The purpose of this article is to present information in relation to a specific legal form of business operation within the European Union, namely the European Economic Interest Grouping, or EEIG. The legal provisions in this respect are established at the European level by Council Regulation (EEC) 2137/85 of 25 July 1985 on the European Economic Interest Grouping (EEIG), i.e. Member States are not entitled to adopt national harmonised standards in their national legal systems. However, they are obliged to apply the rules set out in the Regulation. Nevertheless, the Regulation refers in certain aspects to the national law of the relevant state, which in turn gives the states the freedom to regulate the matter taking into account their country-specific circumstances with regard to the registration procedures in the relevant registers
I. Legal nature
As already mentioned, the European Economic Interest Grouping is regulated at the level of the European Union by the European Regulation, yet according to Art. 2(1) of the Regulation, the national law of the state in which the association has its registered office and business address according to the foundation agreement is to be applied. It is important to note that the purpose of this grouping is not to make a profit - as is the case, for example, with the private limited company - for itself, but to facilitate the economic activity of its founding members, i.e. that it undertakes an auxiliary activity. Another feature is that the grouping may not exercise any power of control over its members' own activities, may not hold shares or stock in a member enterprise, and may not employ more than five hundred workers. An essential feature of this legal form, which distinguishes it from the private limited company, is that the members of the grouping bear unlimited and joint liability for its obligations. In this respect, the legal form of the association is more similar to that of the general partnership. However, a significant difference should be highlighted here: According to Article 24 of the Regulation, creditors may enforce their claims against a member before the completion of the dissolving of the grouping only if they have demanded the payment from the grouping and the payment has not been made within a reasonable period of time.
The grouping is established as a legal entity upon registration in the relevant register of the EU Member State. With regard to the registered office of the grouping, it should be noted that it must be located within the EU and may be transferred from one Member State to another. With regard to the legislation in Bulgaria, the Bulgarian Commerce Act regulates an essential restriction of this principle, namely that a transfer of the registered office of the Bulgarian grouping in another Member State cannot take place if the grouping is the owner of land in the Republic of Bulgaria. Another peculiarity of Bulgarian legislation is that insolvency proceedings may be opened for the grouping in accordance with the Commerce Act, but this does not automatically entail the opening of such proceedings against its members as well, irrespective of the fact that they are jointly and unlimitedly liable for their debts. The Regulation provides an important prohibition, namely that the association may not address the capital market publicly.
The establishment of such a grouping in Bulgaria requires the conclusion of a contract between the parties involved and the entry in the relevant register to obtain legal entity. The foundation agreement must contain at least the following information:
- the name of the grouping preceded or followed by the words "European Economic Interest Grouping" or the abbreviation "EEIG", unless those words or that abbreviation are already included in the name;
- the seat of the grouping
- the corporate purpose for which the grouping has been established;
- the name, business name, legal form, residence or registered office and, where appropriate, the number and place of registration of each member of the grouping ;
- the duration of the grouping, unless it is indefinite.
The founders of a grouping may be European companies or natural persons that can carry on an industrial, commercial, craft, agricultural or freelance activity in the EU or provide there other services. The foundation shall require the participation of at least two companies or natural persons which carry on their principal activities in different Member States, in that the grouping may also be formed by only one company and one natural person, but they must carry on their activities in different Member States.
Related to the domicile the requirement is that it shall be located where the main administration of the grouping is, or the location of the main administration of a member of the grouping, or, in case in which a private entity is a trader, where they practise their main activity, as long as the grouping practises their activity at this place.
Every member has a vote. The foundation agreement can allow that certain members have more votes under the condition that one member cannot possess the majority of votes, whereby the decision-making based on concessions between the members is achieved. One interesting matter is the majority voting of decisions by the members of the grouping, as unanimity is required on certain issues:
- Changes of the corporate purpose of the grouping;
- Changes in the number of votes held by each member;
- Changes to the conditions for passing resolutions;
- an extension of the duration of the grouping beyond the date specified in the foundation agreement of the grouping;
- Changes in the contribution of each member or specific members to the funding of the grouping;
- Changes to any other obligation of a member, unless the foundation agreement of the grouping provides otherwise
- Any changes in the foundation agreement not referred to in this paragraph, unless otherwise specified.
The addition of a new member shall be voted unanimously. Every new member is liable for the obligations of the grouping, including the ones that have been submitted before their accession in the grouping. However, the foundation agreement or the act of their accession may include a clause of their exclusion of payments of obligations before their accession in the grouping.
A member of the grouping may be dismissed in accordance with the foundation agreement or, in the absence thereof, with the unanimous consent of the other members. Any member of the grouping may be expelled for the reasons set out in the foundation agreement, but in any case if it is in gross breach of its obligations or if it causes or threatens to cause serious disruption to the work of the grouping.
