Distribution of votes, profits and dividend in Bulgarian LLC and JSC

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Participation is a commercial company implies various rights to the shareholders, the main being the right to dividend. According to Bulgarian Commercial Act shareholders in a Limited Liability Company are entitled to receive part of the profits in the form of dividends. Distribution of interim dividends (based on current year profits) is prohibited. Companies are allowed to distribute only accumulated profits from past fiscal years.

In the common practice the balance profit is distributed among the shareholders in proportion to their shares. In other words, if in a limited liability partnership there are two partners each holding 50 %, that means that they will receive equal share from the profit, unless otherwise agreed. “Unless otherwise agreed” is a key phrase here, as it gives opportunity to shareholders to stipulate different shares of profit. These stipulations shall be made in writing on the company’s Articles or Operating Agreement. So, practically there are no legal limitations to disproportional distribution of profits in a Limited Liability Company, in case all shareholders agree on that. In all cases, in order to be effective and legally binding, the decision for distribution of profits in the form of dividends should be taken by the General Meeting of Shareholders and duly recorded in writing in the company’s documentation.

Furthermore, payment of dividends should not confront the Limitation of Cash Payments Act which prohibits cash payments for amounts over BGN 10 000 (approx. EUR 5000). In such cases, payment of dividends must be by bank transfer.

The distribution of the votes in the general meeting of a Limited Liability Company (LLC) can be agreed in a similar way. Unless otherwise agreed, the voting right is proportionate to the share of the respective shareholder. Nevertheless, shareholders are free to determine different voting powers, regardless of their shares, in case all partners agree to such condition.

The distribution of profits in Bulgarian Joint Stock Companies (JSC) depends on the type of stocks the respective company issues. A Joint Stock Company is a company the capital of which is divided into stocks with a nominal value. A stock entitles its holder to a single vote in the General Meeting of Shareholders, to a dividend and to a liquidation share in proportion to the nominal value of the stock. Bulgarian Commercial Act, however, provides that JSCs can issue stocks with special rights, the so called privileged shares. They can grant to their owner guaranteed or additional rights to a dividend and/or a liquidation quota. It is possible the privileged shares to guarantee additional dividend but at the same time to deprive their holder from voting rights. Any special rights must be explicitly provided in the by-laws (statute) of the company.

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