Company Transformation

Company transformations are done under the provisions of Chapter 16 of the Commercial Law. The transformation is a procedure in which one or more companies are wound up without liquidation as their commercial enterprises are transferred to one or more receiving or newly established companies.

Several forms of transformation of companies are stipulated in the Commercial Law: consolidation, merger, division, separation, and separation of a sole proprietorship, as well as through a change of the legal form.

• Consolidation – a procedure by which all assets of one or more companies /transferring companies/ pass into one existing company /receiving company/ that becomes their legal successor. The transferring companies are wound up without any liquidation. A simultaneous change of the legal form of the receiving company cannot be done at performing consolidation.
• Merger – a procedure by which all assets of two or more companies pass into a newly established company that become their legal successor. The transferring companies are wound up without liquidation.
• Division – a procedure by which all assets of a company pass into two or more companies that become its legal successors for the relevant part of the assets. The transferring company is wound up without liquidation. The companies that receive all the assets of the transferring company can be: existing companies by division through acquisition, newly established companies by division through establishment, as well as both existing and newly established companies. A simultaneous change of the legal form of the receiving company cannot be done at performing division. 
• Separation – a procedure by which part of the company's assets passes into one or more companies that become its legal successors for that part of the assets. The transferring company is not wound up. The companies, to which part of the transferring company's assets is passed into, can be existing companies by separation through acquisition, newly established companies by separation through establishment, as well as both existing and newly established companies. A simultaneous change of the legal form of the transferring or the receiving company cannot be done at performing separation. 
• Separation of a sole proprietorship – a procedure by which part of the company's assets passes into one or more single member limited liability companies and/or single member joint-stock companies /newly established companies/ at which the transferring company becomes sole owner of their capital. The rules for separation through establishment shall apply for the separation of a sole proprietorship, unless otherwise stipulated in the Commercial Law.

The Managing Body of the newly established or of the receiving company shall submit the consolidation or merger for registration in the Trade Register. The transformation agreement and the decisions of all participating companies shall be enclosed to the application for registration.

Transformation Agreement and Plan

Before taking а decision for transformation, a transformation agreement shall be concluded between the participating receiving and/or transferring companies. The transformation agreement shall be concluded in a written form by the persons representing the company, with a notary attestation of their signatures

The transformation agreement settles the way in which the transformation shall be made, and should include at least the following:

• the legal form of the company, the firm, the Unified Identification Code and the head office of each of the transferring and receiving companies;
• the exchange ratio of stocks and  shares as of  a particular date;
• the amount of cash payments, if such are stipulated under Art. 261(b) , Par. 2, as well as the term for their payment;
• description of the shares, stocks or membership that  every associate or share holder acquires in the newly established and/or receiving companies;
• the conditions regarding the distribution and transfer of stocks to the newly established or receiving companies;
• the date from which the participation in the newly established or receiving company entitles a share of the profit, as well as all special conditions related to it;
• the date from which the actions of the transforming companies are considered finished at the expense of the newly established or receiving companies for accounting purposes;
• the rights that the newly established or receiving companies provide to the shareholders with special rights and to the holders of securities that are not shares;
• any advantages given to the examiners or the members of the managing and supervisory bodies of the companies involved in the transformation.

At a division with establishment, separation with establishment and separation of a sole proprietorship, an agreement shall not be concluded. In this case the transforming company makes a transformation plan. The transformation plan shall be prepared in writing, with a notary attestation of the signatures, by the members of the managing authority of the company or by the associates with managing rights in the partnership.

Except the data included in the contract, the transformation plan shall also include the following:

• detailed description and distribution of the rights and obligations from the assets of the transforming company that pass into every newly established company;
• the distribution of shares, stocks and membership in the newly established and/or transforming companies, and the criteria for that distribution.

The transformation agreement and plan, and the report of the managing body shall be submitted in the Trade Register as the announcement for every transforming and receiving company shall be done simultaneously.

Transformation through a change of the legal form

A company /a transforming company/ can be transformed through a change of the legal form and becoming a company of another type /a newly established company/. The newly established company becomes a legal successor of the transforming company, which is wound up without liquidation. New associates or shareholders cannot be accepted along with the change of the legal form.

In case of a change of the legal form, the managing body or the associates with managing rights in the partnership shall make a transformation plan in writing, with a notary attestation of their signatures. The transformation plan shall include at least the following:

• the legal form, the firm, the Unified Identification Code and the head office of the newly established company;
• the exchange ratio of stocks and  shares as of a particular date;
• the amount of the cash payments, if such are stipulated under Art. 2616, Par. 2, as well as the term for their payment;
• a description of the shares, stocks or membership that every associate or shareholder acquires in the newly established company, as well as any information on existing mortgages and distraints;
• the conditions of distribution and transfer of stocks to the newly established company;
• the rights acquired by the shareholders with special rights and the owners of securities that are not stocks.

A draft of a new memorandum of association or a statute of the newly established company shall be enclosed to the transformation plan.

The transformation plan shall be submitted for announcement in the Trade Register. If the transforming company is capital, the presented plan shall be announced not shorter than 30 days prior the date of the General Assembly for taking the decision for transformation.

The Managing Body or an associate with managing rights in the newly established company submits an application for registration of the change in the legal form in the Trade Register, which shall be done not earlier than 14 days after the application.

Transformation through transferring all assets to the sole owner

A single member company /transforming company/ can be transformed by transferring all assets to the sole owner, if they are a natural person and are registered as a sole proprietor. The transforming company shall be wound up without liquidation.

