When the partners in a Bulgarian limited liability company can no longer work together, the law offers several ways out: expulsion, withdrawal, selling the share or winding up the company. We explain when expulsion is lawful, how it is challenged and what a departing partner receives.
In brief
- A partner may be expelled by the general meeting only after a written warning and only on a statutory ground: failing to cooperate in the company's business, not carrying out general meeting decisions, acting against the company's interests, or not paying an additional cash contribution (Art. 126(3) of the Commerce Act).
- The decision needs a majority of more than three quarters of the capital; the partner being expelled does not vote and his share is left out of the count, so with equal shares the other partner can decide alone. The minutes need notarial certification of signatures and content, or the decision is void (Art. 137(3) to (5) of the Commerce Act).
- A partner may leave by written notice given at least 3 months before the date of leaving; the financial consequences are settled on the balance sheet at the end of the month in which membership ends (Art. 125(2) and (3) of the Commerce Act).
- General meeting decisions are challenged by a claim against the company before the regional court at its seat within 14 days of the meeting if the partner attended or was properly invited, otherwise within 14 days of learning of it and no later than 3 months (Art. 74 of the Commerce Act).
A Bulgarian limited liability company (OOD) is a contract between people who have to take decisions together. When trust breaks down, every day without a decision costs money: management stalls, clients feel the tension, and the partners start acting against each other. The Commerce Act provides several ways out, and each has strict requirements as to grounds, deadlines and form. A mistake in form often makes a decision void and sends the dispute back to the beginning.
When a partner can be expelled
Expulsion is the most serious measure against a partner, and the law allows it only in listed cases. The general meeting may expel a partner after a written warning when the partner (Art. 126(3) of the Commerce Act):
- does not fulfil his duty to cooperate in carrying on the company's business;
- does not carry out the decisions of the general meeting;
- acts against the company's interests;
- does not pay an additional cash contribution decided by the general meeting, if he did not use his right to leave under Article 134(2).
A separate case is the partner who has not paid in his share of the capital. The general meeting sets him an extra period of at least one month, by a majority of more than half of the capital, and the manager notifies him in writing and warns him of expulsion. If he does not pay within that period, he is deemed expelled and loses what he has paid in (Art. 126(1) and (2)).
Expulsion is a tool for companies with more than one partner. A single-member EOOD has no one to expel, and in a dispute between two partners with equal shares what matters is exactly what the other partner did and whether it can be proved.
The written warning
The law requires expulsion to be preceded by a written warning (Art. 126(3)). In practice, the warning should name the specific breaches, require the partner to stop them, and warn that otherwise his expulsion will be proposed. Serve it in a way you can prove, for example through a notary or by courier with proof of delivery, and keep evidence of the breaches: minutes, letters, decisions not carried out. A warning the partner never received, or one that names no breach, is the most common reason courts set expulsions aside.
Majority and form of the decision, including with equal shares
Expulsion needs a majority of more than three quarters of the capital, unless the articles of association require more. The partner being expelled does not vote, and his share is deducted from the capital when the majority is counted (Art. 137(1)(2) and (3)). So in an OOD with two partners holding 50 per cent each, one of them can decide alone to expel the other, provided there is a lawful ground and the procedure is followed.
The general meeting is called by a written notice with the agenda, received by each partner at least 7 days before the meeting, unless the articles provide otherwise (Art. 139(1)). The manager calls it; if he refuses, partners holding more than one tenth of the capital may request a meeting and call it themselves after 2 weeks (Art. 138(2)).
The minutes of an expulsion require notarial certification of the signatures and the content, carried out at the same time, unless the articles allow simple written form; a decision taken in breach of this is void (Art. 137(4) and (5)). Expulsion takes effect from its entry in the Commercial Register (Art. 140(4)), so the application should be filed straight after the meeting.
Leaving the company on notice
A partner who wants to leave does not need the others' consent. He ends his participation by written notice to the company given at least 3 months before the date of leaving (Art. 125(2)). The notice must be provable, and the leaving date must be clear.
