Corporate Governance 2024 Comparisons

The principal forms of corporate entities used in Bulgaria are the (1) limited liability company (дружество с ограничена отговорност (ООД), or OOD), and (2) joint-stock company (акционерно дружество (АД), or AD). These are capital entities in which the shares are owned by shareholders. A new form of legal entity introduced in 2023 is the variable capital company. Its purpose is to provide more flexibility and to eliminate certain barriers for the development of startup companies posed by the traditional forms of business entities.

Other existing legal forms are the general and the limited partnership/limited partnership with shares (събирателно дружество and командитно дружество/командитно дружество с акции) where some or all of the partners have unlimited liability.

Bulgaria is a member of the European Union and essentially most of its corporate law is based on the EU legislation. The main sources of corporate governance requirements in Bulgaria are the following:

• The Commercial Act (CA) governs private companies, the bodies of such companies and their powers, duties and liabilities. Some of its provisions also apply to publicly listed companies.
• The Public Offering of Securities Act (POSA) governs publicly listed companies.
• The Accounting Act (AA) sets out, among others, the requirements as to the content, compilation and publication of financial statements and activity reports, non-financial information reporting and the related management’s duties.
• The National Code of Corporate Governance (NCCG) approved by the Financial Supervision Commission, applicable on a “comply or explain” basis to publicly listed companies and companies planning to become public.

Sector-specific statutory sources of corporate governance requirements are, among others, the Credit Institutions Act (CIA), the Insurance Code (IC) and the Markets in Financial Instruments Act (MFIA).

The POSA and CA contain mandatory rules related to corporate governance of listed companies with publicly traded shares.

In addition, the annual management report of a public company must contain, among others, a corporate governance declaration specifying (1) whether the company applies the corporate governance code approved by the Financial Supervision Commission (ie, the NCCG) or another code of a similar nature, and (2) where the company does not apply certain parts of the corporate governance code specified in its annual activity report or it does not apply any code – the reasons and justification for that. 

In 2023, Bulgaria introduced an entirely new type of business legal entity – the variable capital company. Over the past decade, the country has had significant growth in innovative local companies and entrepreneurs, positioning itself as a one of the regional tech hubs. However, some startups were facing difficulties structuring their entities in the most efficient way and in line with modern trends in corporate governance, since the more accessible form of legal entity (the limited liability company) lacks some of the flexibility of the more complex and costly joint-stock company. This is one of the reasons many startups were searching alternative jurisdictions where they could establish their headquarters.

The variable capital company combines aspects of the two traditional entities, but also introduces some novelties, such as the variable capital which is not subject to registration in the commercial register. The new entity offers more clarity and flexibility on important aspects for every innovative startup and investor such as the restrictions on share transfers (right of first refusal, tag/drag-along, etc), incentivising key employees through the granting of share options, raising funds through convertible loans, etc.

For the time being, the variable capital company is reserved to small businesses – its staff may not exceed 50 employees and the annual revenue and net assets must be below BGN4 million (approximately EUR2 million). In case any of these thresholds is exceeded, the company will be obliged to transform into a different entity type.

The first variable capital companies are expected to appear in the second half of 2024 and their effect on the development of the innovative ecosystem in Bulgaria will be monitored closely.

The AA implements the requirements of the European Union Directive on Non-Financial Reporting (2014/95/EU). Large undertakings of public interest (eg, publicly listed, credit/financial institutions, insurers and electricity traders) with more than 500 employees are required to include in their management’s annual activity report a non-financial statement containing a brief description of the company’s business model and information about its ESG policies, the results thereof and related risks, non-financial KPIs, etc. Where the undertaking does not pursue policies in relation to one or more ESG matters, the non-financial statement must provide a clear and reasoned explanation for that.

The new Corporate Sustainability Reporting Directive (2022/2464/EU) is expected to be also implemented in the AA by mid-2024. It extends the scope of the ESG reporting requirements to medium and small undertakings of public interest.

Limited Liability Company (OOD)

The OOD has two principal (mandatory) bodies and one optional one:

• General meeting of the shareholders or sole owner of the capital – this is the supreme corporate body of the company which resolves on most of the key matters related to the company’s operations and business (see Section 3.2).
• Managing director/s – the managing director manages the company’s affairs and represents the company vis-à-vis third parties. Where two or more managing directors are appointed, they do not form a board of directors. Instead, they can represent the company either jointly or severally, as stipulated in the company’s articles of association.
• In addition, the company’s articles of association may allow for the appointment of controller/s by the general meeting. The controller monitors the compliance with the articles of association and the preservation of the company’s assets and reports to the general meeting.

Joint-Stock Company (AD)

The AD’s mandatory corporate bodies include a general meeting of the shareholders or sole owner of the capital with functions largely similar to those of the general meeting of the OOD. The management of the company depends on the system of corporate governance provided for in the company’s statutes:

• One-tier system – the company has only a board of directors appointed by the general meeting. The board of directors elects from its members one or more executive directors who will manage the company’s affairs. Normally, the executive director/s is/are registered in the Bulgarian Commercial Register and Non-Profit Entities Register (the Commercial Register) as the company’s legal representative/s vis-à-vis third parties.
• Two-tier system – the company has a supervisory board appointed by the general meeting and a management board appointed by the supervisory board. The management board is largely independent in its commercial decisions, but is obliged to report to the supervisory board at least once every three months. Also, certain transactions specified in the law or the company’s statutes are subject to the approval of the general meeting/supervisory board (see Section 3.2).

Variable Capital Company

The variable capital company has a general meeting of the shareholders/sole owner of the capital and its articles of association can opt for a management board or one or more managing director/s. A managing director’s role in a variable capital company is similar to the one in OOD and the management board is similar to its equivalent in the AD, hence unless expressly stated otherwise, the following answers concerning managing directors of OODs and management boards of ADs apply to the variable capital company accordingly.

Limited Liability Company (OOD)

In an OOD, the reserved matters within the exclusive competence of the general meeting of the shareholders/sole owner include:

• amendment of the company’s articles of association;
• capital increase/decrease;
• acceptance of new shareholders and removal of existing shareholders;
• appointment and dismissal of managing directors;
• winding up and reorganisation;
• adoption of the annual financial statement and appointment of auditors;
• sale of real estate and the business enterprise as a going concern; and
• other matters as provided in the law or the company’s articles of association.

There is no specific statutory list of matters falling within the competence of the managing director/s. They are obliged to manage the company in compliance with the law, the articles of association, the resolutions of the general meeting/sole owner and the terms of their management agreements.

Joint-Stock Company (AD)

The general meeting of the shareholders/sole owner of the capital in the AD has similar competence as the general meeting in the OOD. During the first five years of the company’s life the board of directors/management board in the AD can be also authorised by the company’s statutes to increase the capital of the company up to a specified amount, by issuing new shares.

Further, the law provides that certain transactions of a high value or economic impact for the company, such as:

• the sale of the company’s enterprise as a going concern; and
• the disposal of assets, assumption of liabilities or provision of collateral to a third party or related parties with value exceeding 50% of the company’s total assets as per the last approved AFS,

are subject to a resolution of the general meeting or, if the company’s statutes provide so, a unanimous resolution of the board of directors (in one-tier AD) or a resolution of the management board and prior approval of the supervisory board (in two-tier AD). Where the above transactions are executed by a privately held AD, the absence of a resolution by the general meeting does not affect the validity of the transactions, but may result in the liability of the management.

In publicly listed companies, the statutory list of transactions requiring a prior approval is broader and also covers certain transactions executed by non-public subsidiaries. The absence of the required resolution by the competent body of the public company could make such transactions invalid.

In ADs with complicated shareholding structures (eg, including founders, JV partners, investors and key employees), the company’s statutes or its board’s rules of procedure would typically provide for additional restrictions on transactions or for other reserved matters requiring prior approval, by a qualified majority vote, of the general meeting or the board. This may include HR matters such as the appointment, change of terms and dismissal of key employees, execution of transactions exceeding certain monetary threshold or falling outside of the normal scope of business, etc.

In addition to the above, in a two-tier AD the supervisory board appoints the management board and can at any moment request information and reports from it and can conduct independent reviews of the management board’s activities.

Variable Capital Company

The general meeting of the shareholders in a variable capital company has similar competence to the general meetings in OOD and AD.

There are no statutory reserved matters of the management board in a variable capital company. The company’s articles of association may provide for such reserved matters.

General Meeting of the Shareholders

See Section 5.3.

Managing Director (OOD)

An OOD may have a single managing director. Where two or more managing directors in an OOD are appointed, they do not form a board, hence there are no formal rules governing the decision-making process. Such rules could be implemented by the company, for example, through internal rules of procedure adopted by the general meeting/sole owner and/or specific rules provided for in the management agreements. Absent specific rules, the decision-making process will be largely defined by the representation powers of the managing directors, ie, whether they legally represent the company vis-à-vis third persons (and thus decide on matters related to its business) jointly or severally.

Boards (AD)

The boards in an AD (a board of directors in one-tier system and, respectively, supervisory and management boards in two-tier system) follow similar rules regarding conduct of meetings and voting. The required quorum of the meetings is at least half of the board members attending either personally or represented by another board member. A board member can represent only one other member. The resolutions are adopted by a simple majority. Higher quorum and majority requirements can be provided for in the company’s statutes. Resolutions can be adopted in absentia, if such option is stated in the statutes and all board members vote unanimously.

The statutes normally elaborate further the rules regarding conduct of board meetings. Boards have chairpersons who typically convene the meetings at their initiative or based on a request by another board member. Rules regarding conduct of virtual meetings may be also included.

The CA expressly allows for virtual meetings of the management board in a variable capital company.

Limited Liability Company (OOD)

Where two or more managing directors are appointed in the OOD, they do not form a board.

Joint-Stock Company (AD)

The AD may have a one-tier or two-tier management system. A one-tier system includes a board of directors and a two-tier system has a supervisory board and a management board.

See Section 4.3.

There are no statutory pre-defined roles of the board members. Boards normally elect a chairperson and a vice-chairperson. The board of directors (one-tier AD) or the management board with the approval of the supervisory board (two-tier AD) appoints one or more of its members as executive director/s who is/are registered in the Commercial Register as the legal representative/s of the company. Two or more executive directors can represent the company either jointly or severally, depending on the board’s resolution.

In a two-tier AD, a member of the management board cannot be simultaneously appointed as a member of the supervisory board.

It is common for the operational and/or functional duties of the members of management board/board of directors to be divided among them, eg, the CFO or COO.

The board of directors (one-tier AD) and the management board (two-tier AD) can be composed of between three and nine members. The supervisory board of a two-tier AD can be composed of between three to seven members. There is no minimum or maximum number of management board members in a variable capital company.

A member of the board can be a legal entity, if the company’s statutes provide for this possibility. In such case, the legal entity must nominate an individual representative who will sit on its name and behalf in the board. Foreign nationals can be board members (AD) or managing directors (OOD). There is no requirement for them to be resident in Bulgaria.

Currently there are no statutory diversity quotas in the composition of the boards.

In an OOD, the managing director and in one-tier AD, the board of directors are appointed and removed by a resolution of the general meeting of the shareholders or the sole owner of the capital. In a two-tier AD, the general meeting of the shareholders/sole owner appoints and removes the supervisory board members and respectively the supervisory board appoints and removes the management board members. Managing directors/board members can also resign on their own initiative. The resolution of the general meeting is adopted by a simple majority of all (OOD) or of the present/represented (AD/variable capital company) shares unless a higher majority is provided for in the articles of association/statutes of the company. The board members can be appointed for an initial three-year term and for unlimited subsequent terms, each of up to five years.

In general, a managing director/board member can be removed at any moment without notice and stating reasons. The consequences (financial and others) related to such termination are often set out in the management/service agreement of the board member.

A managing director in OOD cannot be:

• a person who has been declared insolvent; or
• a person who has been a managing director or a member of the management or supervisory body of a company:
1. dissolved due to insolvency during the last two years preceding the date of the decision declaring the insolvency, if there are unsatisfied creditors; or
2. which has been found by a final court decision not to have fulfilled its obligations to establish and maintain the levels of reserves set for it under the Petroleum and Petroleum Products Reserves Act.

The restrictions under the first item and point a) of the second item above lapse upon the expiry of a five-year period from the company’s dissolution due to insolvency.

The restrictions under the second item above apply to board members of an AD and a variable capital company as well. Other restrictions and requirements can be set out in the company’s statutes. In addition, in publicly listed companies, members of the boards cannot be persons who have been convicted by a final judgment for a deliberate crime of a general nature committed in Bulgaria or in another country, unless they have been rehabilitated.

Restrictions related to the directors’ independence apply as well (see Section 4.5).

Non-compete Restrictions

The managing director(s) of an OOD and the board members in AD are prohibited by law from participating in certain competing activities, such as acting as board members in other competing companies or executing commercial transactions on behalf of competing companies. These restrictions are not comprehensive and are often further developed in the management/service agreements of the board members. Alternatively, they can be derogated in the company’s statutes or by a resolution of the appointing body.

There are no express statutory non-compete restrictions on the management board members/managing directors of a variable capital company. Such restrictions may, depending on the circumstances, result from the general duty of the directors to avoid conflicts of interest and to act in the best interest of the company, and can be further elaborated in their management/service agreements.

Post-term non-compete and non-solicitation restrictions can be and are often contractually agreed. It is a good practice to take these restrictions into consideration when determining the director’s remuneration or to provide for a separate payment as a consideration for compliance with such restrictions.

Conflicts of Interest

To prevent conflicts of interest, board members in an AD are further required to (1) inform the general meeting (or the supervisory board, if it appoints the board member) prior to their appointment or immediately upon occurrence about any participations of 25% or more in the capital of limited liability companies or as unlimited partners and about any appointments as board members, managing directors or procurists in other companies, and (2) notify the chairperson not later than the start of a board meeting if they or their affiliates are interested in a matter subject to review by the board and not to participate in the voting on such matter. The second requirement applies to board members in variable capital company as well.

Board members in an AD are also obliged to notify the board of directors (one-tier AD) or the management board (two-tier AD) in writing in each case where they or their affiliates enter into transactions with the company that go beyond its ordinary business or deviate materially from market conditions. Such transactions should be executed based on a resolution of the board of directors/management board.

Additional and stricter requirements preventing conflicts of interest and ensuring independence of boards are provided for publicly listed companies. For example, at least one third of the members of the board of directors in a one-tier AD or the supervisory board in a two-tier AD must be independent persons. This means that they should not be:

• shareholders holding directly or indirectly 25% or more in the capital of the company;
• persons/entities in established commercial relations with the company;
• board members, procurists or employees of any of the previous two entities;
• employees of the company; or
• affiliates of existing board members.

If any of the above persons is a shareholder in the company, they cannot vote for the election of the independent board members unless there are no other shareholders present/represented at the general meeting.

The law does not stipulate a detailed list of specific duties of directors/board members in a company (see section 4.5 regarding certain specific obligations to avoid conflicts of interest). Instead, it requires that directors and board members act with the care of a “good merchant”. This is an objective concept corresponding to the level of care that could be normally and reasonably expected from an experienced and diligent professional in a specific sector/type of activity.

Poor financial results are not sufficient to establish a breach of directors’ duties and good financial results do not exclude directors’ liability per se. The director’s liability should be based on (i) specific willful or negligent acts which deviate from the good merchant’s standard of care and (ii) the existence of damages to the company directly resulting from such acts. This assessment could be based, among others, on the director’s role (eg, a supervisor or management board member) and the terms of the allegedly detrimental transaction in comparison to market conditions, company’s needs, risk/reward ratio, external factors and their foreseeability, etc.

The service/management agreement of the directors and board members may further elaborate on these duties.

Board members have the same obligations, irrespective of the internal distribution of functions among them and the appointment of one or more of them as legal representative(s) of the company or executive director(s). They are jointly liable for the damages they have caused to the company as a result of a breach of their duties (see section 4.6). An individual board member’s liability could be excluded or reduced depending on the circumstances and if it is found that she or he personally is not at fault, eg, where the board member has opposed/voted against the allegedly injurious decision.

The CA provides that board members of AD must act in the interest of (i) the company and (ii) all shareholders. Possible conflicts between these interests, eg, the company versus shareholders or a majority verses a minority shareholders, are not expressly governed by the law. By and large, given the board members’ liability exposure (see sections 4.8 and 5.4), it could be argued that in case of conflicts the company’s interest must prevail.

The equivalent provisions regarding variable capital companies exclude the shareholders from the persons to whom directors owe their duties.

The company can pursue a claim against its managing director(s) or board members if it has suffered damages as a result of a breach of directors’ duties.

In an OOD, a resolution of the sole owner or the general meeting of the shareholders (adopted by a simple majority unless a higher majority is provided in the articles of association) is required for such claim to be admissible in court. The general meeting also appoints a representative of the company in the proceedings. Minority shareholders do not have a statutory right to file claims on behalf of the company against the managing director.

