Shareholder Loan or Capital Increase in Bulgaria? A Guide for OOD and EOOD Owners

1. Start with the purpose of the funding

Ask how long the company needs the funds, whether the owner expects repayment, whether all owners will participate and whether ownership percentages should change. Also check the company’s financial condition and any bank or investor restrictions. An accounting entry should reflect an established legal arrangement rather than supply the missing agreement afterwards.

This guide concerns Bulgarian limited liability companies, OOD and EOOD. Joint-stock companies and variable-capital companies have different capital and governance rules. “Shareholder” is used here in the practical English sense; an OOD owner holds membership interests.

2. A shareholder loan creates a repayment obligation

A genuine loan separates the owner’s position as creditor from their position as member. Under Article 240 of the Obligations and Contracts Act, money is advanced with an obligation to return an equivalent sum. Interest is due under that provision only where agreed in writing. A written agreement and a clearly documented transfer are therefore useful even where a particular form is not otherwise required for the principal loan.

Set out the principal, currency, drawdown, maturity, interest or interest-free arrangement, repayment schedule, early repayment, default and any security or subordination. Check who signs for the company, any conflict of roles and required internal or lender approvals.

A loan does not automatically increase the lender’s ownership percentage. Selling the membership interest also does not automatically transfer or cancel the separate loan claim: address it expressly in the sale and settlement documents.

3. A capital increase changes the company’s capital structure

A cash capital increase requires corporate decisions, amended company documents, the contribution and registration. Article 148 of the Commerce Act describes the routes: increasing existing interests, subscribing new interests or admitting new members. How the contributions are allocated determines whether the ownership proportions remain the same.

Under Article 137(3), the OOD decision to increase capital requires unanimity of all members. Article 137(4) governs the form of the minutes: simultaneous notarial certification of signatures and contents is the statutory rule for the relevant decision unless the articles provide for written form. An EOOD uses the sole owner’s decision under the applicable rules. The change of capital takes effect upon registration under Article 140(4).

Capital is not a loan balance that the owner can demand back on a convenient date. Returning value requires a lawful route, such as a compliant capital reduction or a distribution where its conditions are met. The company’s bank balance is not the same as distributable profit.

4. Consider additional cash contributions separately

Article 134 permits additional cash contributions for covering losses or a temporary need for funds, for a defined period and by a general-meeting decision. They do not increase registered capital. They are proportionate to membership interests unless another arrangement is provided, and interest can be agreed.

The decision must meet the applicable majority and company-document requirements. A member who did not vote in favour has a specific statutory exit right subject to the conditions and period in Article 134(2). It is therefore important to plan the resolution, notice and repayment terms rather than treat the contribution as an informal bank transfer.

5. Resolve the unequal-funding problem before paying

Illustrative example: two members each own 50%, but only one can advance €40,000. A loan may preserve the 50/50 ownership while creating a repayment claim. A capital increase requires an agreed corporate structure and may change the proportions. Neither result follows merely from the transfer description “investment”.

Agree who bears the financing burden, whether interest is payable, what happens if further money is needed and how the balance will be treated on an exit. The financing agreement and the shareholder arrangements should tell the same story.

6. Review tax, banking and insolvency implications

Related-party pricing, deductibility, withholding tax and reporting depend on the lender, residence, terms and applicable tax rules. Do not assume that an interest-free advance has no tax consequences or that interest is automatically deductible. Coordinate the legal documents with the accountant before funding.

Bank covenants can restrict repayment or require subordination. In financial distress, member funding and repayments need particular care: insolvency ranking and challenge rules can affect recovery. A loan label does not guarantee priority over other creditors, and repayment to an owner should not be treated as an unrestricted withdrawal.

7. Prepare the decision and evidence together

• Current articles and ownership structure.
• Amount, currency, purpose and expected funding period.
• Latest financial information and existing loan or investor restrictions.
• Proposed contribution by each owner and desired ownership after funding.
• Draft repayment or capital terms, approvals and signing arrangements.
• Bank-transfer evidence and consistent accounting treatment.

If money has already been advanced without clear documents, reconstruct what was actually agreed and paid. Do not backdate a new agreement or assume that a later label cures every corporate or tax issue.

Legal sources and scope

• Obligations and Contracts Act
• Commerce Act: Articles 133–140, 148 and insolvency provisions

Official sources are in Bulgarian. The English and Russian explanations are not official translations of the legislation.