After the Liberation, trade legislation included a Law on
Commerce, Law on Market-Places, Law on Cooperative Partnerships,
Law on Stock-Exchanges, Law on Limited Liability Companies,
Commercial Shipping Law, Sea Trade Law, Pre-Bankruptcy Work-Out
Agreement Law, and others. A subsidiary source of economic activity
regulation were the general civil laws, most notably the Law on
Obligations and Contracts. Commercial law provided the necessary
legal framework of economic relations in Bulgaria, which were based
on private property, equal treatment of commercial entities, and
the competition under a market economy.
Following 1944, commercial law lost its significance in the
context of centrally planned command economy. The nationalization
of private industrial and mining enterprises in 1947 and the
subsequent adoption of the new Law on Obligations and Contracts in
1951 in fact put an end to commercial law in the time of
socialism.
With the repeal of the old commercial legislation, the
regulation of the economic activity and relations among commodity
producers was covered by civil law and above all, contractual law.
A number of instruments designed to regulate commerce, such as the
commission contract, shipping and forwarding contracts, the
publishing contract, the insurance contract, etc., were covered by
contractual law and more specifically, by the Law on Obligations
and Contracts, passed in 1951. However, those instruments primarily
served a single type of entities, namely the socialist economic
organizations, as citizens were generally not allowed to engage in
economic activities. A number of special regulations and
legislative acts were also passed - Law on Contracts between
Socialist Organizations, Foreign Trade Law, Ordinance on Commercial
Contracts, Ordinance on Interrelations in the Investment Process,
Rules and Regulations on Economic Activity, and others, which
regulated the legal status of the socialist commercial entities and
the relations among them.
The first attempt to break down the state monopoly on economic
activity took place with the adoption of Rules and Regulations on
the Collective and Personal Labor of Citizens for Additional
Production of Goods and Services (Decree N 35 of 1987 of the
Council of Ministers). It granted citizens the opportunity to
exercise economic activity and to own means of production of a type
and size required for the purposes of that activity. Citizens could
own studios and workshops, shops, farming facilities, trucks, and
others.
While the Rules allowed the carrying out of a wide range of
activities, most of them were subject to special subsequently
passed regulations. They introduced a licensing system for the
exercise of those activities, as well as a number of formal
administrative procedures for the granting of licenses.
Foreign-trade activities, for instance, still remained an exclusive
monopoly of the state. On the other hand, the forms in which
citizens were allowed to carry out economic activities were limited
- citizens could engage in the production of goods and services by
running small workshops and retail outlets granted for use through
auctions and on the basis of contracts concluded for a term of up
to 5 years; by organizing small production collectives for carrying
out additional activity within socialist economic organizations or
the exercise of a craft, manufacture, or retail business, and by
supplying services upon registration.
One specific characteristic was the fact that the production of
goods and services could only be carried out through personal or
collective labor of citizens. Hiring labor force, i.e. the
exploitation of another's labor, was prohibited.
In fulfillment of the basic normative act - the Rules and
Regulations on the Collective and Personal Labor of Citizens for
Additional Production of Goods and Services, it was followed by the
adoption of a number of other acts:
Decree N 17 of the Council of Ministers of June 3, 1988, on the
Reorganization of Domestic Trade and Services (State Gazette,
46/06.17.1988);
Ordinance N 6 on the Supply of Transport Services by Citizens,
issued by the Ministry of Transport (State Gazette,
75/09.29.1987);
Ordinance N 3 on Holding Auctions for the Purpose of Granting
Management of Small Objects, issued by he Ministry of Trade and the
Ministry of Finance (State Gazette 76/10.02.1987);
Ordinance N 6 on Granting Licenses for the Exercise of a Craft,
Organizing Manufactures, Trade, and Supply of Services and on
Registration of Licensees, issued by the Ministry of Finance and
the Ministry of Trade (State Gazette, 76/10.02.1988);
Ordinance N 7 on Architectural Designers' Services, issued by the
Committee on Territorial and Built-Up Area Zoning (State Gazette,
78/10.09.1987);
Ordinance 1 on Software Design and the Supply of Programming
Services through Collective and Personal Labor of Citizens, issued
by the Information Technology Committee (State Gazette,
80/10.16.1987);
Ordinance N 7 on the Supply of Pedagogical Services, issued by the
Ministry of Culture, Science and Education, (State Gazette,
40/05.27.1988);
Ordinance N 7 on Administrative and Legal Services, issued by the
Ministry of Justice (State Gazette, 59/08.02.1988);
Ordinance N 1 on Family Run Hotel Businesses, issued by the
Ministry of the Economy and Planning (State Gazette,
66/08.26.1988);
Decree N 53 of the Council of Ministers of September 15, 1987 on
Establishing a Table on the Size of Fees of Persons Supplying
Services
Ordinance N 7 on Determining the Fees and the Income Tax on Incomes
Acquired under the Conditions of the Rules and Regulations on the
Collective and Personal Labor of Citizens for Additional Production
of Goods and Services, issued by the Ministry of Finance (State
Gazette, 76/10.02.1987).
The next step in abolishing state monopoly on economic activity
was made with the adoption of Decree N 56 on Economic Activity,
which introduced the so-called company organization. The company
organization of economic activity was an attempt to restore, or
reestablish rather, market economy principles in the context of
centralized, planned economy.
Decree N 56 on Economic Activity prescribed the entities that
individuals could form or participate in, in the exercise of their
right to take part in economic life. The first text of Decree 56
allowed citizens to form only one-man or collective companies, and
partnerships, with only the latter having the status of legal
persons. It was not until 1990 that individuals were allowed to
form or participate in limited or unlimited liability companies and
joint-stock companies. At the same time, the restriction limiting
participation to 2 companies at the most was still valid.