In an AD, board members are required to deposit a guarantee (monetary, shares or bonds of the company) to the benefit of the company in amount determined by the general meeting, but not less than three monthly remunerations. The guarantee secures potential claims by the company. Shareholders holding (individually or together) at least 10% of the capital can bring a claim for damages on behalf of the company against a board member.

The board members’/managing director’s liability for damages can be excluded by a resolution of the general meeting of the shareholders/sole owner. Such exemption is usually given for a specific financial year, but may not cover circumstances which were not and could not have been known by the shareholders/sole owner at the time when the resolution was adopted.

Bulgarian laws provide for numerous specific situations where director’s liability can be invoked by third parties other than the company. These include, among others:

• the management board/board of directors of a publicly listed company are jointly and severally liable with the company for damages caused by false, misleading or incomplete information in the annual financial statement and other statutory financial reports;
• the board members/managing directors are jointly and severally liable with the company for damages caused to the company’s creditors as a result of a breach of the six-month obligation to manage separately the acquired and the existing assets of the company in the case of an acquisition of the business as a going concern of another company or by way of a merger;
• board members/managing directors who fail to apply to court to open insolvency proceedings within 30 days of the company becoming insolvent or over-indebted are liable to the company’s creditors for the damages caused by the delay;
• During preparation and execution of corporate reorganisations (mergers, demergers, divisions, spin-offs, etc) board members/managing directors can be liable to the shareholders for damages arising from a failure to duly perform their related duties.

In addition, directors may be subject to (i) administrative sanctions in case of non-compliance with laws, for example, infringements of labour legislation or competition rules, and (ii) criminal liability, eg, in case of failure to apply for insolvency, private bribery or tax crimes.

Private Companies

The directors’ remuneration in private companies is usually determined by the appointing body. For example, the remuneration of the managing director in an OOD, the members of the board of directors in a one-tier AD and the supervisory board in a two-tier AD is determined by the general meeting of the shareholders/sole owner of capital, while the remuneration of the management board members in a two-tier AD is determined by the supervisory board.

Publicly Listed Companies and Specific Sectors

More detailed rules regarding remunerations of directors and officers apply in publicly listed companies and companies in specific sectors like insurers, reinsurers and credit institutions. Such companies are required to adopt and disclose remuneration policies which, among others, promote prudent and effective risk management and discourage risk-taking above an acceptable level, are consistent with the company's business strategy, objectives, values and long-term interests, and contain measures against conflicts of interest.

The remuneration policy is prepared by the supervisory board (two-tier AD) or the board of directors (one-tier AD) with the support of the remunerations committee, if relevant. It is subject to review from time to time when significant amendments are required, but not less than once every four years.

See section 4.11 regarding reporting on the implementation of remunerations policies by publicly listed companies.

Private Companies

There are no express rules regarding disclosure of payments to directors. Depending on the size of the company and the financial reporting standards adopted (national or international), a company may be required to disclose in its annual financial statements transactions with related parties/affiliates (including controlled by directors), total remunerations paid to personnel, etc.

Publicly Listed Companies

The annual activity report of publicly listed companies must contain a report on the implementation of the remuneration policy of the company. It specifies, among others, the amounts paid to each board member for the relevant financial year, calculation, methodology used to assess whether performance criteria are met, their link with the amount of the remunerations, the ratio between fixed and variable remuneration, etc.

The relationship between the shareholders and the company is governed by the law (primarily CA and POSA) and the articles of association/statutes. The main obligation of the shareholder to the company is to pay the amount/contribute the asset (when contribution in kind) corresponding to her/his contribution in the company’s capital.

Shareholders in OOD have additional explicit duties to assist the company in its activities, to comply with the resolutions of the general meeting and to abstain from any actions detrimental to the company’s interests. The latter does not necessarily mean that the shareholder is prohibited from participating in competing businesses, unless there is an explicit prohibition in the company’s articles of association or other case-specific circumstances exceptionally justify the existence of such prohibition.

Failure to comply with the above obligations may result in the dismissal of the shareholder from the company based on a resolution of the general meeting of the shareholders (with a qualified majority).

