A Guide to Bulgarian Corporate Governance: Roles and Responsibilities
Understanding the legal framework for running a company in Bulgaria is essential for foreign investors. This guide explains the key bodies and their duties.
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When you set up a company in Bulgaria, you need to understand how it is governed under the Commercial Act. This law sets out the management structure for the two main types of companies: the limited liability company (OOD) and the joint-stock company (AD). Getting this right from the start can save you from costly mistakes later.
The main company types
An OOD (дружество с ограничена отговорност) is the most common choice for small and medium-sized businesses. It has a simple structure and lower capital requirements. An AD (акционерно дружество) is used for larger enterprises, especially those seeking outside investment or planning to list on the stock exchange.
Key governing bodies
Every Bulgarian company has at least two levels of authority: the shareholders (or sole owner) and the management. For an OOD, the shareholders meet in a General Meeting, which is the supreme body. It appoints one or more managers who run the day-to-day business. For an AD, there are two possible structures: a one-tier system with a Board of Directors, or a two-tier system with a Supervisory Board and a Management Board. The choice is set out in the company's articles of association.
The General Meeting
The General Meeting is where shareholders make the big decisions. For an OOD, it must meet at least once a year to approve the annual financial statements and decide on profit distribution. Extraordinary meetings can be called when needed. For an AD, the rules are stricter: the annual General Meeting must be held within six months of the end of the financial year, and notice periods must be followed precisely.
Managers and directors
Managers of an OOD and directors of an AD are responsible for the company's operations. They must act in the company's best interests, with the care of a diligent businessperson. They owe duties of loyalty and must avoid conflicts of interest. For example, they cannot enter into transactions with the company without approval from the shareholders or board. Directors can be held personally liable for damages caused by their negligence or misconduct.
Shareholders' rights
Shareholders have the right to vote at General Meetings, receive dividends if declared, and inspect company records. In an OOD, decisions are usually made by a simple majority, but some matters, like changing the articles of association or dissolving the company, require a qualified majority (often 75% or more). In an AD, the rules are similar but may vary depending on the type of shares.
Practical tips for foreign investors
Before you invest, review the company's articles of association carefully. Check how decisions are made, what majorities are required, and whether there are any restrictions on transferring shares. If you are appointing a local manager, make sure you have a clear written agreement outlining their powers and limits. Consider whether you need a supervisory board, even if it is not legally required, to provide extra oversight. Finally, always keep proper records of meetings and resolutions, as Bulgarian law treats these as official documents.
Understanding these basics will help you run your Bulgarian company smoothly and avoid governance disputes.
