In the conversion of share capital from Bulgarian lev into euro, the law provides for one important specific feature in relation to LLCs and SMLLCs. A so-called adjustment of up to 5% of the share capital may prove necessary in order to preserve the rights of the shareholders following the conversion of the ownership interests. This differs from the classic increase or reduction of share capital and is often a source of confusion.
The reason is that, as a result of conversion and rounding, the new amount of the ownership interests may not allow the existing proportion between the shareholders to be preserved exactly. It is precisely in such cases that the law permits a limited adjustment, solely and exclusively where this is necessary to safeguard the existing rights of the shareholders.
One essential point must be made here: this adjustment is not treated as a classic increase or reduction of share capital under the rules of the Bulgarian Commercial Act. The standard regime applicable to capital changes, which is ordinarily more burdensome and formalistic, does not apply. The law expressly provides that, in this specific case, the rules governing increases and reductions of capital shall not apply.
The procedure remains formal. The resolution must still be adopted in accordance with the proper corporate procedure. In the case of an LLC, resolutions concerning amendments to the articles of association and matters relating to the share capital fall within the competence of the general meeting. This is where errors typically arise — where the procedure for convening the meeting has not been complied with, where there is insufficient evidence that the resolution was duly adopted, or where the required form has not been observed.
For certain resolutions, the law requires minutes with simultaneous notarial certification of both the signatures and the contents, unless the articles of association provide for written form. Failure to comply with these requirements may result in the nullity of the resolution and in a refusal by the Registry Agency.
Our advice is first to verify whether such an adjustment is necessary at all. If it is not required in order to preserve the rights of the shareholders, it should not be made. If it is required, an updated articles of association must be prepared, a duly adopted resolution must be passed, and thereafter the documents must be published in accordance with the applicable procedure.
The most common risk lies in the incorrect application of the 5% rule. A frequent misconception is that, since this is not a “true” increase or reduction of capital, it may be carried out without strict preparation. This is precisely what leads to problems.
If you wish to avoid a refusal, the documents must be prepared carefully and in compliance both with the special rules governing the introduction of the euro and with the corporate law requirements applicable to LLCs.
For further information, consultations, and assistance in relation to the re-registration process and the actions associated with it, please contact Anelia Ivanova Law Firm.
The reason is that, as a result of conversion and rounding, the new amount of the ownership interests may not allow the existing proportion between the shareholders to be preserved exactly. It is precisely in such cases that the law permits a limited adjustment, solely and exclusively where this is necessary to safeguard the existing rights of the shareholders.
One essential point must be made here: this adjustment is not treated as a classic increase or reduction of share capital under the rules of the Bulgarian Commercial Act. The standard regime applicable to capital changes, which is ordinarily more burdensome and formalistic, does not apply. The law expressly provides that, in this specific case, the rules governing increases and reductions of capital shall not apply.
The procedure remains formal. The resolution must still be adopted in accordance with the proper corporate procedure. In the case of an LLC, resolutions concerning amendments to the articles of association and matters relating to the share capital fall within the competence of the general meeting. This is where errors typically arise — where the procedure for convening the meeting has not been complied with, where there is insufficient evidence that the resolution was duly adopted, or where the required form has not been observed.
For certain resolutions, the law requires minutes with simultaneous notarial certification of both the signatures and the contents, unless the articles of association provide for written form. Failure to comply with these requirements may result in the nullity of the resolution and in a refusal by the Registry Agency.
Our advice is first to verify whether such an adjustment is necessary at all. If it is not required in order to preserve the rights of the shareholders, it should not be made. If it is required, an updated articles of association must be prepared, a duly adopted resolution must be passed, and thereafter the documents must be published in accordance with the applicable procedure.
The most common risk lies in the incorrect application of the 5% rule. A frequent misconception is that, since this is not a “true” increase or reduction of capital, it may be carried out without strict preparation. This is precisely what leads to problems.
If you wish to avoid a refusal, the documents must be prepared carefully and in compliance both with the special rules governing the introduction of the euro and with the corporate law requirements applicable to LLCs.
For further information, consultations, and assistance in relation to the re-registration process and the actions associated with it, please contact Anelia Ivanova Law Firm.
When is an adjustment of up to 5% of the share capital required upon conversion into euro?
Where, following the conversion and rounding, such adjustment is necessary in order to preserve the rights of the shareholders.
Does this constitute an increase of the share capital?
No. The law provides that, in this specific case, the rules governing the classic increase or reduction of share capital do not apply.
Is a general meeting resolution required for an adjustment of up to 5% of the share capital?
Yes. Amendments to the articles of association and matters relating to the share capital must be resolved in accordance with the proper corporate procedure.
Where do mistakes most often occur?
In the convening of the general meeting, the form of the minutes, and the proof that the resolution was duly adopted.
Is there a risk of refusal?
Yes, particularly where the documents have not been prepared properly or the required form has not been observed.
Share this article:
