Challenging an outdated “bank-only” capital evidence rule in the Bulgarian Company Register

Our team has filed a complaint before the Bulgarian Supreme Administrative Court challenging two provisions of Ordinance No. 1 of 14 February 2007, insofar as they are applied as requiring that paid-in or increased share capital be evidenced exclusively through a bank-issued document. In practice, these provisions impose a “bank-only” evidentiary requirement for capital contributions, excluding other legally regulated financial institutions such as payment institutions and electronic money institutions, despite the absence of such a restriction in the Commercial Act.

The core problem lies in the fact that the Ordinance introduces a substantive condition that is not provided for by the law. The Commercial Act does not require that share capital be deposited through a bank, nor does it prescribe a specific type of financial institution through which the capital must pass. The legal requirement is simply that the capital be actually paid and available to the company. By narrowing the acceptable proof exclusively to bank documents, the subordinate legislation exceeds the limits of the statutory delegation and effectively amends the law through administrative regulation.

This approach also misconstrues the very purpose of share capital. From a legal and economic perspective, capital serves as an indication of liquidity and availability of funds, not as a designation of where those funds are held. The Ordinance shifts the focus away from the availability of capital and places it instead on the institutional form of the service provider, without any convincing legal or functional justification. As a result, the regulatory emphasis moves from substance to form, contrary to the logic of the Commercial Act.

The disproportionality of this requirement becomes particularly evident in light of the 2009 legislative reform, which fundamentally changed the philosophy of company formation in Bulgaria. With that reform, the legislature explicitly allowed the incorporation of a limited liability company with a minimum capital of 2 BGN, currently equivalent to 1 EUR. The clear objective was to facilitate and accelerate access to entrepreneurship by removing capital-based entry barriers. Yet, the challenged provisions of the Ordinance, adopted prior to that reform, continue to impose procedural burdens that effectively neutralize its intent. Requiring the opening of a bank subscription account for a capital contribution of 1 EUR results in fees that are many times higher than the capital itself, often reaching approximately 50 EUR, incurred solely for the purpose of obtaining a formal bank document. These costs do not enhance creditor protection or serve any legitimate public interest; on the contrary, they effectively decapitalize the company at the very moment of its creation.

There are also no sound legal or logical reasons to treat the initial contribution of capital and a subsequent capital increase differently in this respect. In both cases, the protected interest is identical: assurance that the capital has been paid. Proof through alternative, legally regulated payment mechanisms provides an equivalent level of protection to creditors. The distinction introduced by the Ordinance is therefore artificial and unjustified.

Beyond its economic inefficiency, the challenged regime produces significant practical obstacles, particularly for foreign investors. In practice, opening a bank account for a newly incorporated company frequently requires the personal presence of the shareholder or founder. Due to enhanced anti-money laundering procedures, banks often refuse representation by power of attorney. This forces foreign investors to travel to Bulgaria, causing delays, additional costs, and uncertainty at the earliest stage of their investment. Even then, the outcome is unpredictable, as banks regularly refuse to open subscription accounts after lengthy document review processes, without providing clear reasons. Such uncertainty discourages investment and redirects entrepreneurial activity toward other jurisdictions that offer faster and more predictable company formation procedures.

The negative impact is not limited to isolated cases. The Ordinance applies generally, affecting company incorporations and capital increases across the economy. Small and medium-sized enterprises, start-ups, individual founders, and investors are all subject to the same barriers. As a result, the regulation exerts a systemic effect on the business environment, creating recurring administrative and financial friction and undermining legal certainty.

Moreover, the bank-only evidentiary requirement distorts competition in the financial services market. By allowing only banks to provide acceptable proof of capital contribution, the Ordinance effectively grants them a privileged position and excludes other legally authorized market participants, such as payment institutions and electronic money institutions, which are fully regulated and entitled under EU and national law to provide payment services and hold client funds. This exclusion is not based on any objective difference in the level of protection offered, but solely on an outdated formal criterion. The result is an unjustified restriction of competition and an infringement of the constitutional principles of free economic initiative and equal legal conditions for business activity.

For all these reasons, the challenged provisions neither serve a genuine public interest nor correspond to contemporary economic realities. They reflect an outdated regulatory approach that has not been aligned with nearly two decades of legislative, technological, and market developments. In this context, we have asked the court, pursuant to Article 185 of the Administrative Procedure Code, to assess the conformity of the subordinate regulation with the material law as it stands today, taking into account both the 2009 reform and the current state of social and economic relations.

At the same time, we believe there is a real opportunity for the issue to be resolved even without judicial intervention. A formal submission has also been made to the competent Minister of justice, including through the Bulgarian Fintech Association, of which we are a member, inviting the administration to repeal the contested provisions on its own initiative. While no outcome has yet been reached, we hope that our legal arguments in the appeal being clear and compelling can assist Ministers’ decision to revoke this part of the Ordinance. 

Finally, this is not a matter that concerns fintech companies alone. It affects the entire business community. For that reason, any interested party is welcome to join the proceedings against the Ordinance. 

A successful outcome would remove unnecessary bureaucracy, reduce costs, allow for faster and more flexible company formation and capital increases, and enable entrepreneurs to focus on building and growing their businesses rather than navigating outdated administrative obstacles.