Inheriting Company Shares in a Bulgarian OOD (LLC)

Q: What happens to an EOOD when the sole owner dies?

Under Art. 157(1) of the Commerce Act, an EOOD is dissolved upon the death of the sole owner, unless the heirs declare that they wish to continue the company's activity.

Q: Can the articles of association regulate inheritance in advance?

Yes. The articles of association may provide that heirs become partners automatically without a General Assembly resolution. Conversely, they may entirely exclude inheritance of membership rights.

Q: What are the tax implications of inheriting company shares?

Inheritance by a surviving spouse and heirs in direct line is exempt from inheritance tax. Other heirs owe inheritance tax. The inherited amount is not subject to income tax, but a subsequent sale is subject to 10% income tax on the gain.

What you will learn in this article

What happens to company shares when a partner in an OOD dies
Why heirs do not automatically become partners
The procedure for admitting an heir as a partner
How the cash equivalent of the share is calculated
Which preventive clauses to include in the articles of association
The tax aspects of inheriting company shares
How the procedure differs for an EOOD (single-member LLC)

What happens when a partner dies (Art. 125 CA)

Under Art. 125(1) of the Commerce Act (CA), membership in an OOD is terminated upon the death of the partner. This provision is the starting point for understanding the entire legal framework — death automatically terminates the membership relationship, but not the proprietary rights arising from it.

The concept of “company share” encompasses the membership relationship in the company, which includes:

Proprietary rights — right to a share of profits (dividend), right to a liquidation share, right to the cash equivalent of the share upon departure.
Non-proprietary rights — voting right in the General Assembly, right to participate in management, right to information.
Obligations — obligation to make contributions, duty of loyalty.

Upon the partner’s death, the membership relationship (non-proprietary rights and obligations) is terminated. The heirs inherit the proprietary rights — the claim equivalent to the value of the shares. Whether they will also acquire membership rights depends on the articles of association and the General Assembly’s decision.

Heirs and the OOD — three scenarios

Scenario 1: The articles of association provide for automatic succession

If the articles of association expressly provide that heirs of a deceased partner become partners automatically, no General Assembly resolution is required. Consent is deemed given through the articles of association themselves.

Scenario 2: The articles of association exclude inheritance

The articles of association may expressly provide that heirs have no right to enter the membership relationship. In this case, the heirs receive the cash equivalent of the shares but do not become partners.

Scenario 3: The articles of association are silent

When the articles of association do not address the question of inheritance — and this is the most common situation in practice — the prevailing view is that heirs are treated as third parties, and their admission requires a General Assembly resolution (by analogy from Art. 129(1), second sentence, in conjunction with Art. 137(1)(2) CA). This position is supported by case law — Decision No. 90 of 23 June 2010 of the Varna Court of Appeal and Decision No. 459 of 10 June 2004 of the Supreme Court of Cassation.

Procedure for admitting an heir as a partner

Step 1: Acceptance of the inheritance

The heir must have accepted the inheritance under the Inheritance Act — either expressly (by written declaration before the district court) or impliedly (through conclusive actions, such as managing the inherited property).

Step 2: Application to the company

The heir submits a written application to the company, declaring their wish to join as a partner and accepting the terms of the articles of association.

Step 3: General Assembly resolution

The General Assembly adopts a resolution to admit the new partner by a three-quarters majority of the total share capital (Art. 137(1)(2), in conjunction with paras. 3 and 4 CA). The resolution is recorded in minutes, which are typically notarially certified.

If any of the heirs is already a partner in the company, their share is automatically increased by the inherited shares and no General Assembly resolution for their admission is required.

Step 4: Registration in the Commercial Register

The new partner is registered in the Commercial Register and the updated articles of association are published. The heir acquires partner status from the moment of registration. Until registration, the heir cannot dispose of the company share — they may only dispose of their claim to the cash equivalent.

Important feature: Undivided shares

When company shares are inherited, the heirs do not acquire a specific number of shares. They receive undivided co-ownership interests in each inherited share, in proportion to their inheritance rights. The co-ownership of shares may be terminated through an agreement to transfer undivided interests or a voluntary partition agreement, executed with notarially certified signatures.

Cash equivalent of the share

An heir who is not admitted as a partner (or who cannot become one due to lack of legal capacity) is entitled to receive the cash equivalent of the inherited shares.

How it is calculated

The cash equivalent is determined on the basis of a balance sheet drawn up as at the end of the month in which the partner died. The value reflects the deceased’s actual share in the company’s net assets, not merely the nominal value of the registered shares.

For example, if the deceased held 50 % of the capital of a company with net assets of BGN 200,000 (approximately EUR 102,000), the cash equivalent is BGN 100,000 (approximately EUR 51,000) — regardless of the nominal value of the shares.

No statutory deadline for payment

The law does not prescribe a specific deadline within which the company must prepare the balance sheet and make the payment. The heir may address a written demand to the company, setting a reasonable deadline for performance.

Judicial protection

If the company refuses or delays payment, the heir may bring a court claim. The competent court is the regional court at the company’s registered office.

What happens to the share in the company

If the heirs are not admitted as partners, the deceased’s share may be:

Assumed by the remaining partners — proportionally or by a specific partner.
Transferred to a third party — subject to the requirements for admission of a new partner.
Deducted from the capital — if the share cannot be assumed otherwise, the OOD’s share capital is reduced.

