Bulgaria: New law aims to respond to the needs of local startups
The Bulgarian parliament recently approved a radical change in the Trade Act, introducing a new legal form called the Variable Capital Company (VCC). The main aim of this change is to meet the needs of native startups, allowing their capital to be as little as 1 cent and not requiring entry in the Commercial Register. Initiated by the Bulgarian Entrepreneur Association (BESCO), the new legislation is the most significant change in the Trade Act for the past 30 years.
“Bulgarian entrepreneurs now have a new tool for starting and managing a business,” says Spas Kyosev from the Bulgarian Entrepreneur Association.
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Reflecting the needs of local startups
The goal of the new legislation is to enable and stimulate the development of innovative services or products. Generally, VCCs combine the benefits of limited liability companies and joint-stock companies, providing flexibility and an opportunity to attract external investors. The company’s capital figure will not be publicly announced but recorded and reported annually.
Therefore, the concept of a VCC is designed to give startups an easy start and the potential to become competitive entities with publicly traded shares. The variable capital structure provides flexibility in the issuance and redemption of its shares. It can also pay dividends out of capital, which gives fund managers flexibility to meet dividend payment obligations.
Despite the small capital required for the launch, another advantage of VCCs is that if the legal entity is successful in the future, it will have the opportunity to be transformed into a public company through an offering on the regulated markets. It could also be sold to another investor. However, there are also some drawbacks. Since the legislator aims to guarantee commercial turnover during the company’s existence, the VCC may have a limited period of existence. After the first year, if the VPC crosses the threshold of a micro or small enterprise, it should be converted into an Ltd. or JSC within the next financial year.
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