The new type of company, known as a Variable Capital Company (VCC), offers a range of advantages compared to the traditional Limited Liability Company (LLC) and Joint Stock Company (JSC). A well-drafted Statutes or Articles of Association (AoA) in a VCC can help you successfully bring your business idea to life.
However, the advantages of VCCs do not make LLCs and JSCs obsolete in commercial operations. On the contrary, small businesses may find less need for a VCC. In practice, the new commercial form is particularly practical for the technology sector and offers an excellent structure for “start-up” businesses.
To better understand how and why to utilize VCCs, we present seven questions and their corresponding reasons based on our real-life practice at G&P Law:
1. How is it Ideal for Start-Up Companies?
Previously, LLCs were commonly used for start-ups, but they came with limitations regarding adding or removing partners, share distribution, and more. Even with additional intra-company agreements, the rigid structure of LLCs did not always ensure the best realization of investment goals.
VCCs offer more flexible management, control, and participation structures, making them more attractive to venture funds, angel investors, and new business partners. An AoA within a VCC allows for greater flexibility, providing clarity that is appealing to investors.
If you would like to read more about the VCC, you can see here.
2. Can I transform my current business into a VCC? Yes, if you meet the requirements.
If your current LLC or JSC meets the criteria set forth in the Commerce Act—specifically, cumulatively 1)having fewer than 50 employees, 2) annual turnover not exceeding BGN 4 million, and/or asset value not exceeding BGN 4 million—it can be transformed into a VCC. This transformation allows for more flexible management and easier engagement of external investors. Should the VCC surpass the above thresholds, however, it would need to revert back to an LLC or JSC.
3. Flexible Management Structures. How exactly?
VCCs allow for a choice of custom management model that suits your business needs. Unlike other commercial companies, VCCs provide more flexibility in choosing “how” to manage, not just “who” manages.
For example, you can operate a large business akin to a joint stock company but with a sole manager, or establish a governing Board of Directors if needed. Special voting rights for partners can be set in the AoA. Moreover, the VCC offers mechanisms to hold managers accountable for unprofitable or harmful contracts, providing additional security to partners.
4. How is the Share Transfer Process Simplified?
Transferring shares in an LLC often involves notarization and coordination across borders, making it cumbersome and costly. In contrast, VCCs allow share transfers to be governed by simple written agreements, reducing the complexity and costs typically associated with LLCs.
5. Employee Incentives through Share Acquisition Options by Vesting
VCCs can offer employees shares through vesting options, which define conditions for acquiring shares, such as achieving financial goals or remaining with the company for a certain period. This approach motivates employees by giving them a vested interest in the company’s success, boosting productivity.
6. Simplified Succession in the Event of a Partner’s Passing
In LLCs, the heirs of a deceased partner may face challenges in joining the company. VCCs ensure that heirs who express an interest in participation can become partners automatically. Alternatively, if they choose not to participate, independent experts can be appointed to value the deceased partner’s share based on market value, providing fair compensation.
7. Easier Attraction of Investors
The inclusion of angel investors is crucial for start-ups, but in LLCs, a partner’s vote can block new partners or key decisions, creating uncertainty. VCCs eliminate this obstacle, as General Assembly approval is not required for partner inclusion. Additionally, VCCs can acquire and offer their own shares, creating new opportunities for investors, including vesting.
If you have any questions about variable capital companies, our team of experienced corporate lawyers is ready to assist. Reach out for a consultation using the form on our website, email us at [email protected], or call us at +359 2 980 53 20.
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