The types of Traders and Trading Companies in Bulgaria, or what to keep in mind when deciding, what company to establish, in view of the type of business you wish to develop.
The decision to start your own business is not always easy, but when you are aware of the type and organizational form that would be suitable for the business venture you want to establish, then things become much clearer and easier.
According to the Bulgarian Commercial Legislation, commercial activity in Bulgaria can be developed in any of the following organizational forms:
Trading Company Branch;
A trading company is an association of two or more persons to carry out commercial transactions with joint finances. In some cases, a company may be established by one person. Companies are legal entities.
The types of companies according to the Bulgarian legislation are:
Ltd. – Limited Liability Company: Manager/Director and General Meeting of Shareholders
SLtd. – Sole proprietorship with limited liability
JSC – Joint Stock Company – CEO, Board of Directors and General Meeting of Shareholders
SJSC – Sole owned Joint Stock Company
LP – Limited partnership
LPS – Limited partnership with shares
A sole trader (ST) – sole proprietor, can be any individual residing in the Republic of Bulgaria.
One of the most common and preferred types of companies in Bulgaria are Ltd. and SLtd., as depending on the type of business that develops, ST as an organizational form for some activities is considered more appropriate of a tax point of view and therefore, also is often used.
Accordingly, the choice of legal form for business development is linked to the specifics of the future commercial activity to be carried out, the objectives, the number of partners, taxation and other factors, respectively.
If your goal is to independently carry out commercial activity, then you could register a sole proprietorship, limited liability company or sole owned limited liability company. However, if you are not alone in the business, then you should choose one of the following legal forms: Ltd., joint stock company, LP or LPS. In case you have partners, the most important thing is to consider what clauses to include in your Company’s Articles of Association. They will play a crucial role in the future relationship between you and your partners.
If you do not have a large capital or the business activity does not require it, then it is recommended to register Ltd., SLtd. or ST. For the establishment of Ltd. or SLtd. the law requires a minimum capital of just 2.00 BGN. On the other hand, there is no requirement for a minimum capital for the establishment of a ST. If your activity requires capital of over BGN 50,000, then it would be good to choose JSC or SJSC.
Another important point when deciding, which type of company would be suitable for the purposes of your business, is to take into account the responsibility of the partner for the obligations of the company. The liability of the trader to its creditors is unlimited, when a person is liable with all his personal property for the obligations of the company, in compliance with certain legal conditions. Such are the cases with ST, LP and some of the partners in LPS. On the other hand, the liability of the trader is limited to companies that form capital through contributions of partners. In this type of company, each partner is responsible for the obligations of the company up to the amount of his contribution to the capital of the company. In Ltd, SLtd, JSC, SJSC the liability of the partners is limited. When the partners are jointly and severally liable, each of them is responsible for the entire debt of the company, regardless of the fact when he has become a partner. There is joint and several liability with partners in Ltd., and some of the partners in LP and LPS. When registering as a Sole Trader, you will have unlimited liability for the obligations of the sole proprietorship with all your own assets. That is why when starting with a small or medium size business activity it is recommended to register Ltd or SLtd, where as a partner you are responsible up to the amount of the registered capital.
One of the important questions in deciding what kind of legal organizational form to choose for your business development, is the taxation and payment of social security contributions which is different for the different types of traders. It is important to know that a sole proprietorship is subject to patent tax if it carries out certain activities listed in the Local Taxes and Fees Act, or to a profit tax of 15%. He also owes social insurance charges on the profit. All other traders, with a few exceptions, are subject to a 10% profit tax. When a dividend is distributed among individual shareholders, the company owes a 5% tax on the distributed dividends. Most often, from a tax point of view, the legal form Ltd. is more advantageous then others However, there are also activities for which the law provides for other legal organizational forms to be established, such as individuals engaged in agricultural activity – agricultural producers; craftsmen and individuals performing services with personal labor or free lancers, individuals performing hostel services by providing rooms in the dwellings inhabited by them – all these trading individuals are so named self-insured individuals paying 10% tax on the profit they realize from their activity.
It is important to know that the right choice of legal form for business development is extremely important, as it will determine the opportunities and limitations of your business, your liability, taxes and many other factors that must be taken into account. Attention, it is important to consult a lawyer specializing in tax and commercial law before you start your business venture in order to be able to make a fully informed and correct choice of the type of company suitable for the future development of your business.
Autor: Neli Ivanova – Solicitor / Advocate – Partner at Ivanova and Partners Law Firm