The articles of association — preventive clauses

Properly addressing the question of inheritance in the articles of association is essential for preventing disputes and ensuring legal certainty.

Automatic succession clause

If the partners wish heirs to become partners automatically, the articles of association may provide:

“Upon the death of a partner, the heirs who have accepted the inheritance become partners automatically, without a General Assembly resolution. The heirs must notify the company in writing and present a certificate of heirs within 30 days of accepting the inheritance.”

Exclusion of inheritance clause

If the partners do not wish heirs to enter the company:

“Upon the death of a partner, the heirs have no right to enter the membership relationship. They are entitled to the cash equivalent of the shares, calculated on the basis of a balance sheet drawn up as at the end of the month of death. The company pays the cash equivalent within 6 months.”

Mandatory life insurance clause

A practically effective mechanism is to include a clause requiring partners to maintain life insurance in favour of the company, with coverage sufficient to pay the cash equivalent of the shares.

Pre-emption right clause

Another advisable clause is a pre-emption right for the remaining partners to acquire the shares upon a partner’s death — at a price determined by a pre-agreed formula.

Specific rules for the EOOD (single-member LLC)

General rule — dissolution

Upon the death of the sole owner of the capital, the EOOD is dissolved, unless the heirs have declared that they wish to continue the company’s activity (Art. 157(1) CA).

If the heirs wish to continue

If there is one heir — they become the sole owner of the capital.
If there are multiple heirs — the EOOD is transformed into an OOD, with each heir’s share determined by their share of the inheritance.

If the heirs do not wish to continue

The heirs file for the company’s dissolution in the Commercial Register and commence liquidation proceedings.

Inaction by the heirs

Under the Interpretive Decision in commercial case No 1/2020 of the General Commercial Division of the Supreme Court of Cassation, where the heirs take no action, the company is dissolved under Art. 155(3) CA — upon a claim by the prosecutor, due to the absence of a registered manager for three months.

Minor heir of an EOOD

If the sole heir of the deceased owner is a minor, the EOOD is dissolved and the child receives the cash equivalent of their liquidation share. Case law is clear that membership rights and obligations cannot be exercised by a minor.

Tax aspects

Inheritance tax

Under the Local Taxes and Fees Act (LTFA):

The surviving spouse and heirs in the direct line (children, grandchildren, parents) are exempt from inheritance tax.
Heirs in the second group (siblings, nephews/nieces, relatives by marriage) owe tax as determined by the relevant municipality.
Heirs in the third group (unrelated persons) owe a higher rate of tax.

The tax base is the cash equivalent of the inherited shares, determined by balance sheet.

Income tax

If the heir receives the cash equivalent instead of membership rights, the amount received is not subject to income tax under the Personal Income Tax Act (PITA), as it constitutes an inheritance rather than income.

If the heir becomes a partner and subsequently sells the shares, the difference between the sale price and the inherited value is subject to 10 % income tax under the PITA.

Filing obligations

Heirs must file an inheritance declaration with the municipality of the deceased’s last permanent address within 6 months of the death. The declaration must include the company shares.

Frequently asked questions

Do heirs automatically become partners in a Bulgarian OOD?

As a rule — no. Heirs inherit the proprietary rights attached to the shares (the monetary claim) but do not automatically acquire membership rights. To become partners, a General Assembly resolution adopted by a three-quarters majority of the total share capital is required, unless the articles of association provide otherwise.

What happens if the heirs are not admitted as partners?

The heirs are entitled to receive the cash equivalent of the inherited shares. It is calculated on the basis of a balance sheet drawn up as at the end of the month in which the death occurred. If the company refuses voluntary payment, the heirs may bring a court claim.

What happens to an EOOD when the sole owner dies?

Under Art. 157(1) CA, the EOOD is dissolved, unless the heirs declare that they wish to continue the company’s activity. If there are multiple heirs and they decide to continue, the EOOD is transformed into an OOD. If they do not wish to continue or take no action, liquidation proceedings are initiated.

Can a minor heir become a partner?

In limited circumstances — yes, if the minor is at least 14 years of age (limited legal capacity). The General Assembly must adopt a resolution for their admission along with new articles of association, in which the minor’s participation is capital-only. Children under 14 cannot acquire membership rights and are entitled only to the cash equivalent.

How is the cash equivalent of the inherited shares calculated?

The cash equivalent is determined on the basis of a balance sheet drawn up as at the end of the month of the death. It reflects the deceased’s actual share in the company’s net assets, not merely the nominal value of the registered shares.

Is registration in the Commercial Register required?

Yes. The new partner acquires partner status from the moment of registration in the Commercial Register. Until registration, the heir cannot dispose of the company share — they may only dispose of their claim to the cash equivalent.

Can the articles of association regulate inheritance in advance?

Yes, and this is strongly recommended. The articles of association may provide for automatic succession of heirs, exclusion of inheritance (cash equivalent only), a pre-emption right for the remaining partners, mandatory life insurance, or a formula for determining the value of the shares.

What are the tax implications of inheriting company shares?

Inheritance by a surviving spouse and heirs in the direct line (children, grandchildren) is exempt from inheritance tax. Other heirs owe tax under the LTFA. The inherited amount is not subject to income tax, but a subsequent sale of the shares is subject to 10 % income tax on the gain.