The Variable Capital Company (VCC) is an innovative legal form introduced in Bulgaria through amendments to the Commerce Act in August 2023. This structure is aimed at micro and small enterprises, offering greater flexibility and simplified procedures for management and financing. It is particularly suitable for startups and innovative businesses that require adaptability in capital changes and ownership structures.
Key Characteristics of VCC
Flexible Capital
One of the main innovations of the VCC is the ability to have variable capital, not bound by the strict regulations characteristic of other business entities like Limited Liability Companies (LLC) and Joint-Stock Companies (JSC). Key features include:
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No Minimum Capital Requirement: A VCC can commence operations without a mandatory minimum capital.
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Flexibility in Capital Adjustments: The company’s capital can change according to financial needs without the necessity of registration in the Commercial Register for each alteration.
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Annual Updates: The capital amount is reflected in the annual financial report, facilitating adaptation to the company’s financial realities.
Facilitations for Startups
The VCC is designed with the needs of startups in mind. Key advantages include:
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Easy Attraction of Investments: A VCC can issue shares with varying rights (e.g., voting, dividends), attracting investors such as business angels and venture capital funds.
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No Notarial Certification Required: Share transfers can occur without notarial certification unless otherwise stipulated in the company’s articles of association.
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Quick Establishment: Establishing a VCC requires minimal administrative steps and costs.
Legislative Framework
Establishment Requirements
A VCC can be established by one or more individuals or legal entities, adhering to the following criteria:
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Annual Turnover and Assets: Up to BGN 4 million.
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Number of Personnel: Up to 50 people.
These requirements align with the criteria for micro and small enterprises under European legislation.
Management and Structure
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Flexible Management: Management can be individual or collective, depending on the partners’ preferences.
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Articles of Association: Defines the powers of managers, partners’ rights, and decision-making procedures.
Liability of Partners
As with other capital companies, partners in a VCC do not bear personal liability for the company’s obligations, making it a secure choice for entrepreneurs aiming to minimize risks.
Comparison with Other Legal Forms
| Characteristic | VCC | LLC | JSC |
|---|---|---|---|
| Minimum Capital | None | BGN 2 | BGN 50,000 |
| Share Transfer | Without notarial certification | With notarial certification | Share transfer |
| Capital Update | Annually | Through Commercial Register changes | Through share issuance |
Advantages and Disadvantages
Advantages
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Flexibility: The absence of a fixed minimum capital allows adaptation to current financial needs.
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Low Costs: Establishing and managing a VCC requires fewer resources compared to a JSC.
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Investment Potential: The ability to issue shares with different rights makes a VCC attractive to investors.
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Simplified Regulation: Annual capital updates through the financial report reduce administrative burdens.
Disadvantages
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Limited Scope: A VCC is available only to micro and small enterprises.
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Potential Risk for Creditors: The lack of a minimum capital may pose challenges for creditors in assessing financial stability.
Practical Aspects
Attracting Investments
A key feature of the VCC is the ability to attract venture capital. Investors can receive shares with preferential rights, such as dividend rights or right of first refusal.
Tax Treatment
A VCC is subject to the same taxation regime as other companies, including corporate tax and tax on dividends. Special tax incentives may apply to innovative startups.
Transparency and Accountability
A VCC is obligated to maintain up-to-date accounting and publish annual financial reports, ensuring transparency for investors and stakeholders.
In conclusion, the Variable Capital Company offers a flexible and modern legal framework for micro and small enterprises in Bulgaria. Its adaptability and simplified procedures make it a preferred choice for startups and innovative businesses seeking efficient management and investment attraction.
