Decrease in the capital of a joint-stock company (JSC) in Bulgaria

The reduction of the capital of a joint-stock company (JSC) in Bulgaria is a key process in corporate governance. The purpose of this article is to clarify the procedure and the essential aspects that should be taken into account in this action. The main emphasis is placed on the differences in the reduction of capital in the joint-stock company from the limited liability company, since, despite some general similarities, the procedures for reducing the capital of these types of companies differ significantly.

The capital of the company is fundamental to its stability and constitutes a guarantee to creditors. Provided for in the company contract or the articles of association of the company, the amount of capital can be changed, which requires an amendment to these basic documents. The reduction of capital is carried out for various purposes, such as distributing dividends or covering losses. However, this leads to a decrease in the collateral function of capital in relation to creditors, therefore the procedure is regulated by specific requirements and rules, which will be discussed in detail in this article.

For clarification, in this article, the abbreviature AD which is the Bulgarian equivalent of JSC is used.

How is the capital reduction of a joint-stock company carried out in Bulgaria?

The procedure for reducing the capital of a joint-stock company (JSC) in Bulgaria includes several key stages and differs from the capital reduction procedure of a limited liability company in a number of aspects.

1. Decision of the General Meeting: As with all major decisions related to a JSC, the decision to reduce the capital is taken by the general meeting of shareholders. The necessary quorum for the validity of the decision is that the shares presented must be at least half of the capital, and the majority - 2/3 of them, unless a greater majority is provided for in the articles of association.
2. Methods of capital reduction:In AD, there are two main methods of capital reduction:

• Decrease in par value of shares: This method implies a change in the value indicated on the share, the change affecting all issued shares.
• Invalidation of shares:The invalidation can be forced (if it is regulated in the articles of association and provided that the shares are issued with the right of compulsory invalidation) or through the acquisition of the shares by the company itself. The shares acquired by the company are invalidated.

It is important to note that with an AD there are special rules for the cases in which the company can acquire its own shares. One of these cases, according to Art. 187a (1) of the Commercial Law (TC), is when the capital of the company is reduced.

When making a decision on capital reduction, it is mandatory to comply with the requirements of the Commercial Law of the Republic of Bulgaria and to ensure that all procedural steps are correctly executed in order to ensure the legality of the process.

Since the reduction in capital may affect the interests of creditors, the procedure includes certain measures to protect their rights, such as notification and the provision of collateral.

Protection of creditors in case of reduction of the capital of AD in Bulgaria

Protection of creditors is a key aspect in the procedures for reducing the capital of a Joint Stock Company in Bulgaria. By law, the creditors of the company are entitled to certain guarantees when the capital of the company is reduced, since this action could potentially affect their ability to satisfy their claims.

Announcement in the Commercial Register:Similar to the procedure with an LLC, when an AD decides to reduce its capital, this decision is announced in the commercial register. The protection applies to creditors whose claims arose before the announcement of the decision.

Exceptions to protection:It is important to note two key exceptions to this rule:

1. Coverage of losses:If the reduction in capital is aimed at covering losses of the company, creditors cannot benefit from the protection granted. It is important to emphasize that in this case the shareholders continue to be responsible for their contributions.
2. Use of own shares of the company:In the event of a capital reduction through shares owned by the AD itself and fully paid and acquired free of charge or with dividends and interest paid, creditors cannot benefit from the protection either. In these cases, the company must have a reserve to cover the nominal value of the shares acquired by the company. This reserve can be distributed among the shareholders only on the condition that the respective shares are used to reduce the capital of the company.

These rules are introduced in order to balance the interests of shareholders and creditors, while providing protection to creditors in cases where a reduction in capital may affect their claims. Any Joint Stock Company that plans to reduce its capital must carefully weigh these aspects and consult legal professionals, such as the Elan Consulting team, to ensure the legal and efficient conduct of the procedure.

Why should we trust Elan Consulting to reduce the capital of JSC?

Choosing the right partner when conducting complex legal procedures such as reducing the capital of a Joint Stock Company is essential for the successful outcome of the process. Elan Consulting offers comprehensive service and professional support, which makes our consulting house the preferred choice in this field.

Experience and Specialization:We at Elan Consulting have extensive experience in the field of corporate and commercial law. Our specialists are deeply familiar with all the nuances of the Bulgarian legislation concerning reduction of the capital of joint-stock companies. This allows us to provide accurate and up-to-date legal advice that meets the individual needs of each client.

Full legal support:In addition to legal advice, we offer comprehensive support throughout the process — from planning and preparing the necessary documents to the successful completion of the procedure. Our goal is to ensure a smooth and seamless capital reduction while protecting the interests of our clients.

Protection of customer interests:We pay special attention to protecting the interests of our clients, especially when it comes to relationships with creditors and other stakeholders. Our work focuses on ensuring that procedures are carried out correctly and lawfully, thus protecting our clients from potential legal risks.

Personalized approach:Every business is unique, and that is why at Elan Consulting we apply an individual approach to each client. We carefully analyze the specific needs and objectives of our customers in order to be able to offer the most appropriate and effective solutions. With us, you get not only legal expertise, but also a partner who is committed to the success of your business.