Corporate structure: the choice investors check first
OOD, AD, or the new DPK - each legal form carries different risk for your equity, taxes, and future fundraising. Here's what you actually need to know before you register a company.
Corporate structure is boring work - until you need it. A decision made carelessly at formation - which legal form, what split between founders, what paper your agreement is written on - comes back exactly when you have an investor at the table or a former co-founder in court.
Built correctly, corporate architecture isn't a legal formality. It's the system that allocates risk, protects your equity, and decides whether your next funding round closes smoothly or dies in legal due diligence.
Choosing a legal form: OOD, AD, DPK, or a trap
Bulgarian commercial law offers a handful of forms for starting a business, each with a different risk profile:
| OOD / EOOD | AD / EAD | DPK | ET / DZZD | |
|---|---|---|---|---|
| Minimum capital | BGN 2 | BGN 50,000 | BGN 0.02 | None required |
| Liability | Limited to your stake | Limited to your stake | Limited to your stake | Unlimited / joint |
| Transferring shares | Notarization + shareholder vote | Free, no notarization | Simple written form | Practically impossible |
| Best for | Small, stable business | Mature companies, IPO | Startups with ESOPs, fast rounds | Never for a scaling business |
OOD/EOOD is the traditional choice - cheap to set up, limited liability, but every transfer of a share requires notarization and a fresh filing with the Commercial Register. For an employee option pool (ESOP) or a fast investment round, that's a heavy administrative trap.
AD/EAD transfers shares freely, but demands BGN 50,000 in capital and more complex governance - a fit for mature companies, not an early-stage one.
DPK: flexibility has a price
The "variable-capital company" (DPK) is a hybrid form built specifically for startups - capital from BGN 0.02, no escrow account required, transfers in simple written form, and shareholder names kept confidential in an internal "shareholder book" rather than the public registry.
That flexibility comes with real risk:
- Zero case law. Actual filings only began on December 15, 2024 - there's no accumulated precedent on how disputes get interpreted.
- Foreign investor skepticism. US and UK funds rarely understand or accept an unfamiliar local form. In a serious foreign round, they will almost always demand restructuring ("flipping") into a familiar jurisdiction - which defeats the point of choosing a DPK in the first place.
- Forced conversion on growth. Cross 50 employees or BGN 4,000,000 in turnover/assets for two consecutive years, and you must convert to an OOD or AD within 3 months, with a full audit and every ESOP and investment agreement rewritten.
ET and DZZD: the structural traps
A sole trader (ET) carries unlimited personal liability - your personal assets cover the business's debts, and shared equity is legally impossible. A DZZD owns no property of its own - all IP stays in the founders' personal joint ownership, and liability is joint and unlimited. Both forms make investment or scaling practically unreachable.
The founder agreement: the rules while you're still friends
More startups die from conflict between co-founders than from market failure. A founder agreement sets the rules before you need them.
- Vesting. The standard schedule is 4 years with a 1-year cliff: leave before year one and you forfeit 100% of your stake. After that, shares unlock proportionally each month. The mechanism is "reverse vesting" - shares are issued immediately, but the company holds an unconditional right to buy back the unvested portion at nominal value.
- Good leaver / bad leaver. Someone who leaves for health reasons, disability, or by mutual agreement (good leaver) usually keeps their vested shares. Someone who leaves after a disciplinary breach, IP theft, or a broken non-compete (bad leaver) automatically forfeits unvested shares, and the company buys back the vested ones at the lower of nominal or market value.
- Deadlock mechanisms. With a 50/50 split and an unresolvable dispute: Texas Shootout - one side names a price, the other chooses to sell at it or buy at it. Russian Roulette - similar, without a choice over who proposes first. Golden Share - an independent mediator with a token stake (~0.1%) and the deciding vote in a deadlock.
The shareholders' agreement: what investors actually want
Your first outside investor brings a Shareholders' Agreement (SHA) - the document with the investment terms that shape how the company eventually exits.
- Liquidation preference. The standard is 1x non-participating - the investor gets their investment back first, then the remainder splits pro rata. Participating ("the double-dip") lets them take the investment back and a share of the remainder - avoid it at all costs.
