I. The Fundamental Distinction
A share acquisition is a transaction in which the buyer acquires the membership interests (дялове) in a limited liability company, or the shares (акции) in a joint-stock company, held by the existing members or shareholders. The target company continues to exist as the same legal entity, with its assets, liabilities, contracts, licences, and legal relationships unchanged. What changes is the identity of the persons who own and control it.
An asset acquisition, by contrast, is a transaction in which the buyer acquires specific assets from the target company — typically a business, a portfolio of real property, or a collection of equipment and intellectual property. The target company continues to exist as a separate legal entity after the transaction; only the specified assets pass to the buyer. The transaction is governed not by commercial law rules on share transfer but by the legal regime applicable to each individual asset being transferred — the Law on Ownership for real property, the Commercial Act for trade enterprises (търговски предприятия), the Obligations and Contracts Act for contractual rights, and so on.
II. Liability Implications
Share acquisition: inherited liability
The defining liability characteristic of a share acquisition is that the buyer inherits the full liability profile of the target company. Because the target entity continues unchanged, all of its existing liabilities — including known liabilities, contingent liabilities, and undiscovered historical liabilities — transfer automatically to the buyer's ownership. Tax liabilities arising from years prior to the acquisition, pending litigation, environmental obligations, employment claims, and regulatory exposures all remain the liability of the target company and, through it, the economic risk of the buyer.
This inherited liability risk is the primary driver of the extensive due diligence exercise that precedes a share acquisition. It is also the reason why share purchase agreements in Bulgarian M&A transactions typically contain detailed vendor representations and warranties covering the target's financial position, legal compliance, tax affairs, material contracts, and litigation history, together with indemnification provisions under which the vendor agrees to hold the buyer harmless against pre-closing liabilities that were not disclosed.
Asset acquisition: selective exposure
In an asset acquisition, the buyer takes on only the liabilities expressly assumed in the acquisition agreement, together with any liabilities that transfer by operation of law as an incident of the assets being acquired. The buyer does not, in principle, assume the general liabilities of the vendor company — including its tax history, its unrelated litigation, or its pre-existing regulatory exposures. This selective liability profile is frequently cited as the primary advantage of the asset acquisition structure from the buyer's perspective.
The qualification "by operation of law" is, however, important. The acquisition of a going-concern business as a trade enterprise under Article 15 of the Commercial Act triggers the rule of joint and several liability: the buyer becomes jointly and severally liable with the vendor for all obligations of the business that arose prior to the transfer, to the extent of the acquired assets. This rule — which cannot be excluded by agreement between the parties and is effective against third-party creditors — significantly erodes the liability protection that asset acquisition is otherwise thought to afford.
III. Tax Treatment
Share acquisition
The transfer of membership interests in a Bulgarian limited liability company by an individual vendor is subject to capital gains tax at the rate of ten percent on the gain (the difference between the sale price and the acquisition cost of the interest). Where the vendor is a Bulgarian corporate entity, the gain is included in the company's taxable profit and subject to corporate income tax at ten percent. Where the vendor is a non-resident individual or company, the applicable rate and the question of withholding tax depend on the terms of the relevant double taxation treaty.
The acquisition of shares in a Bulgarian company does not give rise to VAT, transfer tax, or notary fees, irrespective of the nature or value of the underlying assets of the target. This tax efficiency — particularly in transactions involving real property — is a significant advantage of the share acquisition structure and is one of the principal reasons why Bulgarian real property is frequently held through corporate vehicles rather than directly.
Asset acquisition
The tax treatment of an asset acquisition depends on the nature of the assets being acquired. The transfer of real property is subject to a local transfer tax of between two and three percent and a notary fee calculated on the transaction value. Where the vendor is VAT-registered, the transfer may be subject to VAT at twenty percent, although transfers of residential buildings more than five years old and transfers of undeveloped land are generally exempt. The transfer of a business as a going concern may qualify as a transfer outside the scope of VAT under Article 10(1)(2) of the VAT Act, provided the relevant conditions are met.
IV. Transfer of Contracts and Licences
In a share acquisition, contracts to which the target company is a party are unaffected by the change of ownership. The target remains the contracting party; no novation or consent of the counterparty is required. This automatic continuity of contractual relationships is commercially valuable, particularly where the target holds licences, permits, or long-term customer or supplier agreements whose transfer would otherwise require third-party consent.
In an asset acquisition, the transfer of contracts requires either the counterparty's consent to a novation or the inclusion in the transaction of an assignment of the vendor's contractual rights (which does not require consent but does not bind the counterparty to perform obligations to the assignee without its agreement). Where the target's value resides primarily in its customer relationships or regulatory licences, the inability to transfer these instruments without third-party consent may be a decisive factor in favour of a share acquisition structure.
V. Regulatory and Competition Considerations
Transactions that result in a change of control of a Bulgarian company — whether effected by share acquisition or by asset acquisition of a going-concern business — may be subject to mandatory notification to the Bulgarian Commission on Protection of Competition (Комисия за защита на конкуренцията) where the applicable turnover thresholds are met. The thresholds require notification where the combined annual turnover of the parties in Bulgaria exceeds €12.78 million and each of the merging undertakings has a Bulgarian turnover exceeding €1.53 million. Completion of a notifiable transaction without prior clearance constitutes a serious regulatory infringement and may result in the imposition of substantial fines and, in extreme cases, the unwinding of the transaction.
Sector-specific regulatory regimes — applicable to banks, insurance companies, telecommunications operators, and other regulated businesses — impose additional change-of-control notification or approval requirements that must be identified and addressed in the transaction timetable.
VI. Comparative Summary
| Factor | Share Acquisition | Asset Acquisition |
|---|---|---|
| Liability inherited | All historical liabilities of target | Assumed liabilities only (subject to Art. 15 CA rule) |
| Transfer tax on property | None | 2–3% of property value |
| VAT | Not applicable | Potentially applicable (20%); TOGC exemption may apply |
| Contracts | Continue automatically | Require novation or assignment |
| Licences and permits | Continue in target entity | May not transfer; new applications required |
| Due diligence scope | Comprehensive (full liability profile) | Limited to acquired assets |
| Competition filing | May be required (change of control) | May be required (change of control) |
| Vendor's tax on gain | 10% CGT (individual) / 10% CIT (corporate) | Gain taxed in target company at 10% CIT |
VII. Practical Choice of Structure
In practice, the choice between a share acquisition and an asset acquisition in the Bulgarian context is driven by a combination of the factors described above, weighted according to the specific circumstances of the transaction. Where the target holds valuable licences or long-term contracts that cannot readily be transferred, a share acquisition is typically preferred. Where the target carries significant undisclosed or contingent liability risk — for example, unresolved tax positions, pending litigation, or environmental exposure — an asset acquisition may be preferred, notwithstanding the higher transaction costs.
The real property transfer tax differential is frequently decisive in transactions where the target's primary asset is real property: buyers routinely structure such transactions as share acquisitions specifically to avoid the transfer tax and notary fee that would be payable on a direct asset transfer. This practice is well-established and entirely lawful, though it shifts the liability risk profile of the transaction and requires the buyer to conduct a more thorough due diligence of the target company's full legal and financial position.
A hybrid structure — in which some assets are acquired directly and others remain in the target entity, which is then acquired by share purchase — is possible in principle but increases complexity and should be approached with caution, as it may trigger multiple regulatory regimes simultaneously and complicate the allocation of representations, warranties, and indemnities.