The new more accessible corporate form for start-ups
The Variable Capital Company (“VCC”) is the newest type of company introduced under Bulgarian corporate law, with its basic features already analysed in a previous article here. It represents a hybrid between a limited liability company (“LLC”) and a joint stock company (“JSC”), combining certain advantages traditionally associated with each corporate form. The legislative objective appears to have been the creation of a corporate vehicle that preserves the operational simplicity of the LLC while incorporating investment and financing mechanisms typical for the JSC.
Optimisation of the incorporation requirements
The VCC is particularly attractive to foreign investors, primarily due to a considerable reduction in the complexity of incorporation procedures and the greater degree of operational flexibility it offers. A key advantage lies in removing the need to open an escrow bank account at the point of incorporation for depositing the capital. While such an account has traditionally been required when establishing a legal entity in Bulgaria, separating this step from the incorporation process enables VCCs to be formed more quickly and with fewer initial formalities.
This development is especially significant in light of the increasingly stringent anti-money laundering (AML) and know your customer (KYC) requirements applied by Bulgarian banks, particularly in relation to foreign individuals and entities. As a result, the process of opening a bank account has become more complex and time-consuming, often creating delays and practical obstacles to timely market entry. By deferring this requirement, the VCC framework becomes considerably more accessible to foreign participation in the Bulgarian market.
Simplification of the process of transfer of shares
Beyond the incorporation advantages, the VCC also introduces greater flexibility regarding the transfer of shares. Share transfers may be carried out without notarisation and without registration in the Commercial Register, with capital changes instead being mandatorily reflected in the company’s annual financial statements. This reduces both administrative costs and procedural burdens. The benefit is particularly evident for foreign shareholders and members of management bodies located in different jurisdictions, for whom notarisation and formal registration procedures can be logistically difficult and costly.
Online management
From a corporate governance perspective, the new framework enables shareholders and members of the management bodies to convene and participate in general meetings remotely, using a voting mechanism of their choice. This allows meetings to be conducted entirely online. The approach reflects modern business practices and the increasing reliance on digital communication platforms in cross-border corporate governance.
Financial mechanisms and instruments
More importantly for investors, the VCC introduces mechanisms commonly used in venture capital practice, including tag-along and drag-along rights, which enhance shareholder protection and facilitate coordination in exit scenarios. These features distinguish the VCC from the more rigid regime traditionally applicable to LLCs under Bulgarian corporate law, while aligning it more closely with the flexibility already seen in joint-stock structures.
The flexibility of the VCC extends further to financing arrangements and capital structuring, as the company may issue a wide range of financial instruments – including convertible loans, preference shares, and share options – allowing for highly tailored investment configurations. This flexibility, however, is not accompanied by an equivalent level of statutory shareholder protection. In particular, the absence of pre-emption rights in the event of capital increases exposes shareholders to a risk of dilution and potential abuse. As a result, the framework places increased importance on contractual safeguards, making it essential that the articles of association and any shareholders’ agreement are carefully drafted to include robust anti-dilution mechanisms and other protections against adverse changes in the company’s capital structure.
Once the company reaches the statutory threshold of 50 employees and over 2 million euros in turnover, it must be transformed into either a limited liability company or a joint stock company. It makes obvious the legislative intention that the VCC serves primarily as a vehicle for early-stage and growth-oriented enterprises. In this respect, the VCC appears designed not merely as another corporate form, but as a legislative attempt to align Bulgarian corporate law with the practical expectations of modern venture-backed businesses and international investors.