Increasing the capital of a joint stock company (JSC) in Bulgaria is a procedure that can be essential for the growth and development of the company. This process is significantly different from the increase in the capital of a limited liability company, which you can learn about here and is regulated by specific legal requirements and procedures that ensure its legal correctness and effectiveness. In this article, we will look at the different methods and steps that a JCS in Bulgaria goes through when increasing its capital.
For reference, in the below article the abbreviature AD is also found which in Bulgarian means "Акционерно Дружество" and its the Bulgarian equivalent of a JSC - a Joint stock company.
The capital in a joint-stock company (JSC) represents the set of resources that are invested in the company in order to generate profit and wealth. The term “capital” comes from the Latin word “capitalis”, which in the broadest sense refers to all assets and resources used for productive or business activity.
In the context of a joint-stock company, capital is usually divided into shares, which are shares in the ownership of the company. Each shareholder owns part of these shares, which entitles him to part of the profits (dividends) and voting rights in the management of the company, depending on the number of shares held. A joint-stock company may be constituted by one or more natural or legal persons.
One of the advantages of a joint-stock company as a form of doing business is that this structure allows more flexible management of the rights and obligations of shareholders, compared to other forms such as an EOOD or a Ltd. In a JSC, the influence of each shareholder on the company's management and decision-making is proportional to the size of his share of capital. This prevents situations in which a small partner can block important decisions, which is possible in an EOD/LLC, where each partner, regardless of the size of his share, has certain rights by law.
Capital investments in JSC are carried out through the purchase of shares, which makes this form of company suitable for attracting investments and expanding the business. This makes it a preferred choice for companies looking for growth and development opportunities by attracting external investors.
The increase in the capital of a joint-stock company in practice is often carried out in the following situations:
These scenarios reflect the key points in which the company may find the necessary increase in its capital, in order to support its strategic and operational objectives.
There are several main methods of increasing the capital of an JSC. These include the issuance of new shares, which can be done through a public offering or by offering the shares directly to existing shareholders. Alternatively, capital can also be increased by reinvesting the company's accumulated profit. Each of these methods has its own specifics and requires a different approach in execution.
In order to carry out an increase in the capital of an JSC, the company must go through a number of legally defined procedures, including making a decision by the general meeting of shareholders and entering the changes in the Commercial Register. It is important that these procedures are carried out correctly in order to ensure the legality of the increase and protect the interests of shareholders. Capital increase is a strategic decision that can significantly affect the future of the company and open up new opportunities for its development and growth.
In short, the main ways to increase capital as we said earlier are:
According to Art. 192, para. 5 of the Commercial Law, before proceeding to increase the capital of a JSC, each unpaid part of the issue value of the shares must first be paid. This is an important step to ensure that the shares already issued are fully paid up before proceeding with a capital increase.
In carrying out any of these procedures, the company must comply with certain legal procedures, including resolutions of the general meeting of shareholders and entries in the Commercial Register. These procedures are designed to ensure legal transparency and protect the interests of shareholders. Increasing the capital of a JSC is an important step that can support the growth and development of the company.
Let us now consider in more detail all the ways in which the capital of a joint-stock company can be increased:
The capital increase of a joint-stock company (JSC) in Bulgaria can be carried out in several ways, the main ones being through reinvestment of assets, conversion of profits or reserves.
The first method of increasing the capital of a JSC is by reinvesting the profits that would otherwise be distributed as dividends among the shareholders. This approach allows the company to keep free cash within its structure and use it for financial strengthening and development. An important condition here is that before proceeding with the capital increase, the company must have all its liabilities covered, including the “Reserve” fund and possible losses of past years.
According to Art. 197 TC (Commercial Law of the Republic of Bulgaria), in order to carry out such an increase in capital, the procedure must be carried out within 3 months from the moment of adoption of the annual financial statement. The adoption of the decision to increase the capital in such cases requires a qualified majority at the general meeting of shareholders.
The second main hypothesis for increasing the capital of a JSC is through the use of the funds in the Reserve Fund. This is possible when the funds in the fund exceed a certain minimum amount established by law or the charter of the company. The purpose of the Reserve Fund is to serve to cover future losses, but if the funds in it exceed the mandatory minimum, they can be used to increase the capital of the company.
According to Art. 246, para. 4 TC (Commercial Law of the Republic of Bulgaria), when the capital is increased in this way, it is necessary to comply with certain conditions and procedures. These conditions include the availability of sufficient funds above the minimum size of the Reserve Fund, as well as relevant decisions of the general meeting of shareholders.
The increase in the capital of a joint-stock company (JSC) through the issuance of new shares isthe most common and effective method in practiceand is most widely used, especially when it is necessary to attract additional resources and strengthen the financial structure of the company.
