Business-Friendly Company Foundation In Hungary

IN BRIEF ABOUT CHANGES IN THE ACTS ON BUSINESS ORGANISATIONS AND THE COMPANY PROCEDURE

by Balázs & Holló Law Firm

The legal changes applicable to business organisations provide significant assistance to investors at a number of points. The majority of the amendments will enter into force on 1 September 2007, while other provisions will do so on 1 July 2008.

1. Changes coming into force on 1 September 2007

The Act on Business Organisations specifies the amount of the prime capital of a limited liability company as 500,000 forints in contrast to the earlier 3 million forints, and in the case of a limited liability company with only one member, the rules stipulated are even more favourable. In the event that the deed of foundation so provides, it will suffice to pay a cash contribution of 100,000 forints to the benefit of the company, while fully rendering the eventual non-cash contribution available. In such a case, the remaining amount must be made available to the company within a year. The provision according to which a company can be registered only if at least half of all the cash contributions are paid up by the submission of the registration request will contribute to remain in force.

In the case of a public company limited by shares, the act continues to stipulate a share capital of at least 20 million forints, a private company limited by shares, however, may be founded with a share capital of 5 million forints in contrast to the earlier 20 million forints.

It is a common rule that the managing director of the company who could perform his duties only in a legal relationship of assignment prior to the recent amendment will be able to do so under an employment relationship as well, except for the founder of the business organisation established with one member, the general partner of the general partnership and the deposit partnership with sole authority to manage the company.

The primary changes in the Act on Company Procedure can be summarised as follows: in contrast to the earlier rule, it is not necessary to refer to the nature of the company's activity in the name of the company.

Under the new regulation, the seat of the company needs not be the place of the central administration, but the place where business and official documents are received, filed, kept, made available, and where the performance of the statutory obligations related to the seat of the company actually takes place. If the registered seat and the place of the central administration are not the same, this circumstance must be referred to in the foundation documents at the Company Court.

The definition of the premises and of the branch have also been changed. Premises include places of long term, independent business (operating) establishments, incorporated in the articles of association and located at a place different from the seat. A branch refers to premises located in another settlement or country.

In the future, signature attestation can be carried out in two ways:

1. signature specimen attested by public notary, or
2. by way of a signature specimen countersigned by an attorney-at-law, which the attorney-at-law may draw up only in the course of the company registration and change procedures, if

a) he draws up and countersigns the articles of association, or its amendment, and

b) the signature specimen constitutes an annex to the company registration or change request.

The Company Court shall keep record of the data of the company registry and the company documents in any official language of the EU, provided that upon the registration of the company, the company enclosed an attested translation of this, except in the case of the use of the statutory sample contracts, which will be possible to use in the future also in the case of founding private companies limited by shares.

The range of data to be indicated in the company registry was also changed.

The range of documents to be mandatorily indicated therein was supplemented with the following information:

a) currency, if the company specifies its share capital in foreign exchange;
b) the accounting date of the business year, if different from the calendar year;
c) the number and date of the valid court ruling, establishing the unlimited liability of the person authorised to represent the company, or having a qualified majority, for the debts of the company;
d) in the case of a limited liability company, the fact of a lien founded on the business quota, and the name, address and company registry number of the holder of the lien must be indicated. These data are registered and deleted on the basis of a request for change registration. In the event that the company did not make use of the opportunity to reserve names, there will be no need to make statements on name reservation.

The date of the change in the data may be specified in the request for change registration; this, however, may not be earlier than the date of bringing the decision.

Payment of a company's cash contribution can be effected in two ways under the current amendments. It can be paid to the cash desk of the company, or as before, to a bank account. If the payment was effected to the cash desk of the company, the managing director must open the company's bank account within 8 days following the registration of the company, and he must pay the company's cash contribution to that account. Verification of payment of the cash contribution can be by the certificate of the bank, or the statement of the managing director countersigned by an attorney-at-law or incorporated in a public deed by a public notary.

From 1 September 2007, it will be possible that the member, managing director or member of the supervisory board of the company with Hungarian residence be also the delivery agent of the foreign nationals registered in the Company Registry. As it is not mandatory under the new rules to designate a delivery agent, if a delivery agent is not designated, the court delivers the documents to be delivered by publication in the Cégközlöny (Company Gazette) and they shall be regarded as having been delivered five days following publication.

2. Changes entering into force on 1 July 2008

In the event that the Act on Business Organisations directly obligates a company to publish an announcement in the Cégközlöny, the company may discharge this obligation also by disclosing the information in its website, which is equivalent to the publication in the Cégközlöny. In such a case, the address of the website must be recorded in the Company Registry, and the website must be operated continuously.

In the event that pursuing a business activity is subject to licensing, the company must disclose this fact in its website or in the Cégközlöny.

Request for company registration or change registration can be submitted exclusively electronically. If company documents must be transformed into an electronic format, the legal representative is authorised to do so. The court will disclose its rulings electronically.

In the case of electronic signature, when submitting the electronic signature to the Trade Court, the certification of the electronic signature specimen must be enclosed.

We call attention to the fact that every legal change is concomitant with initial uncertainties in practical application and the interpretation of the Company Court may differ from that of the professional community of lawyers.

 

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04 September 2007
Balázs & Holló Law Firm