Capital in euro and the new 36-month deadline: obligations of commercial companies following the amendment to the law

Following the latest amendments to the Law on the Introduction of the Euro in the Republic of Bulgaria ("ZVERB"), the legislature introduced significant relief for capital companies in complying with their obligations relating to the conversion of capital and bringing their corporate instruments into conformity with the new currency.

The amendments directly affect Article 32 of ZVERB and have two main practical consequences: extension of the period for bringing corporate documents into compliance with the law from 12 to 36 months, as well as limiting the cases in which the updated company agreement, deed of incorporation or articles of association must be mandatorily submitted to the Commercial Register.

The change is particularly important for the hundreds of thousands of active Bulgarian companies whose incorporation and constitutional documents continue to state the amount of capital and the ownership interests or shareholdings in lev.

· What exactly is the company's obligation?

Pursuant to Article 33 of ZVERB, on the date of introduction of the euro, the amount of capital of limited liability companies, joint-stock companies and partnerships limited by shares entered in the Commercial Register is automatically replaced by the corresponding amount in euro and euro cents.

The ex officio action of the Registry Agency, however, relates solely to the data in the Commercial Register. This does not automatically amend the content of the company agreement, deed of incorporation or articles of association of the company. For this reason, the corporate documents must be updated by the company itself. ZVERB expressly requires commercial companies to bring their corporate and internal documents into conformity with the new currency unit.

For limited liability companies (OOD and EOOD), an updated company agreement or, as applicable, deed of incorporation must be prepared, reflecting: the converted amount of capital in euro, the amount of the ownership interests in euro, and each member's participation in the capital after conversion. For joint-stock companies and partnerships limited by shares, the articles of association must likewise be amended to reflect the converted amount of capital and the nominal value of the shares in euro.

One of the fundamental principles laid down in the law is that the changeover from lev to euro should not, in itself, result in a change to the economic or membership rights of members and shareholders. Pursuant to Article 30 of ZVERB, the conversion of the capital of joint-stock companies, partnerships limited by shares and limited liability companies must be carried out in a manner that does not affect the rights of shareholders or members and does not alter their proportionate participation in the capital.

Where rounding necessitates an additional adjustment in order to preserve the rights and relative participation of the members, the law permits the converted capital to be adjusted within limited bounds. Pursuant to Article 32(5) of ZVERB, this adjustment may be up to 5 per cent of the registered capital, in which case the general rules of the Commerce Act on increases or reductions of capital do not apply.

Special rules:

For OODs:

For an OOD, the ratio between the interests of the individual members must be preserved after conversion. The law provides that the capital of an OOD is converted by dividing the registered amount of capital in lev by the full numerical value of the official exchange rate, after which the result is rounded in accordance with the rules of ZVERB. Once the capital in euro has been determined, it is allocated among the members in proportion to their participation in the capital before conversion.

For joint-stock companies:

For joint-stock companies and partnerships limited by shares, pursuant to Article 31 of ZVERB, the nominal value of one share is converted first by dividing its value in lev by the full numerical value of the official exchange rate and rounding the result in accordance with the statutory rules. The amount of capital in euro is then determined by multiplying the converted nominal value of one share by the total number of shares. If this produces a difference between the capital obtained under the general conversion rule and the capital calculated on the basis of the nominal value and the number of shares, the difference is recognised as retained earnings or an uncovered loss from prior years.

· New 36-Month Deadline

The most significant change in the rules governing the conversion of companies' capital is the extension of the period under Article 32(1) of ZVERB within which the documents must be published or registered.

The previous 12-month period has been replaced with a 36-month period running from the date of introduction of the euro in the Republic of Bulgaria, which in practical terms means that the deadline is extended until the end of 2028. Within that period, capital companies must adopt the necessary amendments to their incorporation and constitutional documents and bring their internal documentation into compliance with ZVERB. In practical terms, this provides a significantly longer period in which companies may organise the necessary corporate actions, without concentrating hundreds of thousands of procedures within a single year.

The second important legislative amendment concerns Article 32(4) of ZVERB.

The provision now clarifies that the relevant corporate instruments are to be submitted in cases where their submission is required by law. This change is of particular practical significance. Before the amendment, the law provided that, upon the first subsequent application for registration, deletion or publication, the company was required simultaneously to submit an updated company agreement, deed of incorporation or articles of association, irrespective of the nature of the particular proceeding. The new wording limits this obligation. The updated corporate instrument must be submitted to the Commercial Register when, in accordance with the law and the nature of the particular circumstance applied for, its submission is required. This means that not every technical or administrative action on the company's file automatically gives rise to a requirement to publish a new company agreement or articles of association.

This does not, however, mean that the company may refrain from amending its corporate instrument. The company is not relieved of the need to keep its internal corporate framework up to date. The legislature merely removes part of the unnecessary administrative formality. The extension of the period to 36 months concerns the performance of capital companies' obligations in relation to the converted capital and the updating of the relevant instruments. By contrast, the addition to paragraph 4 is intended to prevent unnecessary submission of those documents in every proceeding before the Commercial Register where this is not required by law.

If you require legal assistance, document preparation or advice regarding the conversion of capital and the subsequent publication of the relevant documents in the Commercial Register, you may contact us at office@peshkovski.bg