The management contract is a contract under the Bulgarian Commercial and Company Law, whereby the commercial company, as a client, entrusts the managing director as a contractor with the management of a limited liability company or a stock company in Bulgaria. By virtue of this contract, the managing director undertakes to organize and direct the business at his own risk and in compliance with the applicable legislation, the articles of association of the limited liability company or the articles of association of the stock company and the resolutions of the general meeting by being liable for the company's affairs and represents the company in front of third parties. The purpose of this contract is to achieve a certain result, i.e. the management contract is based on the civil law, which regulates the relationship between two equal civil subjects, in contrast to the work contract, in which the employee commits himself to providing his labor for the benefit of the employer. The management contract is governed by Article 141 (7) of the Bulgarian Commercial Act with regard to limited liability companies and under Article 241 (4) and Article 244 (7) of the Act with regard to stock corporations.
The signing of a contract
The manager contract is signed in the simple written form and this is sufficient for its validity. Article 141 (7) of the Bulgarian Commercial Act regulates: “The contract must be in a written form and is signed on behalf of the company by a person authorized to do so by the shareholders' meeting or sole proprietor”. It is a bilateral contract, since rights and obligations are established for both parties, a mutually agreed contract - it is valid only upon acceptance of the offer and delivery of the confirmation to the provider - and it is a contract for consideration, as both parties undertake to fulfill actions.
Contents of the contract
Since the law does not contain explicit provisions on the contents of the manager contract, the provisions of Art. 9 of the Act on Obligations and Contracts must be applied, according to which the parties may freely agree on the contents of the contract, provided that this does not violate the mandatory statutory provisions and the morality is not violated. The purpose of the contract is to agree on rights and obligations, remuneration and payment arrangements, extent of liability for non-fulfillment and termination conditions.
Registration of the managing director in the commercial register of the Registry Agency:
The managing director is to be registered by name in the commercial register by submitting a notary-certified signature form. His authorization and his release are effective against bona-fide third parties only after registration.
Article 141 (2) of the Commercial Act regulates: "The company is represented by the managing director. In case of several directors, each of them is entitled to act independently, unless otherwise provided in the articles of association. Other restrictions on the power of representation are ineffective for third parties." If several persons are appointed to the management, the parties have to agree on their individual or joint power of representation.
The management of a public limited company in Bulgaria is carried out either by the Board of Directors (in the case of a one-tier board system) or by the Management Board (in the case of the two-tier board system).
Art. 233 (1) of the Commercial Act provides that the members of the Board of Directors, the Supervisory Board and the Management Board are elected for a term of five years, unless the Articles of Association stipulate a shorter term of office.
Art. 142 of the Act regulates the non-competition clause for the managing director. It says: Without the consent of the company, the managing director is not entitled:
- to conduct commercial transactions from his own or a third party name;
- to participate in open and limited partnerships and limited liability companies;
- To be a member of the administrative bodies of other companies.
The restrictions under paragraph 1 apply when an activity comparable to that of the company is exercised. In case of breach of the obligations according to paragraph 1, the managing director is obliged to pay a compensation for damages caused to the company.
Anyone who has filed for bankruptcy or was a managing director, executive or supervisory board member of a company that was dissolved in the last two years before insolvency proceedings due to insolvency and unsatisfied creditors remain, cannot be effectively appointed as a managing director. Anyone who has been a director, member of the executive board or supervisory board of a company for which a legally binding fine has stated non-fulfillment of the obligation to create and stockpile oil and petroleum products, cannot be effectively appointed as a managing director.
Reasons for Termination
The shareholder agreement can be terminated due to these circumstances:
- by a mutual agreement;
- with a letter of termination from one to the other party;
- at the end of the term of the contract, if it was limited in time;
- upon dissolution of the company or insolvency declaration;
- in case of death or incapacity of the managing director.
Social insurance of the managing director
The manager contract is treated as an employment contract only for the purposes of tax and social security law. However, it does not constitute a contract of employment and, for this reason, it does not require entries in the workbook of the managing director who signed the manager contract with the company and the duration of the contract is not considered a work-service time period. Next, it should be noted that the persons appointed to manage the trading companies have no statutory leave entitlement compared to the employees / employees, appointed on the basis of employment contracts, nor are they entitled to the compensation required from the employer as it is regulated in the Labor Code.
Anyone who has been appointed as the managing director of a trading company and for which remuneration with a reason and amount has been determined, must pay corresponding insurance contributions in accordance with Art. 4 paragraph 1 number 7 of the Social Insurance Code. According to the General Meeting, the managing director is compulsorily insured for the following social security cases: for general illness and maternity, disability due to general illness, old-age and survivors' pensions, accidents at work and occupational disease and unemployment. Art. 6 paragraphs 3 of the Social Insurance Code states: “The insurance premiums for employees and employees and for the persons referred to in Art. 4 paragraph 1 numbers 7 and 8 are, however, included in the monthly fees, including calculated and unpaid gross monthly fees or at least to the monthly minimum income - monthly minimum basic salary for the country - and at most to the highest monthly income relevant to contributions.”
The insurance premiums for 2017 for the "General Disability and Maternity" Fund will be shared between the sponsor and the scheme member at a ratio of 60:40, and contributions for "occupational accident and occupational disease" will be paid entirely by the sponsoring company. These persons are subject to compulsory insurance even if they are retired. What is required for the justification of the insurance within the meaning of Article 4 paragraphs 1 and 7 of the Social Insurance Act, is not only the management on the part of the managing director, but also the determination of remuneration for it in a relevant document of the company. If both conditions mentioned above are not fulfilled at the same time, there is no reason for the insurance benefit.
Differences to the social insurance of a partner
The social insurance of the general manager appointed in a manger contract is to be distinguished from the social security of the shareholders in Bulgaria. These are insured on the basis of Art. 4 paragraph 3 number 2 of the Social Insurance Code. This act stipulates that “anyone acting as a sole trader, holder or shareholder in commercial companies and persons - a member of a partnership - is subject to compulsory insurance for disability due to general illness, old-age and survivors' insurance”. They are considered as self-employed within the meaning of Art. 5 paragraph 2 in connection to Art. 6 (8) of the Social Insurance Code and pay their insurance contributions in accordance with the Ordinance on public insurance of self-employed Bulgarian nationals and seafarers employed abroad (title changed in AB 2 of 2010, in force from 01.01.2010). Art. 5 paragraphs 2 of the Social Insurance Code regulates that a self-employed person is a person who is obliged to pay his insurance premiums on his own account. The compulsory insurance according to Art. 4 paragraph 3 number 2 of the Social Insurance Code is justified as of the day of commencement or resumption of the trade and is effective until the interruption or abandonment. The self-employed person is subject to the obligation to notify each entry, interruption, resumption or cessation of activity by submitting a statement approved by the Executive Director of the National Revenue Agency to the territorial direction of the Agency which is competent, signed by the self-employed and with a period of notice of 7 days after occurrence of the appropriate circumstance.
On the basis of Article 6 (8) of the Social Insurance Code, the insurance contributions are borne by the self-employed and must be paid in advance: for the monthly insurable income, which is within the lower and upper monthly income threshold established by the Public Household Budget Act where the legal insurance is set for the relevant year.