This exclusion can only be effected by a court decision on the joint application of the majority of the remaining members, unless the foundation agreement provides otherwise, i.e. the unanimous vote of the remaining members is required for the unilateral termination of the member and the majority of the members is sufficient for its exclusion.
The grouping shall be represented externally by a managing director appointed by decision of the members of the EEIG under the conditions provided in the foundation agreement. If more than one managing director has been appointed and unless otherwise agreed by the members and entered in the relevant register, the grouping shall be represented by each member individually. Any limitation of the powers of the managing director or directors by the foundation agreement or by a decision of the members may not be opposed by third parties, even if it has been made public.
Each of the managing directors, when acting on its behalf, shall bind the grouping against third parties, even if his acts do not concern the object of the grouping, unless the grouping proves that the third party was aware or could not have been unaware, according to the circumstances, that the act exceeded the limits of the object of the grouping.
The grouping may be dissolved by a unanimous decision of its members, unless otherwise provided for in the foundation agreement. The grouping must be dissolved by a resolution of its members stating that:
- the duration stipulated in the foundation agreement has expired or another reason for dissolution provided for in this agreement has occurred, or
- the object of the grouping has been realised or cannot be further pursued.icht weiter verfolgt werden kann.
If within three months after the occurrence of any of the above cases no resolution of the members has been passed to dissolve the association, any member may apply to the court for such dissolution to be pronounced.
Dissolution is also possible in the case of the following hypotheses: if the number of members is less than two companies or persons; for serious reasons; violations with regard to the activities of the association, the location of the association within the community as well as with regard to the minimum number of members required. It should be added here that in addition to the dissolution of an existing Bulgarian association, its invalidity can also be pronounced in accordance with Art. 280a para. 2 Commerce Act. The reasons for pronouncing invalidity are generally the same as for companies.
II. Tax treatment of EEIG in Bulgaria
A generally applicable principle of the grouping with regard to tax treatment is provided for under Art. 40 of the Regulation that the result of the grouping's activity is taxed only on its members and not, for example, on the profit of the grouping itself.
Under Art. 3 of the Bulgarian Corporate Income Tax Act, these groupings are excluded as corporate taxpayers, i.e. the income of these associations is not subject to corporate income tax. The purpose of this provision is to shift the liability to corporate income tax away from the grouping - as mentioned above - which is merely carrying out an auxiliary activity, to the members, i.e. in the respective Member States the profits of the members and not of the grouping are taxed with corporate income tax. If, for example, the grouping distributes dividends in favour of a member, these are income of the respective member and must be taxed according to the rules. The same applies to the member's contributions in favour of the grouping, which have a profit-reducing effect as a tax-recognised cost for the respective member.
It should be noted here that the limited tax coverage within the meaning of the regulation only includes the profit of the association, i.e. the payment of corporate income tax. All other taxes and levies, such as VAT and compulsory insurance contributions for employees, are not covered by this limitation and this means that the general regulations apply to the association in this respect.
III. Registration of EEIG in the Bulgarian Commercial Register
The registration of the grouping is equivalent to that of limited companies, as an application must be submitted to the Bulgarian Registration Agency after submission to the Commercial Register. The state registration fee is BGN 100, but if the application is submitted electronically, the fee is BGN 50.
The following documents are needed for the registration in the Commercial Register:
- Application according to specimen № A10
- Foundation agreement that contains at least the following statements:
a) the name of the grouping preceded or followed by the words 'European Economic Interest Grouping' or the abbreviation 'EEIG', unless those words or that abbreviation are already included in the name;
b) the domicile of the grouping;
c) the object of the business for which the grouping has been formed;
d) the name, business name, legal form, domicile or registered office and, where applicable, the number and place of registration of each member of the grouping;
e) the duration of the association, unless it is indefinite.
- Decision of the members of the European Economic Interest Grouping on the appointment of one or more managing directors, if the managing director(s) have not been appointed with the foundation agreement.
- Notarised declaration of consent and specimen signature of each director of the European Economic Interest Grouping;
- Declaration by each director of the European Economic Interest Grouping that he fulfils the requirements of Article 19(1) of Regulation (EEC) 2137/85, namely that he is not prohibited from exercising functions as a member of an administrative or management body of a company.
- Proof of incorporation of the legal entity - member of the European Economic Interest Grouping and confirmation therein of its legal representatives according to the applicable law (applies only to members of the European Economic Interest Grouping not incorporated under Bulgarian law);
- Decision of the competent body of the legal entity, i.e. the member of the association on participation in the European Economic Interest Grouping;
- If the purpose of the business is subject to authorisation, the relevant licence or permit must be obtained if this is mandatory for registration.