Inheritance represents the passage of the estate of the deceased (grantor) to another person/s (successor/s). The property of the grantor includes both their assets and debts. Part of the assets of the deceased is the shares they own in certain companies i Bulgaria.
In this article we will briefly introduce the peculiarities of the process of inheritance of shares in limited liability companies – the Bulgarian form of which is the OOD (or Ltd).
In Art. 129 (1) of the Bulgarian Commerce Act (abbr. CA), it is stated that "company shares may be transferred and inherited." The share represents the number that corresponds to the value of the contribution of the partner in the company’s capital. The term "shareholding" covers the membership relationship in the company, which incorporates some material and immaterial rights and obligations.
Art. 129 CA provides details on how the shares may be transferred - as between partners, to third parties, as well as the form of the transfer agreement. Legislation is relatively sparse on the succession of shares, only outlining the possibility of inheritance, but not the procedure for its implementation. Case law is also inconsistent.
The absence of detailed regulation raises several issues that will be addressed in this article.
I. How do the shares pass on from the grantor to the successor - automatically or by a decision of the General Meeting of the company?
The answer to this question depends on what is provided in the articles of association:
- If the articles of association exclude the succession of shares, then the successors cannot enter into a membership relationship, respectively be subject to the rights and obligations ensuing therefrom. However, they must receive the monetary equivalent of the shares held by their grantor.
- The articles of association provide that the successors of a deceased partner automatically become partners. In this case, approval of the General Meeting (GM) was given at the very beginning when the articles were signed and a subsequent decision is not necessary. The possibility provided for in the articles that the successors of a deceased partner can become partners automatically is supported with the following arguments: in companies where there is a strong personal element, such as collective and civic associations, the law does allow companies to continue to operate after the death of one of the partners (Art. 97 (1) CA and Art. Art. 363, letter 'b' OCA). By stipulating in the articles of association that the successors become partners automatically, the partners are aware of who their partner would be at the death of each of them.
- The articles of association do not govern the effects on the inheritance of shares. Due to the controversial case law in this area, there are two separate views: first, that the successors are treated as third parties (arg. from Art. 129 (1), sentence. 2 in connection with Art. 137 (1), p. 2 CA) and a decision of the GM is needed; the second - the entry of successors in the membership relationship occurs automatically, without the need for a decision of the GM (arg. from Art. 137 (1) in connection with Art. 137 (3), sentence 3 CA, i.e. outside the hypotheses envisaged by law, the legal consequences cannot be subject to the approval of the GM.
II. Depending on whether the successor is a partner, a third party to the company, or a minor, the way in which the shares pass on to the successor is also different.
- If the successor is a partner in an LTD company, the successor’s share increases automatically with the adoption of the inheritance of the share capital that was property of the deceased partner.
- If the successor is a third party, legal theory maintains that if the articles of association state that the successor automatically becomes a partner, then there is no need for a decision of the General Meeting (GM) to admit them. There is also the opposite view that owing to the successor’s mixed nature - between partnerships and capital companies, where LTDs are concerned, a decision by the GM is necessary to admit the successor as partner (arg. from Art. 122, sentence. 1 and Art. 137 (1), p. 2 CA, which are of imperative legal nature) - to that effect Decision № 90 of 23.06.2010 of SAC under case № 282/2010, the TC; Order № 232 of 29.03.2002 of SCC under civ. case № 173/2002; Decision № 459 of 10.06.2004 of SCC under civ. case № 1636/2003, the TC.
Preconditions for a successor to acquire partner status:
a) accepting the succession and submitting a written statement to the company that they wish to be admitted as a partner and accept the terms of the articles of association;
b) a decision of the GM approving the admission of the new partner
c) entry of the new partner in the Commercial Register and proclamation of the new articles of association. According to Art. 4 of the Commercial Register Act (abbr. "CRA") in the Commercial Register shall be entered only these circumstances, for which there are legal provisions requiring their entry. While entering the inheritance of shares in LTD companies is not provided for, it must be done, because, according to Art. 596 (2) CPC, the changes in the registered circumstances must be entered.
Where the successor is a minor - Art. 65 (1) CA has introduced the requirement that partners be persons who are sui juris. A successor who is a minor can exceptionally become a partner in the company, provided that the GM makes a decision to adopt new articles of association, which should specify that the participation of an underage partner only extends to the capital of the company and is free from any immaterial obligations.