Choosing a Company Structure in Bulgaria

Choosing a Company Structure in Bulgaria

When people ask us about registering a company in Bulgaria, one of the first questions is: EOOD or OOD? The good news is that for most foreign founders the choice is not hard. Both are limited liability companies, both have the same 10% corporate tax, and both need only 1 euro minimum capital. The real difference is how many owners there are, and that difference matters more than people think when there are partners involved. In this article we go through the options and the questions you should think about before the documents are signed.

The two common options

EOOD means a limited liability company with one owner. The owner can be a person or another company.
OOD means a limited liability company with two or more owners. In practice it's the same type of company, only with partners.
In both cases you are not personally liable for the company debts, your risk is the capital you put in. This is not 100% protection in every situation, for example a manager can be responsible if taxes are not paid or the company is in serious trouble and nothing is done. But for normal business it works like a GmbH or LTD in other countries.
There is also the AD, a joint stock company. It needs €25,000 capital and has a more heavy structure, so it's used mostly for bigger companies, banks, insurance and similar. A small or medium business almost never needs it. Some foreign companies also open a branch in Bulgaria instead of a new company, but a branch is not a separate company and the tax side works differently, so this is a topic for a separate conversation.

When EOOD is the simple answer

If you are alone in the business, choose EOOD. You are the owner, usually also the manager, and you make all decisions by yourself. The founding document is short and there is nobody to agree with.
Most of our clients are freelancers, consultants, IT people and online businesses working on their own, and for them EOOD is the normal choice. If you are a freelancer and still not sure if you need a company at all, we compare the sole trader option and EOOD in a separate article.
One thing to know: an EOOD can become OOD later. If after a period of time you want to bring a partner in, you can sell or transfer part of your share and change the documents. So you don't need to plan for partners that don't exist yet.

When it's OOD, and what to agree before

If two or more people own the business, it will be OOD. Here the registration itself is not more difficult, but the articles of association (the agreement between the partners) become very important. The law gives some default rules, but many things you can set yourselves, and it's much easier to agree them now than when there is a problem.
These are the questions we always ask partners to talk about before we file:
How are the shares split? 50/50 sounds fair, but it also means that if you disagree, nobody can decide. Some partners choose 51/49, or they agree in advance how to solve a blocked decision.
Who is the manager? It can be one partner, both, or someone else. If there are two managers, can each sign alone or do they need to sign together? Signing together is safer, but slower when one is travelling.
What decisions need everybody? For some important decisions the law already requires all partners to agree. For others you can choose the majority in the articles. Think about things like big payments, taking a loan or hiring.
What happens if one partner wants to leave? In an OOD a share can't just be sold to an outside person without approval of the other partners. It's good to also agree how the price is decided, otherwise this can become a long fight.
What if a partner dies or can't work anymore? Not a nice topic, but it's better that the articles say if the heirs become partners or not.
How is profit split? Normally by the size of the shares. If you want something different, it should be written clearly.
We are not saying this to scare anyone. From our experience most partnerships work fine. But the ones that end badly usually had nothing written about these things.

Can a foreign company be the owner?

Yes. A company from abroad can own an EOOD or be one of the partners in an OOD. In this case we also need documents for the foreign company, like a recent extract from its register, with apostille and translation. The process takes a bit longer because of this, and banks will look more carefully at the ownership when you open the account. It also makes sense to check the tax side, because dividends paid to a company can be taxed differently from dividends paid to a person. We explain the taxes for owners in more detail in our article about the 10% and 5%.

Capital: how much to put in

The legal minimum is 1 euro for both EOOD and OOD. Still, many founders put a bit more, for example a few hundred or a few thousand euros. There is no rule that says you must, but a company with 1 euro capital can look strange to some banks or business partners, and the company needs money to pay its first costs anyway. You can also lend money to the company later instead of putting in big capital at the start. Talk with your accountant about what is better in your case.

In short

One owner: EOOD. Two or more owners: OOD. The tax is the same and the registration is almost the same. The real work with an OOD is to agree between the partners how decisions are made and what happens when someone wants to leave, and to write it down before you register.
If you want to see how the full registration works step by step, read our overview of starting a company in Bulgaria. And if you are planning a company with partners, write us. We are happy to go through these questions with you before anything is filed.