The general meeting of the shareholders/sole owner controls the composition of the company’s management either directly by appointing and dismissing the managing director(s) (OOD) or the members of the board of directors/management board (one-tier AD/variable capital company), or indirectly by determining the composition of the supervisory board which then elects the management board (two-tier AD).

Apart from the above, all resolutions of the general meeting of the shareholders are mandatory for the company’s management. Therefore, the influence of the shareholders over the management of the company would, to a large extent, depend on the provisions of the company’s articles of association or statutes, or the existence of reserved competence of the general meeting to resolve on key business matters, etc.

Every company is required to hold at least one (regular) general meeting each year on which the annual financial statement of the company is adopted.

A general meeting of the shareholders is convened by the managing body, ie, the managing director (OOD) or the board of directors/management board/supervisory board (AD). Minority shareholders may, under specific conditions, also be entitled to convene a general meeting:

• In an OOD – shareholders holding more than 10% of the shares may request from the managing director to convene a general meeting and, absent convocation within two weeks, they can convene the meeting themselves.
• In an AD – shareholders owning more than 5% of the shares for three months can request from the management to convene a general meeting and, if no general meeting is held within three months as from the request, they can ask from the court to be authorised to convene it.

In an OOD, the invitation to the general meeting should be served to each shareholder personally at least seven days before the date of the meeting (unless a longer notice period is provided for in the articles of association). The general meeting of an AD can be convened by an invitation published in the Commercial Register at least 30 days in advance, unless the company’s statutes provide for a convocation by a written invitation to each shareholder (similar to OOD) in which case a shorter period can be introduced.

The requirement for a personal receipt of the invitation is often applied strictly by the courts and the authorities and may create practical difficulties to convene a general meeting when, for example, a shareholder is located abroad and/or obstructs the convocation of the meeting. To mitigate such possible risks the articles of association of the company may further elaborate the rules for convening a general meeting, including by specifying the address for communications or e-mail of the shareholders where invitations should be sent.

Formally, there are no quorum requirements in an OOD. However, in practice the decisions of the general meeting are adopted with a majority of all shares (simple or qualified, as provided in the law/articles of association), meaning that as a minimum the number of shares required for the adoption of the relevant resolution need to be present/represented at the meeting.

In an AD there is a mandatory minimum quorum of 50% of all shares only in relation to decisions for amendment of the statutes, capital increase/decrease, reorganisation and winding up of the company. Similar requirement applies to the general meetings in a variable capital company, but a quorum of at least 50% is required also for decisions regarding appointment of board members and determining their remuneration, issuance/cancellation of shares and dismissal of shareholders. Higher quorum or quorum requirements for other resolutions can be provided in the company’s statutes. Absent a quorum, the general meeting can be adjourned for another date not earlier than 14 days after the first meeting (AD), or for any date and time specified in the invitation for the first general meeting (variable capital company) and without quorum requirements applying on it. Resolutions are passed with a simple majority of all shares present at the meeting, unless higher majority is provided in the law or the company’s statutes.

Resolutions can be passed in absentia if all shareholders have voted unanimously. Despite the recent COVID-19 pandemic, the CA does not contain rules in relation to a possible attendance and voting by electronic means, which creates uncertainty whether a virtual general meeting can be validly held if some of the shareholders do not agree to it.

An express possibility for conduct of virtual general meetings is provided for variable capital companies. Also, the POSA provides for detailed rules regarding virtual general meetings of shareholders in publicly listed companies.

Claims Against the Company

Every shareholder is entitled to appeal before the courts: (i) a resolution of the general meeting, which contradicts the company’s articles of association/statutes or the law, both on procedural (eg, unlawful convocation) or material (eg, lack of majority) grounds, and (ii) actions by a management body of the company which violate their rights as shareholders. The defendant in such cases is the company.

Claims Against Directors

Although there is no explicit rule of Bulgarian law excluding the applicability of the general rules of tort liability and the CA provides that board members in an AD must act in the interest of all shareholders (in addition to the company), it is accepted that shareholders cannot have direct claims for damages against the members of the management bodies of the company. Still, this question is not sufficiently tested before courts, nor extensively analysed in legal doctrine.

Certain minority shareholders can assert claims on behalf of the company for damages caused to the company (see Section 4.8).

Shareholders in publicly listed companies are required to notify the Financial Supervision Commission and the company every time when their participation in the capital exceeds or falls below certain thresholds, ie, 5% or a multiple thereof (eg, 10%, 15%, 20%, 25%, 30%).

