The Variable Capital Company – New Opportunities for Innovation and Start-ups in Bulgaria

In recent years, Bulgaria has established itself as an increasingly attractive location for start-ups and innovative businesses. The demand for flexible forms of financing and business structuring has led the legislator to address the need to modernise the legal framework in the field of corporate law. One of the latest steps in this direction is the introduction of the variable capital company, which aims to facilitate access to capital and encourage entrepreneurship.

Legislative Framework

The legal framework for the variable capital company is contained in

• the Commerce Act (State Gazette No. 48 of 1991, as repeatedly amended), into which the provisions governing the new form of company have been introduced;
• the Act amending and supplementing the Commerce Act, which formally created the variable capital company.

The specific provisions are found in a dedicated section of the Commerce Act governing incorporation, management, the rights and obligations of members and the variable capital regime. For the exact wording, the current version of the Commerce Act and the relevant amending act should be consulted.

What Is a Variable Capital Company?

The basic idea of the variable capital company is to give founders and investors greater flexibility when the company's capital changes. Unlike the traditional forms (limited liability company, single-member limited liability company, joint-stock company, single-member joint-stock company), where an increase or reduction of capital requires more complex legal and administrative procedures, a variable capital company can make such changes more easily and quickly.

Key Features of the Variable Capital Company

• Flexible capital structure – the capital can be reduced or increased without going through the usual lengthy procedures for registering a change in the Commercial Register (or under a simplified regime).
• Suitable for start-ups – start-ups often need to attract investors and additional funds quickly. This form facilitates the process and allows investment in several tranches within short time frames.
• Easy admission of new members or shareholders – investors can enter and leave the company without complicated procedures for changing the capital and shareholdings.
• Investor protection – mechanisms are provided to protect small investors and minority members, with rules on their rights when the capital structure changes and on the conditions for leaving the company.

Advantages for the Innovation Ecosystem

• Easier financing – variable capital allows funds to be raised quickly from various sources (business angels, venture capital funds, crowdfunding platforms and others).
• Regulatory certainty – despite the more flexible procedures, the form is regulated by statute and provides legal clarity and protection for founders and investors alike.
• International appeal – Bulgaria seeks to attract foreign investors, and the new form makes it easier for foreign capital to enter, since it eases the formal requirements compared with traditional companies.
• Encouraging innovation – a more flexible mechanism for raising funds and admitting new members encourages research and development and accelerates the growth of small and medium-sized enterprises.

Incorporation and Management

The incorporation of a variable capital company broadly follows the general logic of incorporating capital companies, with specific requirements arising from the variable nature of the capital.

The main elements of the instrument of incorporation (articles of association or memorandum) include

• minimum and maximum capital – the instrument may set the limits within which the company's capital may vary;
• rights and restrictions on the entry and exit of members or shareholders – the powers of the management bodies to decide on changes in the capital structure without burdensome formal procedures in each individual case;
• management and control – the company may be managed by a management body (such as a managing director or a board of directors), and the law provides additional safeguards to protect minority investors.

Legal Challenges and Practical Aspects

Despite its many advantages, the variable capital company also presents certain challenges.

• Regulation and supervision – the speed and ease of changes to capital may require stronger internal controls and sound corporate organisation to prevent abuse or confusion among members.
• Accuracy of records – every change in capital, shares and rights must be accurately recorded in the register of members, which becomes a particularly important document for this form of company.
• Compatibility with other legislation – the Investment Promotion Act, sector-specific regulations and any applicable EU regulations and directives must be taken into account.

Main Legislation

• Commerce Act (State Gazette No. 48/1991, as repeatedly amended)
• Act amending and supplementing the Commerce Act
• Investment Promotion Act (State Gazette No. 37/2004, as last amended)

If you are considering setting up a variable capital company or another form of company, our corporate law team can help you choose the most suitable structure.