Review of thesocial security regime of the individuals, who manage commercial companies
In the modern business environment the most common form of commercial association is the limited liability company (OOD). Without any doubt each OOD needs a person to realize its management, as this need is reflected in several provisions of the Bulgarian legislation, governing both the managerial activity and any other circumstances, arising from this exercise.
Exercising the activity under a contract for management and control (CMC)
The contract for management and control is legally justified in art.141, para. 7 of the Commercial Act, as according to the cited provision, it is concluded in writing on behalf of the company by a person, authorized by the general meeting of the shareholders(in OOD)or by the sole owner(EOOD). The law categorically prohibits to be a manager a person, declared bankrupt or a person, who has been a manager or a member of a management or supervisory body of a company, terminated due to bankruptcy during the past two years, preceding the date of the decision, declaring the insolvency, if there are unsatisfied creditors remained.
According to the practice of the SCC, when the management of a company is assigned to a third party, who is no partner, the only legal option for this is through the conclusion of a contract for management and control. However, if the management is assigned to a partner of the company, the ground for exercising the activity could be also an employment contract, concluded between the company and the partner manager. An important feature of the contract for management and control, which distinguishes it from the employment contract, is that the rights and obligations of the parties are governed by the rules of the civil law, so that any eventual clause in the contract on the proportional pensionable income on worked time would be without legal value for the social security regime of the person, exerciser under the contract. In otherwords, if the relations between the parties are governed not by the Labour Code, but by the CMC, the insuring of the contractor should be on an income not less than the relevant minimum threshold, although the contract could be concluded for work for a few hours per day or per week.
The individuals, who are assigned with the management under a CMC, are not entitled to have paid annual holiday and benefits under the Labour Code and the worked time is not considered to be working experience. All benefits and additional remunerations shall be mentioned as clauses in the contract in order to have legal value.
By 2008, the income of the individuals, working under contracts for management and control, including the members of management and supervisory bodies of undertakings, are subject to taxion by separate order, but as of 2008, they are explicitly referred to in the scope of the income from employment relationships. This change applies only to the rules for the tax treatment of incomes under CMC, in particular the formation of taxable income and pre-tax, the verification of the tax withheld, the determination of the annual tax due and the declaration of the paid obligations during the tax year. In no other respect the contracts for management and control can be treated as employment contracts under the Labour Code.
Exercising the activity under an employment contract
There is no obstacle for a person, who is a partner in a limited liability company, to conclude an employment contract for the exercised by them activity as manager. In this case for them will apply all rules of the employment law, including the right to paid annual holiday and the benefits due.
Of particular importance for the social security regime of the manager under an employment contract is that they could be insured as a self-employed partner, which means that for them does not apply the relevant minimum contribution threshold for the managers under CMC.
It is important to be mentioned that the sole shareholder of the capital of a company cannot manage it under an employment contract, as it is not possible for a person to be in an employment relationship with yourself, which means that the manager – sole owner of the EOOD could exercise the activity under a contract for management and control, or as self-employed.
According to the CSR and the Regulation on social security of the self-employed individuals and the Bulgarian citizens working abroad, being owners and partners of companies that exercise working activity, are subject to compulsory insurance. The management work is also included in this category and for this reason the managers, even if they do not exercise other activity than the management of the company, are also subject to compulsory insurance.
Self-employed individuals must be insured for disability due to general disease, old age and death. Alternatively they can be also insured for general disease and maternity (OBZ), as for the time, in which they have received benefits for temporary disability, pregnancy or maternity, they do not owe insurance contributions. Self-employed individuals can provide insurance income between the minimum and the maximum one, established by the Law on the budget of the state social security for the respective year.
Submitting personal labour
The registered manager of the company could carry out another type of work activity in the company beyond that stipulated in its duties and functions as manager, namely submitting personal work, for which they can receive or not receive remuneration.
The Code of Social Insurance determines that a person, exercising an activity on various grounds, is subject to state social insurance for each of them, as the insurance contributions are paid on the insurable income on each of them in the sequence, determined by the Code, but on not more than the maximum monthly insurance income for the respective year. The statutorily defined sequence begins with the person’s income under a labour and official relationship, as well as those under a contract for management and control. Secondly, follow the income, arising from an activity of a sole trader or owner, respectively partner in a CC or any other profession, while third in the sequence remain the income for working without an employment relationship.
In the end – to be or not to be a manager of a company?
The article has been published in Bulgarian, in Capital Daily.