Under the Bulgarian Anti-Money Laundering Measures Act publicly listed companies are not required to publish their ultimate beneficial owners in the Commercial Register.

All companies are obliged to prepare and adopt annual financial statements (AFS). The AFS of micro and small companies* may, in the company’s discretion, comprise only a short-form balance sheet and profit and loss statement. Medium and large companies are required to adopt complete AFS in accordance with the AA.

The AFS should be accompanied by (1) the annual activity report (AAR) of the company, except for micro and small companies that are not subject to financial audit and are not obliged to prepare an AAR (see Section 7.1), and (2) the auditor’s report in case the AFS is subject to an independent audit. The mother company in a group of companies must adopt consolidated AFS and AAR.

The (consolidated and individual) AFS, together with the AAR and the audit report are subject to publication in the Bulgarian Commercial Register (see Section 6.3). Public companies are also obliged to publish and provide to the Financial Supervision Commission financial information on a quarterly (Q1, Q3, Q4) and half-yearly basis.

*The criteria for micro, small, medium and large undertakings are set out in the AA and implement the thresholds set out in Directive 2013/34/EU.

Publicly listed companies are required to publish corporate governance declarations together with their AAR. The corporate governance declaration contains, among others, information about:

• whether the company applies the NCCG or other corporate governance code and, if not or only partly, an explanation of the reasons for that;
• the internal control and risk management systems in relation to the financial reporting process;
• the composition and functioning of the administrative, management and supervisory bodies and their committees;
• the company’s diversity policy in the administrative, management and supervisory bodies of the company or, in the absence of such policy, an explanation of the reasons for it.

In addition to publicly listed companies, credit institutions and insurance/re-insurance companies are also required to publish corporate governance declarations.

Companies must file for registration and publication with the Commercial Register of any changes in their:

• articles of association/statutes;
• corporate details such as the company name, registered seat and address, legal representatives, registered capital, scope of activity, ultimate beneficial owners and directly and indirectly controlling entities, and any other circumstances registered with the Commercial Register upon incorporation of the company.

Some of the changes such as the amendments in the articles of association, changes in the legal representatives/board members, registered capital etc, would become effective and opposable vis-à-vis third persons only after their registration with the Commercial Register.

Companies are also required to submit their annual financial statements, annual activity reports and audit reports (if applicable) with the Commercial Register by 30 September of the following year. Failure to do so is subject to a fine of 0.1% - 0.5% of the net sales of the company for the relevant financial year.

An independent financial audit of the AFS is mandatory for the following undertakings:

• small undertakings which, as at 31 December of the current reporting period, exceed at least two of the following criteria:
1. book value of assets - BGN2,000,000;
2. net sales revenue - BGN4,000,000;
3. average number of employees for the reporting period - 50 persons;
• medium and large enterprises;
• undertakings of public interest;
• medium-sized and large groups and groups in which there is at least one undertaking of public interest;
• joint-stock companies and limited partnerships with shares, except those fulfilling the criteria for micro undertakings; and
• undertakings for which this requirement is laid down by law.

The auditor is generally appointed by the general meeting of the shareholders/sole owner of the capital. Where the financial audit is not required by law, the auditor can be appointed by another body of the company.

The relationship between the company and the auditor is governed by a service agreement/engagement letter, but some key aspects are set out in the Independent Financial Audit Act (IFAA). For example, the IFAA provides that the auditor’s liability is limited to three times the amount of the agreed remuneration, but not less than the minimum professional insurance amounts per event provided in the law. This limitation does not apply in the event of wilful misconduct by the registered auditor, including in case of insolvency of the company.

The CA does not provide for specific requirements related to management of risk and internal controls in private companies. The management body (managing director, board of directors or management board) has a general duty to act in the best interest of the company which includes identifying and managing the risks related to its business and having a control and risk management system appropriate to the inherent risks of the company’s business.

The management boards in publicly listed companies are required to maintain an internal control and risk management system and to provide information about its general characteristics in the corporate governance declaration to the AAR. The NCGC further states that the management board ensures and controls the implementation of a risk management system and informs the supervisory board about its actions in that regard. The supervisory board provides guidance to the management board on the establishment of the risk management system and monitors its functioning and efficiency.