A joint venture (often abbreviated JV) is a type of business partnership between two or more parties to undertake economic activity together and to share the risk from this economic activity. In most of the cases the parties establish a new legal entity by both contributing equity, and they then share in the revenues, expenses, and control of the enterprise. The venture can be for one specific project only, or a continuing business relationship.

In Bulgaria a JV between parties can be established by usage of different legal forms of the entity to carry out the economic activities. It is the Commerce Act of Bulgaria of 1991, as amended and supplemented from time to time, to regulate most commonly used types of legal entities which can be established under the Bulgarian law. In practice, the most common legal forms chosen by the parties are these of the limited liability company (“LLC”) and the joint – stock company (“JSC”).

To incorporate a LLC the founders have to adopt a written resolution under which: (i) the founders approve the incorporation of the LLC, (ii) approve the Articles of Association of the LLC and (iii) appoint one or more Managers of the LLC. After execution of the set of documents necessary for the incorporation and deposition of the capital of the LLC with a bank in the Republic of Bulgaria, a special application should be submitted with the central Commercial Registry (the “Registry”) kept by the Registry Agency of the Republic of Bulgaria (the “Agency”), an administrative authority to the Bulgarian Minister of Justice for registration of the LLC.

The ultimate managing body of the LLC is the General Meeting of the Shareholders (“GM”) which shall resolve on the major issues (such as amendments to the Articles of Association, approval of new shareholders; capital increases and decreases; appointment and dismissal of Manager/s; additional monetary contribution, etc.). The other resolutions related to the current and day-to-day management of the LLC shall be taken by the Manager/s. In case more than one Manager is appointed, each of them shall be entitled to represent and bind the LLC separately, unless the GM decides the Managers to represent the LLC jointly only.

Currently the minimum initial capital required for registration of a LLC is BGN 2 (EUR 1). No certificates have to be issued for the purpose of proving the share participation in the LLC or if such issued these are not securities under the Bulgarian law.

To incorporate a JSC the founders shall adopt a written resolution under which: (i) the founders approve the incorporation of the JSC, (ii) approve the Statutes of the JSC and (iii) appoint members of the Board of Directors (in case one – tier management system is chosen) or the Supervisory Board (in case two – tier system for management is chosen) of the JSC. After execution of the set of documents necessary for the incorporation and deposition of the capital of the JSC with a bank in the Republic of Bulgaria a special application should be submitted with the Registry.

The ultimate managing body of the JSC is the GM which shall resolve on the major issues concerning the JSC (capital increase, amendment of the Statutes, etc.). The management body is the Board of Directors (in case of one – tier management system) or the Management Board (in case of two – tier management system).

The minimum initial capital required for incorporation of an JSC is BGN 50,000 (approx. EUR 25,640). Before the submitting of the application for registration of the JSC with the Registry 25% of the value of each share must be paid-in. The rest of the subscribed capital shall be paid within 2 years as of registration of the JSC. The participation of a shareholder in the company is evidenced through a share certificate or a temporary share certificate, both of these being securities under the Bulgarian law.

Both forms of legal entities are generally entitled under law to engage in any type of business activity, regardless of whether or not a specific business activity is included in the registered scope of business of the company (i.e. Bulgarian law does not know the concept of ultra vires).

The LLC is in principle more appropriate for small size business operations or where the costs of incorporation should be kept to a minimum. The LLC is normally not suitable for larger projects, which require more significant funding or attraction of new investors. The main differences between the LLC and the JSC are as follows:

• The costs for incorporation of an JSC (the minimum capital requirements included) are lower compared to the costs for incorporation of an JSC;
• The procedure for transfer of shares of LLC is more complicated – the transfer of shares is made by way of an agreement with notarized signatures and is subject to registration with the Registry in order to become effective while the transfer of shares of a JSC shall be made by way of endorsement of the shares and registration with a privately held Shareholders Book of the company – a simple procedure not requiring registration with public registries;
• The LLC does not provide for the possibility of flexible attraction of funds by various instruments such as issuance of corporate bonds, convertible shares, privileged shares, non-voting shares, etc., which are available with a joint-stock company;
• There is no possibility additional monetary contributions  by the shareholders to be made in a JSA but in LLC only;
• The establishment of pledge over the shares of a LLC shall be effected by way of a notarized agreement and registration of the pledge with the Registry while the establishment of pledge over the shares in JSC shall be effected by way of pledge endorsement over the shares and their delivery to the creditor;
• The management of an LLC is carried out by one or more Managers. Even if more than one they do not act as a management body but as independent company’s officers. The JSC has a management in the form of a Board of Directors / Management Board which allows for more structured management.

Besides incorporation of a legal entity the parties in a JV often enter into Shareholders Agreement which is binding and has effect for them only. The Shareholders Agreement does not have to be registered with any authority and usually sets out more thoroughly the relations between the parties in terms of financial obligations, management of the legal entity to be established, resolving of dead-lock situations, call and put options, etc.

Last but not least a parties to a JV should be in compliance not only with the provisions of the Commerce Act of Bulgaria in terms of incorporation of the legal entity for the JV but with the provisions of the Protection of Competition Act of Bulgaria of 2008 in terms of non-violation of the prohibitions for agreements which may lead to prevention, restriction or distortion of competition within the relevant market.