The possibility of the capital being reduced and increased simultaneously is governed by Article 149(1) of the Commerce Act and by Article 203 of the Commerce Act – for the limited liability company and the joint-stock company respectively. In both types of company, it is permissible for the capital to be reduced and increased simultaneously, provided that the reduction takes effect only if the envisaged increase of the capital is carried out. The increase is a precondition without which the reduction cannot be permitted. This is monitored ex officio by the registration authority (the official at the Commercial Register) when both facts are entered by a single decision.
The main purpose of this procedure is to achieve a positive accounting balance – new funds are contributed to the company by existing or new partners/shareholders. The simultaneous reduction and increase of the capital serves as a means of financially stabilising the company where there is a negative balance, and of bringing the capital entered in the Commercial Register into line with the amount of the net assets. This concerns a nominal, rather than an actual, reduction of the capital, the purpose of which is to avoid a situation in which the company’s future revenue from its activity would have to be used to cover the accumulated losses arising from the discrepancy between the higher amount of the capital and the lower value of the net assets. In practice, this is an intermediate stage used in the interest of the objective genuinely pursued – the actual increase of the capital, which is effected simultaneously with the nominal reduction, by means of a monetary or non-monetary contribution.
Depending on the parameters of the planned changes, the capital may be reduced even below the minimum amount established by law, provided that, following the increase, it reaches at least the legally required minimum – BGN 2 for a limited liability company (OOD) and BGN 50,000 for a joint-stock company (AD). If, following the increase, the amount of the capital reaches or exceeds its previous value before the changes, the procedure takes place in a single stage and the change is entered directly in the company’s file in the Commercial Register. In the opposite case, it is first necessary to announce the decision of the general meeting of the partners or shareholders on the simultaneous reduction and increase of the capital, and only after the expiry of the three-month period under Article 150 of the Commerce Act, which is intended to protect creditors, may the new amount of the capital be entered.
In order for the procedure for the simultaneous reduction and increase of the capital to be carried out lawfully, the methods of reducing and, correspondingly, increasing the capital that are expressly provided for in the Commerce Act must be strictly observed.
The reduction of the capital of an OOD may be effected by lowering the value of the share in the capital, by returning the share of a partner who has terminated their participation, or by releasing a partner from the obligation to pay in the unpaid part of the share. In the case of an AD, the reduction is carried out by reducing the nominal value of the shares or by cancelling them. The decision on the simultaneous reduction and increase of the capital must expressly state the purpose of the reduction, its amount and the specific manner in which it is to be carried out.
The increase of the capital of an OOD may take place by increasing the value of the shares, by subscribing new shares or by admitting new partners. In the case of an AD, the increase may be effected by issuing new shares, by increasing the nominal value of the shares already issued, or by converting bonds into shares.
In this connection, case law consistently holds that the disposal of movable or immovable property contributed in kind to the company, as well as of receivables, does not affect the amount of the capital. Unlike the value of the assets, which changes as a result of the business activity, the capital is a static quantity and may be altered only where certain conditions are present and in compliance with the procedure established by law. Once included in the capital, the assets contributed in kind have only a value expression and may subsequently be the subject of disposal without this leading to a change in the capital – the effect is only on the individual asset items. The Commerce Act does not provide for a legal concept such as “withdrawal from the capital” or “reversal of an in-kind contribution”, and therefore the disposal of assets and property contributed in kind does not constitute a method of reducing the capital, does not give grounds for seeking the deletion of a non-monetary contribution from the company’s file, nor does it require an amendment of the articles of association or the statutes, nor can it be used as a ground for the “deletion of shares” in an OOD subscribed through a non-monetary contribution.
Should you need further information, assistance or advice in connection with the increase and reduction of capital, contact us on 0887550706 or by e-mail: [email protected]
