks, depending on how quickly the parties provide the required documents and the complexity of the transaction.
Role and Importance of the Notarial Deed
In Bulgaria, the notarial deed plays a central role in the transfer of company shares. It is legally required to validate and formalize the transfer of share ownership. The involvement of a notary guarantees the authenticity of the transaction and offers increased legal security to the parties.
The notarial deed is particularly important when the company holds real estate or high-value assets. In these cases, Bulgarian law expressly requires that the transfer be executed by notarial deed to ensure the traceability and legality of the ownership transfer.
Obligations of the Parties When Signing the Notarial Deed
When signing the notarial deed, the parties have several obligations to fulfill:
The transferor must provide proof of their ownership of the shares and guarantee that they are free of any liens or restrictions. The transferee, on the other hand, must present documents attesting to their capacity to acquire the shares and, if applicable, the origin of the funds used for the acquisition.
The notary performs thorough legal checks, including on the identity of the parties, their legal capacity, and the absence of restrictions on the transferred shares. It is highly recommended that the parties consult lawyers specialized in Bulgarian corporate law before signing to ensure all legal aspects are properly addressed.
Fees Associated with the Procedures
The fees related to the transfer of company shares in Bulgaria can vary depending on the transaction value and the complexity of the operation. The main costs to anticipate are:
- Notary fees, usually calculated as a percentage of the value of the transferred shares
- Registration fees with the Bulgarian Commercial Register
- Potential fees for lawyers or legal advisors
For a standard transaction, the total fees can represent between 2% and 5% of the value of the transferred shares. It is important to note that these costs can increase significantly if legal complications arise or if additional expertise is required.
Maintaining Legal Compliance and Consequences of Non-Compliance
To ensure legal compliance throughout the transfer process, it is crucial to:
Strictly adhere to the legal deadlines for each step of the procedure Ensure that all documents are correctly drafted and signed Make sure the notarial deed complies with Bulgarian legal requirements
Failure to comply with administrative procedures or the absence of a validated notarial deed can have serious consequences. The transfer could be declared null and void, exposing the parties to significant legal and financial risks. In some cases, this can even lead to criminal prosecution for fraud or forgery.
Concrete Examples and Recent Case Law
A recent case illustrates the importance of complying with administrative procedures: in 2024, the Bulgarian Supreme Court invalidated a share transfer in a limited liability company because the general meeting of shareholders had not been properly convened to give its approval. This decision resulted in the cancellation of the transaction and significant legal complications for the involved parties.
In another case, a share transfer in a company holding real estate was successfully challenged because the notarial deed did not explicitly mention these assets. The Court ruled that this omission constituted a substantial formal defect, highlighting the importance of precision in drafting notarial deeds for share transfers in Bulgaria.
Good to Know:
To transfer company shares in Bulgaria, the parties must follow a precise administrative process including drafting a transfer agreement, which must be registered with the commercial register, typically within seven days after signing. A notarial deed is often required if the company’s statutes or current legislation demand it, which is common to guarantee the authenticity and legality of the transaction. The parties must collaborate with a notary to certify the deed, and it is advisable to consult a specialized lawyer to ensure all legal checks are performed correctly. The fees related to the notarial deed and the registration process can vary depending on the transaction’s complexity, but it is crucial to anticipate these costs to avoid future complications. Failure to comply with these procedures could result in the transfer being void or legal sanctions. For example, a recent Bulgarian Supreme Court decision annulled a transfer executed without a notarial deed, highlighting the risks associated with non-compliance. To avoid these pitfalls, all parties must ensure full compliance and can draw valuable lessons from judicial precedents demonstrating the importance of each step.
Tax Implications and Legal Obligations
Here is an analysis of the tax implications and legal obligations related to the transfer of company shares in Bulgaria:
Main Taxes Involved
The transfer of company shares in Bulgaria is subject to several important taxes:
– Capital gains tax: A flat rate of 10% applies to the difference between the sale price and the acquisition price of the shares.
– Value Added Tax (VAT): The sale of company shares is generally exempt from VAT in Bulgaria.
– Stamp duty: Minimal stamp duties may apply when registering the transfer with the commercial register.