Below we will consider in detail all the hypotheses of the increase in the capital of a JSC:
Registration of new shares at the general meeting of shareholders is one of the main methods of increasing the capital of a joint-stock company. This process requires a decision by the general meeting of shareholders, which must be supported by a qualified majority of 2/3 of the shares presented. The articles of association of the company may also provide for a higher majority for the adoption of such a decision, as well as additional conditions.
It is important to note that if there are shares of different classes in the company, each class must make a separate decision to increase the capital by the corresponding qualified majority. If one of the classes does not make such a decision, the capital increase cannot take place. Also, the capital can be increased only by the value of the shares that were recorded during the general meeting. This means that the capital cannot be increased by a value higher than the nominal value of the subscribed shares.
Usually, the process begins with the registration of the shares, then follows the increase in capital. However, Art. 192a, para. 2 of the TC (Commercial Law) also allows the reverse order — first to make a decision to increase the capital, and then to subscribe the shares. In such a case, it is necessary to clearly state in the decision that the capital increase will depend on the value of the subscribed shares, even if they are less than those provided for in the decision.
According to Art. 161, para. 4 of the TC (Commercial Law), a company cannot only subscribe shares from its own capital. In case of violation of this prohibition, the members of the permanent governing bodies shall be jointly and severally liable for payment of the issue value of the unregulated subscribed shares.
Within the framework of the decision itself to increase the capital, the distribution of new shares is also carried out. The right of each shareholder to acquire a proportional share of the new shares depends on the class of shares he holds. Shareholders have the right to subscribe such portion of the new shares that corresponds to their percentage of the given class of shares before the increase. However, according to Art. 194, para. 4 of the TC (Commercial Law), the general meeting may decide to terminate this right, such a decision is adopted by a qualified majority of 2/3 of the shares presented.
The board of directors or the board of directors must submit a report on the reasons for the restriction or withdrawal of this right, as well as justify the issue value of the new shares. The decision to increase the capital, as well as the withdrawal of the right to subscribe to shares, must be announced in the commercial register. The adoption of the decision by the general meeting is the first stage in the process of increasing capital. In case of restriction or withdrawal of the right to subscribe to shares, the adoption of two separate decisions is necessary.
The next stage involves making the corresponding contributions. In order for the capital to be increased, it is necessary to contribute 25% of the total value of the capital, as well as 25% of the issue value of each share. The final stage is the entry of the capital increase in the commercial register, where evidence of the contributions made must necessarily be submitted, as well as a list of persons who have subscribed new shares, certified by the management body of the company.
The registration of new shares in a joint-stock company (JSC) by signature represents one of the methods of increasing capital. This process includes several key steps that must be carefully followed to ensure the legal validity of the increase.
The first step in the process of increasing capital through a signature is the decision of the general meeting of shareholders. This decision should be supported bya qualified majority of 2/3 of the shares represented at the meeting. It is important to note that each shareholder, in principle, has the right to subscribe part of the new shares. However, this right may be limited or revoked by a decision of the general meeting.
After the decision to increase the capital is adopted, a deadline is set for subscribing the new shares. This period shall not be less than one month after the announcement in the commercial register of the invitation to subscribe for the shares. Each shareholder must make a separate will to register the new shares. The law does not provide for a special order for this signature.
If not all shares are subscribed by the shareholders, the decision of the general meeting must provide that the capital will increase by the value of the subscribed shares, even if they are less than the initially stipulated quantity. After the registration period expires, the shareholders must make the corresponding contributions. The completion of the process involves the entry of the capital increase in the commercial register, with evidence of the contributions made, as well as a list of the persons who registered new shares, certified by the management body of the company.
This method of increasing capital through a signature offers flexibility and the ability to attract additional funds from existing shareholders, while providing legal clarity and protecting the interests of all parties.
The increase in the capital of a joint-stock company (JSC) under the condition constitutes a specific method, which is regulated in Art. 195 of the Commercial Law (TC). This method allows a variety of options to increase capital by subscribing new shares, involving two main hypotheses.
The first hypothesis of a conditional capital increase includes cases when shares will be purchased by certain persons at a pre-established price. In this case, it is necessary to adopt a decision waiving the right of some or all shareholders to acquire a proportionate share of the new shares. This decision is necessary because the company designates specific persons who will purchase the new shares. If the new shares are intended for some of the current shareholders, the registration process can take place at the general meeting or by signature. In the event that the shares are intended for outsiders who are not shareholders in the company, the registration of the new shares is carried out by signature.