If the departing partner is also the manager, his release as manager is a separate matter. A manager may ask to be removed by written notice to the company; the company must file his release with the Commercial Register within one month, and if it does not, the manager may file it himself (Art. 141(5)).
What the departing partner receives
On withdrawal and on expulsion, the financial consequences are settled on the basis of the balance sheet at the end of the month in which membership ended (Art. 125(3)). Each partner has a share in the company's assets corresponding to his share in the capital, unless agreed otherwise (Art. 127). The exception is a partner expelled for not paying in his share, who loses what he paid (Art. 126(2)).
The amount is often the most disputed point. Book value can differ widely from market value, especially in a company with property, contracts or clients that do not show on the balance sheet. It is better to agree the figure; in a dispute, the court sets it with an expert valuation. The company must also decide what happens to the vacated share: whether the capital is reduced or the share is taken over by the remaining partners.
How to challenge an expulsion or any other decision
Any partner may sue to set aside a general meeting decision that breaches the law or the articles (Art. 74(1)). The claim is brought against the company before the regional court at its seat (in Sofia, the Sofia City Court), within 14 days of the meeting if the claimant attended or was properly invited, and otherwise within 14 days of learning of the decision, but no later than 3 months after the meeting (Art. 74(2)). These deadlines are short and cannot be extended, so the notice and the minutes must be read at once.
Other partners may join the case and pursue it even if the claimant withdraws (Art. 74(3)). Where the company's bodies infringe the right of membership or individual membership rights, a partner can protect them by a claim under Article 71. These cases follow the special rules for commercial disputes (Art. 365(3) of the Civil Procedure Code), with short deadlines for evidence.
When no decision can be taken: a negotiated exit or winding up
Often the best outcome is for one partner to buy the other's share. Transfers between partners are free, but the contract requires notarial certification of signatures and content (Art. 129 of the Commerce Act). The agreement should cover the price, payment terms, security, the release of the departing partner as manager, and a non-compete.
If the partners cannot agree, the company may be wound up by a decision of the partners taken by three quarters of the capital (Art. 154(1)(2)). Where no such decision is possible, partners holding more than one fifth of the capital may ask the regional court to dissolve the company if important reasons require it (Art. 155(1)). This is a last resort that also destroys the value of the business, so it usually serves as leverage in negotiations rather than as a goal.
Mediation suits disputes between partners particularly well: it is confidential and quick, and it allows agreements a court cannot order, such as dividing clients or paying in instalments.
Common mistakes
- expelling a partner without a prior written warning, or with a warning that names no specific breach;
- minutes in simple written form when the articles do not allow it;
- a notice of meeting received less than 7 days before the meeting, or without an agenda;
- missing the 14-day deadline for a claim under Article 74;
- leaving on notice without settling the management and the payout of the share.
Where a lawyer changes the outcome
- before the resolution: evidence of the ground and the written warning, without which the exclusion will not stand in court;
- in the resolution: majority, quorum and form, including where the shares are equal;
- in the payout: the amount owed to the departing partner and the time limits for paying it;
- on a challenge: the time limits for the claim and interim relief where new entries in the register are likely;
- in a deadlocked company: a buy-out, settlement or mediation before it comes to winding up.
Petkova & Minkov Law Firm acts for partners and companies in corporate disputes before the regional and appellate courts and negotiates partner exits. Iva Petkova is also a registered mediator. We work in Bulgarian, English, Russian and German.
How we can help
We act for partners and companies in disputes over exclusion, withdrawal and general meeting decisions, and look for a way out before the dispute paralyses the business.
- We assess whether there is a lawful ground for exclusion and what evidence it needs
- We draft the written warning, the notice of meeting, the minutes and the Commercial Register filing
- We challenge unlawful general meeting decisions in court
- We negotiate a buy-out of the share and the amount due to the departing partner
- We offer mediation where the partners want to keep the business going