What are the types of merchants according to the Commercial Law and how to choose among them upon a registration of a company in Bulgaria?
The Commercial Law defines that a Merchant is any individual or corporate body engaged by occupation in any of the listed in the Commercial Law transactions, or who has established a business, which in accordance with its purposes and volume required that its activities be conducted on a commercial basis.
In this article will be reviewed the types of merchants according to the Commercial Law and its advantages and disadvantages. Our goal will be that you are able to make an easy decision upon registration of a company in Bulgaria
Sole Entrepreneur
Any natural person capable of acting having his place of residence in the country, who has no insolvency proceedings opened against his assets; who is not in bankrupt; whose commercial rights have not been removed and have not been restored yet; that has not been convicted for bankruptcy. Characteristics of the Sole Entrepreneur is that:
– there are no requirements about the paid – in capital
– the merchant is “unlimited” responsible for all liabilities of the company
– has simplified accounting
– registration is relatively inexpensive
Until recently, Sole Entrepreneur was the preferred legal form for registration of a company in Bulgaria. Main reason about that was the absence of requirements about the minimum capital required, while until 2009, the minimum capital required for a Limited liability company (Ltd.) was 5 000 levs/BGN (approximately 2 556 euro). The simplicity in the bookkeeping can be another advantage, which is, however rather insignificant.
Sole Entrepreneur has a very significant disadvantage – “unlimited” liability, borne by the individual, for all obligations of the enterprise. This significant risk and changes in the requirements about the minimum capital required for registration of Ltd., which is currently 2 levs (approx. 1 euro ), led to significantly less registrations of Sole Entrepreneur today.
General partnership, limited partnership and the partnership limited by shares
These three forms of commercial companies are the rarest in the market conditions in the country. The reasons about it are justified – these companies pose a significant risk to their owners. In those, as in the Sole Entrepreneur, there are no requirements about the minimum capital required, but there is an “unlimited” liability for the obligations of the enterprise on at least one of the partners. For example in the general partnership, the liability of all partners is personal, unlimited and subsidiary, while in the limited partnership and the partnership limited by shares, such liability is borne by at least one of the partners.
What is limited and unlimited liability and why is that such an essential question?
Unlimited liability, in general means that in addition to all the assets of the enterprise, its owners are responsible for all its liabilities with all of their own personal property. Like this, in case of the onset of bankrupt, if a creditor has a claim for repayment of its debts, that the company cannot cover, the creditor has the right to direct that claim to the property of each of the owners with unlimited liability.
Limited liability, on the other hand, means that each partner is liable only up to the amount of their share in the enterprise. Thus, if we consider the example given above, the creditor cannot direct his claim to the personal property of any of the owners. The limited liability significantly reduces the risk taken by the investors, which is the reason why the limited liability companies are the most preferred legal form for registration of companies in Bulgaria.
(to be continued)