The use of "hired labor" was allowed for the first time, though
the number of workers that could be employed was limited to 10.
Citizens were purportedly free to choose, register and exercise
any objects of activity. However, this liberal system was
immediately constrained by the condition that should there be a
law, or a decree or other act of the Council of Ministers
prohibiting the exercise of a particular economic activity by
citizens' companies, courts would deny statement of that activity
in the objects of the company upon its registration. Thus very
soon, a number of government acts and regulations reestablished a
restrictive system with respect to the possible objects of private
companies. For instance, speculative activity was prohibited,
meaning any activity involving buying of goods for the purpose of
reselling them. In such cases companies could be terminated upon
request by the competent state authority or the public
prosecutor.
On the other hand, according to the initial text of the Rules
for the Implementation of Decree N 56 on Economic Activity,
citizens' companies were restricted with respect to the foreign
trade activities they could engage in. The one-man and collective
companies could engage in import and export through companies that
were legal persons. At the same time, citizens' partnerships, which
had legal person status, were prohibited from carrying out trade
representation in the country and abroad, as well as from exporting
goods manufactured by other companies, or importing goods other
than those required for the purposes of their own activity.
Subsequently those restrictions were lifted and private
companies were allowed to engage freely and independently in
foreign trade activities with no permissions from state authorities
required, except in the cases when the Council of Ministers set
import and export quotas and conditions with respect to certain
goods, or prohibited the import and export of certain goods, or
established licensing with respect to certain foreign-trade
transactions. The freedom of private companies to engage in
foreign-trade activities was expressed in their right to negotiate
and conclude contracts with foreign contracting parties, to make
and receive payments, to contract for the accessory activities
involved in foreign-trade transactions - freight, insurance,
commissions, and others.
The rigid interpretation of speculative activity was also
dropped. With respect to foreign trade, it was possible to export
both the private company's own products, and goods produced by
other companies. The restrictions on imports were also lifted -
private companies could import goods required for their own
activity, as well as goods meant for sale in the country's retail
network, for renting out, etc.
At the same time, however, private companies were still facing
the problem of the established foreign exchange system. According
to the provisions of Decree N 32 of the Council of Ministers of
April 10, 1990, convertible currency transactions at market
exchange rates were organized by the Bulgarian Foreign Trade Bank
through auctions. Private one-man and collective companies and
partnerships were required to sell to the Bulgarian Foreign Trade
Bank 50 per cent of their foreign currency results from the export
of goods and services, reexport, etc., at the current market
exchange rate. The currency results were calculated after deducting
the value of imported materials and packaging paid in foreign
currency for the production of the exported goods, expenses for
transport, insurances, commissions. The remaining sum after the
sale of 50% of the foreign currency revenues was left at the
disposal of the respective private company. The companies receiving
income in convertible currency from international tourism sold 80%
of their currency earnings to the Bulgarian Foreign Trade Bank at
the market exchange rate, with the remaining 20% left at their
disposal. The conditions were even more unfavorable for the
companies licensed to sell imported goods and services in
convertible currency or which received income in foreign currency
by acting as representatives, intermediaries, or agents. They were
required to sell 90% of their currency earnings to the Bulgarian
Foreign Trade Bank at the market exchange rate, with barely 10%
remaining at their disposal.
There existed a number of regulations and legal possibilities
meant to place private companies on an equal footing with other
companies. However, they were insufficient in themselves in the
absence of guarantees about their application. The negative
attitude and common practice of underestimating and neglecting
private economic initiative in fact thwarted the emergence of truly
equal business conditions.
Nevertheless, following the adoption of Decree N 56, there
occurred a number of positive changes regarding the independence of
commercial entities.
In accordance with the Law on Obligations and Contracts, the
economic activity of companies and their interrelations were
realized on a contractual basis. That was a considerable step
forward compared to the former system of state commissions and
obligatory planned deliveries.
The Law on Obligations and Contracts was created in 1951 and
though its purpose was to regulate contracting between persons in
the context of socialist planned economy, its provisions,
particularly after the amendments and additions made in 1993,
generally meet market economy requirements as well. The chief
instruments of civil law which have been adopted and regulated by
the Law constitute the basis for the development of private law
relations. According to the stipulations of the Law, in their
capacity of contracting parties, the commercial entities are free
to determine the content of the contract at will, on the sole
condition that it is not against the law. The contract has effect
between the parties and with respect to third parties can only have
effect in cases specified by law.
One of the most consequential legislative reforms for
encouraging private sector development consisted in the adoption of
the Law on Commerce.
The first two parts of the Law are devoted to the legal and
organizational forms of carrying out economic activity. A
definition is provided of the trader as a commercial and legal
entity. The term "firm", which is quite meaningless from a legal
point of view and which used to denote the commercial entity in the
text of Decree N 56, has been dropped. It is now used to signify
the name of the commercial entity. The various types of commercial
entities have been defined - the sole trader, state-owned and
municipal enterprises, as well as the commercial companies,
including the general partnership, the commandite partnership, the
limited liability company, the joint stock company, the company
limited by shares. However, it is the Cooperatives Act that
provides for the cooperatives as independent entities. The Law on
Commerce also provides for trade representation.
Part three of the Law on Commerce, which is to regulate trade
transactions, has still not been adopted, but as pointed out above,
the relations between the commercial entities are subject to the
provisions of the Law on Obligations and Contracts.
Part four of the Law on Commerce - Bankruptcy - was adopted in
1994 and regulated the legal procedure of adjudication of
bankruptcy and/or insolvency.
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