The second hypothesis of a conditional capital increase is related to the acquisition of shares against bonds of the company. This refers to cases where bonds are not convertible into shares. In such situations, the capital increase is carried out according to the rules for increasing capital through a non-cash contribution. The decision of the general meeting in such cases must be taken by the same qualified majority as is necessary when increasing the capital by means of a non-cash contribution, and also the right of all shareholders to subscribe a proportional part of the new shares must be waived.
These two hypotheses offer flexible opportunities to increase the capital of the Joint Stock Company and can be used for different purposes, such as attracting external investors or restructuring the company's ownership. It is important that every step of the process is carefully planned and implemented in accordance with legal requirements and regulations.
Increasing the capital of a joint-stock company (JSC) by making a non-cash contribution represents another method of attracting additional resources and strengthening the financial stability of the company. This method is regulated in Art. 193 of the Commercial Law (TC) and offers the possibility of including various types of assets as part of the capital of the company.
To increase the capital through a non-cash contribution, it is necessary that the general meeting of shareholders make a decision by a qualified majority of 2/3 of the shares presented. This decision must include specific details such as the amount of the non-cash contribution, the person making it, and the par value of the shares that will be acquired against that contribution.
The process of increasing capital must follow the order regulated in Art. 72 and Art. 73 of the Commercial Law. These provisions regulate the specifics of non-cash contributions, indicating how they should be valued and what should be the procedure for their acceptance.
It is important to note that the value of the capital increase may be equal to or less than the value of the non-cash contribution, but cannot be greater than it.
Increasing the capital of a Joint Stock Company through a non-cash contribution provides companies with the opportunity to expand their capital resources without the constant need to attract additional cash capital, while at the same time providing flexibility in the management of their assets.
The increase in the capital of a joint-stock company (JSC) is usually carried out by a decision of the general meeting of shareholders, which is the standard and most direct way to change capital. However, there are certain conditions under which the increase can also be carried out by the permanently acting body of the company, such as the board of directors or the board of directors.
The possibility for the board of directors or the board of directors to increase the capital must be provided for in the articles of association of the company. The statutes must describe the maximum amount of the increase that can be made, as well as the period for which these powers are conferred on the management body. This is a transfer of certain powers from the general meeting to the governing body, which requires clearly defined parameters and boundaries.
The articles of association of the company may be initially adopted with these arrangements or may be subsequently amended by the general meeting. After the expiration of the specified period, the general meeting may decide to amend the articles of association and extend the powers granted to the management body for a subsequent period.
When increasing the capital by the board of directors or the board of directors, it is usually necessary to comply with the requirement of giving shareholders the opportunity to subscribe a proportional part of the new shares. This right may be limited or excluded, but only if the management body is authorized to do so by a separate decision of the general meeting adopted by a qualified majority of 2/3 of the shares presented at the meeting.
The management body can increase the capital not only by issuing new shares, but also through non-cash contributions. Also, the management body may be authorized to increase the capital on condition, for example, if certain persons subscribe the new shares at a certain price.
This procedure provides additional flexibility for managing the capital of a PLC, allowing the board of directors or board of directors to react more quickly to changing market conditions or business needs. However, it is important to emphasize that such decisions must be taken within the strict framework set by the company's charter and legislation to ensure the protection of the interests of all shareholders.
Increasing the capital of a joint-stock company (JSC) by converting bonds into shares represents an effective way to attract additional resources. This process is regulated in Art. 198 of the Commercial Law (TC) and includes specific steps and procedures.
The conversion of bonds into shares is carried out through a special class of bonds, which give their holders the right to exchange them for shares of the company. This right is exercised in accordance with the terms and conditions established by the company. When bondholders decide to use this right, their bonds are converted into shares, which leads to an increase in the capital of the AD.
It is important to note that with this method it is not necessary to make a new decision to increase capital. The increase has already been included and approved in the process of issuing the bonds.
Once the conversion has taken place and the capital increase has been entered in the commercial register, the management body of the company has the obligation to inform the shareholders of the change. Shareholders are then invited to receive their new shares. If the shares have not yet been issued, interim certificates may be provided until their final issuance process.
This method offers an interesting alternative to increase the capital of AD, providing the company with the opportunity to convert its debt instruments into equity, thereby expanding its shareholder base and strengthening its capital structure.
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Joint-stock companies usually decide to increase their capital in order to finance mergers and acquisitions, debt restructuring, increase working capital, invest in fixed tangible assets or launch new projects. The capital increase helps the company to expand its activities and strengthen its financial position.
The increase in the capital of an AD can be done in several ways, including through the issuance of new shares, the conversion of bonds into shares, an increase through non-cash contributions or decisions of the board of directors. The choice of method depends on the specific needs and strategy of the company.
An increase in capital can lead to an increase in the market value of the company, which is to the benefit of shareholders. It can also lead to greater financial stability and growth of the company, which increases investor confidence and the potential for higher dividends in the future.
