In this article we summarize the key-points of the limited liability company (LLC) formation in Hungary according to New Hungarian Civil Code. By summarizing the main features of the Hungarian LLC in the first part, we show why it is the favourite company form among foreign investors. In the second part we present the most important steps and costs of the company formation procedure.
1. The Hungarian LLC
1.1. Formation, capital contribution
A limited-liability company (LLC) may be founded by a single-member or by more members as shareholders. Save the exceptions set forth in the Civil Code, members shall not be liable for the debts of the company.
LLC are founded with a capital contribution of at least HUF 3.000.000 (~EUR 10.000). The capital contribution of the members may be provided in the form of in cash contribution or as in-kind contribution.
According to the new Civil Code, members do not have to provide all of their cash contribution at company formation, but in that case
- the LLC cannot pay any dividend to members , and
- the members will be liable for the company's debts up to the unpaid part of their cash contribution,
until the full cash contribution is paid.
An in-kind contribution can be a thing of any kind with pecuniary value, rights pertaining to intellectual properties or any other right having pecuniary value, including any claim recognized by the debtor or based on a binding court decision. If the amount of the in-kind contribution exceeds the half of the capital contribution, then the whole in-kind contribution shall be provided by the member at company formation.
1.2. Business shares, right of first refusal
After the registration of the company, the rights of members and their share from the assets of the company are embodied by their business shares and it shall be consistent with the respective capital contributions of the members.
Business shares may be freely transferred among the members of the company, but if a member wishes to transfer his business share to a third person, then the other members, the company, or a person designated by the members' meeting shall, in this order, have the rights of first refusal.
The members can exclude the rights of first refusal in the articles of association. The right of first refusal is also not relevant, if the member transfers his business share upon other legal title (for example as donation).
1.3. Profit and loss sharing
Members shall be entitled to receive a share from the company's own funds that is available for distribution to the benefit of members, and has been ordered for distribution by the shareholders' meeting, in the percentage corresponding to their capital contribution, save if the articles of association provides otherwise.
In other words, the articles of association may provide that members share the profit and bear the loss of the company in a different proportion than their capital contribution, but no one can be excluded from the profit entirely.
Members shall be entitled to receive dividends in the proportion of the capital contributions they have already paid up.
1.4. Shareholders' meeting and representation of the company
The supreme body of the LLC is the shareholders' meeting, which shall be convened at least once every year. The decision in the major questions of the company's life (e.g.: the approval of the annual report, to pay interim dividends, the use of the profit (earnings), the appointment of the executive officers etc.) shall fall within the exclusive competence of the shareholders' meeting. The shareholders' meeting shall adopt the decisions by a simple majority of the members, but in some cases the articles of association or the Civil Code prescribes qualified supporter majority (three-quarter majority, unanimity).
In case of a single-member company the sole member shall function as the supreme body.
The representative of the LLC is the managing director, who may fulfill this position within the framework of an engagement agreement or employment relationship. The managing director may be elected for indefinite period, and may be revoked by the shareholders' meeting.
It is important to know that foreign members and managing directors shall have a registered service agent in Hungary.
2. Company formation procedure
After the founders signed the articles of association and the other company documents, all of the documents shall be countersigned by an attorney, who represents the Company in the registration procedure. Foreign documents (e.g. company extract of the founder) shall be translated to Hungarian by a sworn translator.
Before sending the application for registration a duty of HUF 100.000 (~ EUR 300) and a publication fee of HUF 5.000 (~ EUR 18) shall be paid. In simplified procedure the duty is HUF 50.000 (~EUR 150) and there is no publication fee.
When all documents are signed, the attorney files the application through electronic channels to the court of registration. When the court receives the application, it sends a return receipt with the tax number of the company, so the Company can start the operation as a pre-company (sign contracts,).
The length of the registration procedure depends on the tax authority screening which is part of the procedure. After the tax screening the tax authority issues the EU VAT Number. In an optimal case the duration of registration procedure is cca. 2-8 working days from the signature of the company documents, depending on the type of procedure (simplified or normal).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.