M&A Deal Structuring

Share deal — acquisition of shares or equity interests

In a share deal, the buyer acquires the shares or equity interests of the target company, while the company itself continues to exist with all its assets, liabilities, contracts and legal relationships. This is the most common form of M&A transaction in Bulgaria.

Limited Liability Company (LLC / OOD)

The transfer of equity interests in an LLC requires notarial certification of the signatures on the purchase agreement (Art. 129, para. 2 of the Commerce Act). A resolution of the General Meeting by a majority of more than 3/4 of the capital is required, unless the articles of association provide otherwise. The change is registered in the Commercial Register, with control passing from the moment of registration.

In an LLC with more than one partner, the right of first refusal applies (Art. 129, para. 1 of the Commerce Act) — the interests must first be offered to the other partners, unless the articles of association expressly exclude this requirement.

Joint Stock Company (JSC / AD)

For public JSCs, the transfer of shares is carried out through the Central Depository under the Public Offering of Securities Act (POSA). For private JSCs with registered shares — through endorsement and entry in the shareholder register. For bearer shares — through delivery.

The acquisition of significant share packages in a public company (1/3, 50%, 2/3 of the votes) triggers the obligation to make a tender offer under Art. 149 et seq. of the POSA.

Variable Capital Company (VCC / DPK)

Since 1 July 2024, Bulgarian law recognises the Variable Capital Company (VCC), introduced by the 2023 amendments to the Commerce Act. The transfer of interests in a VCC follows a specific regime — approval from the management body is required (except for transfers between partners), and preference interests with different classes of rights provide additional flexibility in structuring.

Tax aspects of a share deal

The transfer of shares and equity interests is not subject to VAT (exempt supply under Art. 46, para. 1, item 5 of the VAT Act). Tax on the gain from the sale is owed by the seller — 10% for legal entities under the Corporate Income Tax Act (CITA), 10% for natural persons under the Personal Income Tax Act (PITA). Under certain conditions, a DTT exemption may apply. No acquisition tax (local tax) is due.

Asset deal — acquisition of individual assets

In an asset deal, the buyer acquires specific assets of the company — machinery, equipment, real estate, receivables, intellectual property — without acquiring the company itself. Each asset follows its own legal transfer regime.

• Real estate — notarial deed of sale, registration in the Property Register, local acquisition tax (typically 2.5-3%)
• Movable property — sale agreement, transfer of possession
• Receivables — assignment under Art. 99 of the OCA, notification to the debtor
• Intellectual property — transfer agreement, registration with the Patent Office or EUIPO
• Contractual positions — tripartite novation or assignment agreements (subject to the counterparty's consent)

Tax aspects of an asset deal

The transfer of assets is subject to VAT at 20% (standard rate), unless it falls within the scope of Art. 10 of the VAT Act (transfer of a business or a distinct part thereof). Local acquisition tax is due for real estate and vehicles. The depreciation values for the buyer are based on the acquisition cost.

Going concern — transfer of a business as a going concern

The business enterprise as an aggregate of rights, obligations and factual relationships may be transferred as a whole or as a distinct part under Art. 15-16a of the Commerce Act. This is a unique form of transfer that combines elements of both a share deal and an asset deal.

Procedure

• Transfer agreement with notarially certified signatures
• Resolution of the competent body of the transferor (GM for LLC, Board of Directors/Management Board for JSC)
• Notification to the NRA and obtaining a certificate under Art. 77 of the TSIPC (mandatory before registration in the CR)
• Registration in the Commercial Register under the files of both parties
• Declaration by the acquirer assuming obligations towards employees

Legal consequences

Upon transfer of a business, employees automatically transfer to the acquirer under Art. 123 of the Labour Code, retaining all their rights and benefits. The transferor and the acquirer are jointly and severally liable for obligations arising before the transfer (Art. 15, para. 3 of the Commerce Act). Creditors must be notified.

VAT regime

The transfer of a business as a going concern is outside the scope of VAT by virtue of Art. 10 of the VAT Act — no VAT is charged, which is a significant tax advantage for asset-heavy businesses. The acquirer steps into the VAT rights and obligations of the transferor.

Mergers, acquisitions by merger and de-mergers (reorganisations)

Reorganisations under Chapter XVI of the Commerce Act include merger, acquisition by merger, de-merger and spin-off. The procedure is more complex and time-consuming, but offers tax advantages under the conditions of Chapter XIX, Section II of the CITA.

Merger / acquisition by merger procedure

• Transformation agreement/plan — prepared by the management bodies of the participating companies
• Examiner's report — appointed by the Registry Agency, verifies the fairness of the exchange ratio
• Disclosure — 30-day period for partners/shareholders to review the documents
• GM/GMS resolution — qualified majority (3/4 of the capital for LLC, 2/3 of the represented shares for JSC)
• Creditor protection — creditors may request security within 6 months of registration
• Registration in the CR — the transformation takes effect from the moment of registration

Cross-border transformations

Since 1 September 2024, the rules of Directive (EU) 2019/2121 on cross-border conversions, mergers and divisions have been transposed into Bulgarian law. Bulgarian companies may participate in cross-border reorganisations with companies from other EU Member States, subject to specific procedural requirements — including a legality check by the Registry Agency and protection of employees and creditors.

Control thresholds and deal protection

Key control thresholds under the Commerce Act

• 50% + 1 — simple majority at LLC General Meeting (most resolutions)
• 66.67% (2/3) — qualified majority for JSC (amendment of charter, capital increase/decrease)
• 75% (3/4) — super-qualified majority for LLC (admission/exclusion of a partner, amendment of articles of association, dissolution)
• 95% — squeeze-out threshold for public companies under Art. 157a of the POSA

Deal protection mechanisms

When structuring the transaction, it is important to provide for appropriate protection mechanisms:

• Lock-out (exclusivity) — prohibition on the seller negotiating with third parties for a specified period
• Break-up fee — penalty for withdrawing from the transaction (typically 1-3% of the value)
• No-shop / No-solicitation — restrictions on actively seeking alternative offers
• Matching right — the buyer's right to match a competing offer
• Material Adverse Change (MAC) — termination clause upon a material adverse change

SPV structuring and tax optimisation

In more complex transactions, the acquisition is often structured through a Special Purpose Vehicle (SPV). The main advantages include:

• Risk containment — isolating the transaction and the acquired company from the buyer's other business
• Financial flexibility — the SPV can raise debt to finance the transaction (leveraged buyout)
• Tax efficiency — possibility of deducting interest expenses (subject to the limitations under Art. 43 of the CITA — thin capitalisation)
• Future exit — facilitates the subsequent sale of the acquired business

In-kind contributions (apport)

In-kind contributions (apport) of shares/equity interests or assets to a company's capital may be tax-neutral under the conditions of Art. 130 of the CITA (share/equity exchange). In-kind contributions of real estate require a valuation by three experts appointed by the Registry Agency.

Share-for-share exchange

In a share/equity exchange under Art. 130 of the CITA — where the acquiring company obtains a majority interest in exchange for its own newly issued shares — no taxable gain is realised by the transferor. This is the transposition of the EU Merger Directive (2009/133/EC) and is a powerful instrument for tax-neutral restructuring.

Frequently asked questions