- Anti-dilution. In a down round, full ratchet reprices the early investor's shares entirely to the new, lower price - drastically diluting the founders. Weighted average also accounts for how much new capital came in - the industry standard, and far fairer to you.
- Tag-along and drag-along. Tag-along protects a minority holder - if a majority stake sells, they can join the deal on the same terms. Drag-along protects the majority - with qualified consent (e.g. 75%), they can force dissenters to sell too. Without drag-along, a holder with 1% can block a multi-million acquisition.
- Pre-emption rights. The right to buy your pro-rata share of a new issuance, to keep your ownership percentage from shrinking.
- Protective provisions. A list of actions that require the investor's written consent - amending the charter, new debt, a new share issuance, selling IP - regardless of the founders' majority vote.
Early-stage funding: SAFEs and convertible notes
In the Pre-seed and Seed stages, valuation is too speculative for a classic priced round, so faster instruments take over:
- SAFE (Simple Agreement for Future Equity) - the investor pays now and gets shares at the next funding round. Fast, cheap, no interest or maturity date. With the 2024 introduction of the DPK, SAFEs are now explicitly recognized under Bulgarian commercial law.
- Convertible notes - a debt instrument with a maturity date and interest rate that converts automatically into shares on a trigger (a new round, or maturity).
- Valuation cap and discount. The cap fixes the maximum valuation at which the early investor converts - say, €100,000 at a €4,000,000 cap. If the Series A prices the company at €10,000,000, that investor still converts at €4,000,000 - 2.5x more shares for the same money. The discount (typically 10-20%) offers an alternative benefit; the investor takes whichever mechanism is more favorable.
Going international: the Delaware flip
For a startup with global ambitions and US funding in its sights, the "flip" is often unavoidable: a new holding company incorporates in Delaware (a Delaware C-Corp), shareholders exchange 100% of their Bulgarian shares for proportional shares in it, and the Bulgarian entity becomes a wholly owned operating subsidiary for R&D and local staff.
The reason is simple - most leading US funds are legally barred from investing outside the US or into unfamiliar jurisdictions, and Delaware offers the world's most flexible ESOP structures.
The trap is tax: the Bulgarian revenue agency can classify the share-for-share exchange as a disposal subject to capital gains tax - on a "paper" gain, with no actual cash in the founders' hands. On top of that comes double the administrative and accounting overhead - lawyers, accountants, and government fees running in two countries at once.
Tax and labor traps when starting up
- Management contract vs. self-insurance. A managing director owes social security contributions - either through a management contract (DUK) or, if they're also a shareholder, as a self-insured person. A common optimization: a zero-pay DUK plus self-insurance at the statutory minimum income - saving thousands of leva at an early stage. Registering as self-insured with the tax agency is mandatory within 7 days of starting activity.
- Disguised employment. Hiring developers on civil (service) contracts to save on payroll taxes carries real risk - labor inspectors can reclassify the contract as employment if it shows fixed hours, a fixed workplace, company equipment, or direct hierarchy. The penalty runs BGN 1,500-15,000 per violation, plus a separate fine for the responsible officer.
- VAT on foreign SaaS. Subscriptions to foreign cloud services (AWS, Google, Meta) trigger reverse-charge VAT and mandatory registration under Article 97a at least 7 days before payment - with no input tax credit. (More detail in our supplier-contracts article.)
Founder's checklist
- Legal form: chosen for your actual growth plan, not just the lowest capital requirement?
- Founder agreement: signed with a vesting schedule before anyone puts in an hour of work?
- SHA: 1x non-participating liquidation preference, weighted-average anti-dilution rather than full ratchet?
- Management setup: structured to minimize early social security cost, self-insurance registered within the 7-day window?
- Civil contracts: reviewed for disguised-employment risk?
Corporate structure isn't a document for the archive - it's the system that decides who wins when something goes wrong. The choice you make in the company's first weeks determines how smoothly (or painfully) every later round, dispute, or exit plays out.