Reporting Obligations
The transferor must fulfill certain reporting obligations:
– Submit a capital gains declaration to the tax service within 30 days of the transfer
– Include the capital gain in their annual income tax return before April 30 of the following year
– Keep all documents related to the transaction for 5 years
Bulgarian Tax Specificities
Some specificities of the Bulgarian tax system to consider:
– Corporate tax rate among the lowest in Europe at 10%
– Tax treaty with France allowing avoidance of double taxation
– Possible exemption from capital gains tax for transfers of shares held for more than 5 years
Role of Legal Professionals
The involvement of a notary or lawyer is recommended for:
– Verifying the tax and legal compliance of the transaction
– Preparing and registering the transfer deed with the commercial register
– Calculating and declaring due taxes
– Advising on tax optimization of the operation
Penalties for Non-Compliance
Failure to comply with tax obligations can lead to:
– Fines of up to 3,000 leva (approximately €1,500)
– Late payment interest of 0.1% per day
– Criminal prosecution in case of proven tax fraud
Mandatory Notifications
The transfer of company shares must be notified to:
– The Bulgarian commercial register within 7 days of the transaction
– The company’s bank in case of changes to signatories
– The tax administration via the capital gains declaration
Tax Calculation Example
For a transfer of shares acquired for 100,000 leva and sold for 150,000 leva:
– Taxable capital gain: 50,000 leva – Tax due: 5,000 leva (10% of 50,000) – Stamp duty: approximately 50 leva – Total taxes: 5,050 leva
The transferor will need to declare and pay 5,050 leva to the Bulgarian tax authorities.
Good to Know:
When transferring company shares in Bulgaria, it is crucial to consider the capital gains tax that applies to the profits made, while reporting obligations require the submission of specific tax forms, typically within 14 days after the transaction. Double taxation treaties, depending on the bilateral agreement with the investor’s country of origin, can influence the taxation of the transfer. Notaries and lawyers play a key role in verifying compliance with legal and tax obligations, particularly to avoid severe penalties in case of non-compliance. Additionally, transferors must notify the competent authorities, such as the commercial register, which may include an official translation of the documents. For example, an omitted transfer frequently leads to significant fines and disputes for rectification.
Tips for Ensuring a Compliant Transfer
Legal Formalities for a Compliant Transfer in Bulgaria
To ensure a compliant transfer of company shares in Bulgaria, it is essential to comply with several mandatory legal formalities. Registration with the Bulgarian Commercial Register is a crucial step in the process. It is necessary to prepare and submit all required documents, including the amended company statutes reflecting the new registered office address.
The preparation and signing of a properly executed share transfer agreement are paramount. This agreement must be signed by all concerned parties and strictly comply with current Bulgarian legislation. It is recommended to engage a legal professional to ensure the agreement is compliant and protects the interests of all parties.
Tax Implications of the Transfer
The transfer of company shares in Bulgaria involves significant tax implications that should not be overlooked. It is mandatory to declare the transfer to the Bulgarian tax authorities within the allotted deadlines. Furthermore, all applicable taxes related to this operation must be paid. A thorough tax analysis is recommended to anticipate and manage these aspects.
Consultation with a Specialized Lawyer
To guarantee the full compliance of the transfer and avoid any risk of subsequent litigation, it is strongly advised to consult a lawyer specialized in Bulgarian business law. This professional can examine in detail all aspects of the transfer, verify the compliance of documents and procedures, and provide expertise on the specificities of Bulgarian law applicable to your situation.
Compliance with Company Statutes
It is crucial to ensure that the share transfer fully complies with the provisions of the company’s statutes. Carefully check the clauses relating to statutory amendments and changes to the registered office. If necessary, a general meeting of shareholders must be convened to formally approve the transfer, in accordance with the company’s governance rules.
Updating Registers and Official Documents
Once the transfer is completed, it is imperative to update all company registers and official documents to reflect the new registered office address. This includes letterheads, contracts, invoices, and any other document bearing the company’s address. This step is essential to maintain legal compliance and avoid any administrative confusion.
- Carefully prepare all documents required for registration with the Bulgarian Commercial Register
- Ensure the share transfer agreement complies with Bulgarian law and is signed by all parties
- Perform the necessary tax declarations and pay applicable taxes
- Consult a lawyer specialized in Bulgarian business law to verify the compliance of the transfer
- Comply with the provisions of the company statutes regarding statutory amendments
- Update all official documents with the new registered office address
Good to Know:
To ensure a compliant transfer of company shares in Bulgaria, it is crucial to follow several legal steps. First, registration of the transfer with the Commercial Register is mandatory, and it is essential that the transfer complies with the company’s statutes. At the same time, it is indispensable to prepare a transfer agreement compliant with Bulgarian legislation, signed by all parties. Regarding taxation, the transfer must be declared to the tax authorities, and any applicable tax must be paid. Given the complexity of these procedures, consulting a lawyer specialized in Bulgarian business law is strongly recommended to verify the compliance of the process and prevent potential legal disputes.
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Cyril Jarnias is an independent expert in international wealth management with over 20 years of experience. As an expatriate himself, he is dedicated to helping individuals and business leaders build, protect, and pass on their wealth with complete peace of mind.
On his website, cyriljarnias.com, he shares his expertise on international real estate, offshore company formation, and expatriation.
Thanks to his expertise, he offers sound advice to optimize his clients' wealth management. Cyril Jarnias is also recognized for his appearances in many prestigious media outlets such as BFM Business, les Français de l’étranger, Le Figaro, Les Echos, and Mieux vivre votre argent, where he shares his knowledge and know-how in wealth management.
