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Financial Participation

At the moment, there are no legal limitations to workers’ financial participation in Bulgarian companies. Neither are there any laws or tax benefits for financial participation schemes.

 

 

The practice of financial participation has largely emerged from privatisation. There are two distinct “legislation periods” in the Bulgarian privatization process. The first period stretches from 1992 to 2002 and the second started in 2002, when the previous privatization legislation was abolished.

 

 

The early privatization process

 

The first Law on Privatization, called the “Law on Transformation and Privatization of State and Municipal Enterprises”, was adopted on 7th May 1992. It was supposed to facilitate employees participation and to reduce the social gap between capital owners and the workforce which had appeared following the liberalisation of the Bulgarian economy.1 Unfortunately, these mechanisms were misused in many cases to promote the accumulation of private capital.

 

Two aspects of the 1992 Law are relevant: the preferential (free or discount) share acquisition and the so-called MEBO-privatization.

 

 

The preferential share acquisition

 

Initially, with the 1992 Privatization Law, workers in a company could either acquire up to 20% of the shares at half-price or obtain free shares in voucher (mass) privatization. No other preferential schemes were foreseen in the first version of the law. The situation changed with Law DV 59/1996,. It stipulated that all Bulgarian citizens over the age of 18 were eligible to participate in voucher privatisation. All enterprises to be privatized had been divided into two categories: the ones on the list of public-owned merchant entities to be privatised by means of voucher (mass) privatisation and the ones to be privatized through the stock-sales method. If the target enterprise belonged to the first category, then each eligible individual could obtain free shares. The total value of the free shares distributed could not exceed 10% of the nominal stock of the target entity. This privilege was abolished in 1998 when voucher privatisation was virtually abandoned. If the target enterprise belonged to the second category, eligible individuals were entitled to acquire up to 20% of the nominal stock at 50% of the assessed price. This privilege was abolished in January 2002.

 

 

‘MEBO privatization’

 

This term stands for three separate privileges: the so-called “25-rule”, “the 30-rule” and “the 35-rule”. The “MEBO Company” is a legal entity established by individuals of a designated status for the sole purpose of participating in the privatization process.

 

The “25-rule” applied to the privatization of state enterprises, which had been previously commercialized and where at least 20%2 of the members of the MEBO-company to purchase shares were employees of the target company. Under this rule it was possible for the target company to receive a 100% profit tax exemption for three years after concluding the privatization contract and another 50% for the following two years, but only as long as the chosen privatization mechanism allowed the public hand to keep a minority share in the target company. There were also very important payment facilities included: a lump-sum prepayment of 10%, a 10-year instalment payment plan and an interest rate of half the basic interest index of the Bulgarian National Bank. Later these payment conditions were gradually tightened, finally reaching the mark of a lump-sum prepayment of 25%, a 5-year instalment payment plan and the regular basic interest rate of the Bulgarian National Bank. Even so, the mechanism offered substantial financial relief for low-budget investors. The “30-rule” was similar, only that it applied to companies which had not been previously commercialized. Also, at least 30% of the employees of the target enterprise had to be members, shareholders or partners in the MEBO-company. The ‘35-rule’ provided both immediate transfer of property (within one month) and preferential payment conditions. It applied to low-value enterprises (or integrated substructures) that had not previously been commercialized.

 

Besides these incentives stipulated in the Laws DV No. 38/1992, and DV No. 59/1996, there were also other privileges, stipulated in the Law DV No. 100/1997: MEBO-companies only had to hold 10% of the minimum stock generally required for joint stock corporations or limited liability companies under the Bulgarian Trade Act and – as a further incentive for MEBO companies - privatization deals were exempted from VAT.

 

 

The privatization process after 2002

 

The 19 March 2002 “Law on the Privatization and the Post-privatization Control” superseded all previous privatization legislation. The new law proclaims in Art. 7 the equality of privatization candidates as a general principle of Privatisation Law. It establishes no privileges based on applicants’ status and, in particular, no provisions in favour of employees. The current privatization legislation is a negation of the former privatization legislation, which provided a number of preferential measures to facilitate employee participation. The purpose of the old legislation to narrow the social gap between capital owners and workforce rising from the liberalisation of the Bulgarian economy, was no longer achieved to a satisfactory degree.

 

 

Co-operatives

 

The 1999 Law on Cooperatives effective today (DV 113/1999) lays down that in the General Meeting, the all-competent decision-making organ, each member has one vote irrespective of the value of his capital contribution. A producer cooperative primarily pays its members so-called production dividends. Such goods are produced by cooperative members and then handed over to the cooperative. The production dividend supposedly represents the proportional contribution of the individual member to the cooperative’s economic result. Although a personal contribution is basic to the idea of a cooperative, individuals who become members are not automatically accorded the status of employees.

 

 

Profit-Sharing

 

There is no particular legislation concerning profit-sharing and it is rare in Bulgarian companies. Bulgarian employers do not regard profit-sharing as a positive source of employee motivation and a company’s economic efficiency and financial success, and prefer to use other incentives, like monthly or annual bonuses, on individual contract basis.

Wilke, Maack and Partner (2014) Country reports on Financial Participation in Europe. Prepared for www.worker-participation.eu. Reports first published in 2007 and fully updated in 2014.