Partition of a membership interest in a Bulgarian limited liability company

A membership interest represents a share of the assets of a limited liability company. Unless the articles of association provide otherwise, its size is determined by the member’s share in the company’s capital (Article 127 of the Commerce Act).

As the aggregate of a member’s financial rights and obligations in a limited liability company (OOD), a membership interest may be transferred or inherited. A share in the capital must be distinguished from a membership interest. The former represents the contribution in cash or in kind made by each member; the latter varies in value and need not be equal to the share in the capital.

Under Article 131 of the Commerce Act, a membership interest may be divided only with the consent of all members unless the articles of association provide otherwise. The interpretation of this provision and settled case law link it to partition between the heirs of a deceased member of a limited liability company whose membership interest has become part of the estate. This differs from a situation where several persons jointly hold a single membership interest (Article 132 of the Commerce Act).

Partition is one way of ending co-ownership (Article 34 of the Ownership Act).

Under Article 69(1) of the Inheritance Act, each heir may seek partition of the interests held by the deceased. A prohibition on exercising that right would be contrary to this mandatory provision.

Under Article 125(1), point 1, of the Commerce Act, membership ends on the member’s death. This happens by operation of law; no general meeting resolution is required to terminate the deceased’s participation.

The rights embodied in the deceased’s interests are not identical to the membership rights they held. Article 129(1) of the Commerce Act therefore provides that an interest may be freely transferred between existing members, while a transfer to a third party is subject to the requirements for admitting a new member.

According to the courts, the membership interest comprises financial rights only (a share of the company’s assets). It does not include membership itself, which also encompasses the personal rights under Article 123 of the Commerce Act. Those rights are not inherited. The deceased’s heirs do not automatically become members and cannot immediately participate in the general meeting as members with full rights.

For heirs to exercise membership rights, they must be admitted under the rules and conditions for admitting a new member: Article 129(1) in conjunction with Article 122 of the Commerce Act. They must apply to the company stating that they wish to be admitted, are familiar with the articles of association and accept their provisions.

In response, an extraordinary general meeting may be convened at which the remaining members decide whether to admit the heirs. The remaining members are under no obligation to rule on the application or to admit the heirs. In the absence of a decision admitting them, the heirs must be paid the monetary equivalent of the deceased’s interest in proportion to their shares in the estate.

Partition may be judicial or out of court.

Judicial partition is used when the co-owners cannot agree what share of the common property each should receive or whether each should receive property in kind. A judicial partition without all the co-sharers is void. It proceeds in two stages, ending with a record of partition drawn up by the court in place of an agreement between the parties. The court determines between whom and in respect of which properties the partition is to take place, and the share of each participant (Article 344(1) of the Code of Civil Procedure).

In an out-of-court partition the co-owners (heirs) reach an agreement, recorded as a voluntary partition agreement specifying each co-owner’s share. For the agreement to be valid and take legal effect, all co-owners must sign it and their signatures must be notarised (Article 35 of the Ownership Act).

Joint ownership of the interests held by the deceased member is ended by a voluntary partition agreement among all heirs. It records how many shares each heir is to take from the deceased’s interest. Under Article 5(1) of the Inheritance Act the deceased’s children inherit equal shares, while under Article 9(1) the surviving spouse inherits a share equal to that of each child.

One heir may also take the entire membership interest and equalise the shares of the other heirs by paying them in cash.

This article is not a legal opinion of attorney Elitsa Markova, attorney Mihail Tomov or a lawyer at Markova, Tomov and Partners, or advice concerning a particular situation or person. For legal assistance with the inheritance of company interests or with commercial law generally, consult a lawyer who practises in this field.