The decision for transformation shall be taken by the sole owner in writing, with a notary attestation of the signature. Transformation cannot be done if shares or stocks in the transforming company have been lodged in or distrained.

The transfer of the assets to the sole owner shall be entered in the Trade Register in their case and in the case of the transferring company that is being delisted. The transfer of the assets to the sole owner becomes effective from the moment of its entering in the Trade Register. By entering, all rights and obligations of the transforming company pass into the sole proprietor.

The sole proprietor shall manage separately the assets that have been passed to them by the transferring company for a period of 6 months, considered from the date of registration of the transformation. During these 6 months, every creditor of the transferring company and of the sole proprietor, whose claim is not secured and has occurred before the entry, can require an execution or security in accordance with their rights. If their request has not been fulfilled, the creditor is entitled to a preferential satisfaction of the rights that belonged to their debtor. Until the expiry of the period of separate management, the sole proprietor cannot require deletion from the Trade Register.

Transformation with the participation of companies from Member States of the European Union, or other country that is party to the Agreement on the European Economic Area.

This type of transformation can be done only by a consolidation and merger, when at least one of the companies participating in the transformation has its head office in another Member State of the European Union or a country that is party to the Agreement on the European Economic Area, and is one of the types mentioned in Art. 1 of First Council Directive 68/151/EEC about coordination of the guarantees, which the member states require by the companies under Art. 58, Par. 2 of the Agreement, with a view making such guarantees equivalent for the whole territory of the Community, and the companies participating in the transformation with head offices in the Republic of Bulgaria are capital, except the investment companies of an open type.

A transformation cannot be done if:

• any of the companies participating in the transformation has its head office outside the European Union or the legislation of a Member State, which is applicable for any of the participating companies, does not allow such transformation;
• the transferring company with a head office in the Republic of Bulgaria owns land, and the newly established or receiving company has its head office outside the Republic of Bulgaria.

The transforming companies shall make a joint transformation plan that settles the way the transformation shall be done. The joint transformation plan shall be made in writing and shall be signed by the persons representing the company, for the companies participating in the transformation that are based in the Republic of Bulgaria.

The joint transformation plan shall include at least the following:

• the legal form, the firm and the head office of every of the transforming companies, of the receiving company at merger, as well as of the newly established company at merger;
• the exchange ratio of stocks and  shares at a particular date;
• the amount of cash payments, if such are stipulated under Art. 2616, Par. 2, as well as the term for their payment;
• a description of the shares, stocks or membership that every associate or shareholder acquires in the newly established or receiving company, including the increase in the capital of the receiving company, if such is needed for the transformation, as well as the conditions for the distribution and transmission of the stocks to the newly established or receiving company;
• the date, from which the participation in the newly established or receiving company entitles a share of the profits, as well as everything related to this right;
• the date, from which the actions of the transforming companies are deemed completed on the behalf of the newly established or receiving company for accounting purposes;
• the rights that the newly established or receiving company gives to its shareholders with special rights and to the owners of securities that are not stocks;
• any privilege given to the examiners under Art. 265h or to the members of the managing and supervisory bodies of the companies participating in the transformation;
• the impact of the transformation on the employment;
• the procedure of determining the employees' participation in the management of the newly established or receiving company, if it is possible;
• information about the evaluation of the assets passing into the newly established or receiving company.

The Managing Body of every of the transforming and receiving companies prepares a written report for the transformation. The report contains detailed legal and economic justification of the joint transformation plan, and especially of the exchange ratio, as well as the impact of the transformation on the status of the associates, shareholders, workers and employees.

The joint transformation plan and the report of the Managing Body of every transforming and/or receiving company with a head office in the Republic of Bulgaria shall be submitted to the Trade Register.

The Managing Body of a newly established or receiving company with a head office in the Republic of Bulgaria shall apply for entering the consolidation or merger in to the Trade Register. The joint transformation plan and the decisions of all companies participating in the transformation, as well as the certificates under Art. 10 of Directive 2005/56/EC of the European Parliament and the Council on cross-border mergers of limited liability companies regarding transforming companies with head offices in another Member State, shall be enclosed to the application.

Participation of the workers and employees in a transformation with participation of companies from other countries

When one of the transforming companies, either the receiving or the newly established, has a head office in the Republic of Bulgaria, Art. 12-15, Art, 16, Par. 1, 2 and 3, it. 4 and 5 (where instead of one quarter, one third of the workers and employees is needed), Art. 17, 18, 19, 29 and 30 of the Law on Information and Consultation of Employees in Multinational Companies, Groups of Companies and European Companies shall be applied for the participation of the workers and employees, where the receiving or the newly established company in this section shall be considered a European Company.

When the head office of the receiving company or the newly established company is in the Republic of Bulgaria, the Managing Bodies of the transforming companies and of the receiving company, without any negotiations, can take a decision to apply the standard rules under Art. 16 and 17 of the Law on Information and Consultation of Employees in Multinational Companies, Groups of Companies and European Companies. When the head office of the receiving or the newly established company is in another Member State, they can take a decision to apply the standard rules accepted in its legislation in accordance with Council Directive 2001/86/EC supplementing the statute for a European company with regard to the involvement of employees.

When the head office of the receiving or the newly established company is in the Republic of Bulgaria and one of the transforming companies had applied the rules for participation of the workers and employees under Par. 1, it. 20 of the Law on Information and Consultation of Employees in Multinational Companies, Groups of Companies and European Companies, the receiving or the newly established company is required to ensure the rights arising from these rules.