Bar Act Allows Incorporation of Law Firms - International Law Office

International Law Office

Company & Commercial - Bulgaria

Bar Act Allows Incorporation of Law Firms

November 22 2004


The Bar Act was adopted by the Bulgarian Parliament to regulate material changes in the legal profession and became effective in its main part from June 2004. The changes in the profession are primarily related to the demand for more complicated legal services and the gradual movement away from sole practitioners, prevalent until recent years, to lawyers working in association.

For the first time, the Bar Act allows lawyers to incorporate a special type of company that is a legal person (ie, a law firm). At present, Bulgarian attorneys usually work in association in two main forms: (i) by entering into joint venture agreements; or (ii) by incorporating commercial companies (usually in the form of limited liability companies). Given that the Bar Act has only recently been introduced and none of its regulations are issued by the Bar authorities, the legal status of the law firm is blurred, combining aspects of a partnership (eg, no fixed amount of capital is required, a person who is not a partner may not be a manager of the law firm and a partner is personally liable to the law firm's clients) and a corporation (eg, there is the body of the general meeting, and votes in the general meeting are calculated per share and not per capital as in partnerships).

Only attorneys (lawyers licensed by the Bar) may be partners in the law firm, and its name may include only the names of one or more of its partners. Partners must sign a contract for incorporation of the law firm with prescribed contents and submit it for approval to the Bar Council. Where the Bar Council approves the law firm's incorporation, the partners should apply to court for registration. The law firm is deemed incorporated as a legal person from the time of its registration by the court.

One of the most important issues for Bulgarian lawyers is each partner's personal liability with regards to the law firm's legal clients. The law does not expressly regulate whether this personal liability extends to all clients of a law firm or only to its legal clients. Further, it is unclear whether potential plaintiffs should first address the law firm and only then the partner (eg, whether a partner has the benefit of exeptio ordinis objection,(1) expressly stipulated in the Bulgarian Commercial Act in favour of unlimited partners in a general or limited partnership). Therefore, given that a law firm and its partners are jointly and severally liable to the firm's legal clients, it is likely that potential lawsuits would be addressed against both the law firm and its partners.

The mechanism for registration of law firms is based only on the Bar Act, as no law firms have yet been incorporated in Bulgaria.


For further information on this topic please contact Anelia Dinova or Diana Valkova at PI Partners by telephone (+359 2 986 26 22) or by fax (+359 2 980 15 36) or by email (anelia.dionva@bg.eylaw.com or diana.valkova@bg.eylaw.com).


Endnotes

(1) The right of the general partner to object to a claim of a creditor of the partnership that the claim should be addressed first to the partnership and only then to him personally, to the extent that the claim cannot be satisfied from the partnership's property. This objection can be validly raised under Bulgarian law by general partners in any type of partnership (eg, general partnerships, limited partnerships and partnerships limited by share).



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