What is the main source of law authorising this entity form?

Hungarian Civil Code, Book 3.

Give a brief summary of the entity form:

Does the entity possess separate legal personality?

The Kft. has legal personality.

(Maximum) period of existence

Kfts can be established for a definite or indefinite period of time. If its founding document does not provide for the limited term, it exists for an indefinite period of time.

Governing document(s)

The founding document of a Kft. is the deed of foundation if the Kft. has only one member and the articles of association if the Kft. has more than one member.

Liability of incorporators / shareholders

Subject to limited mandatory exceptions, members are not directly liable for the company's obligations.

(Governing) bodies

The governing bodies of a Kft. are its Members' meeting, Managing Director, Supervisory Board, and auditor.

Other particularities

Can this type of entity be involved in international transactions and restructurings (e.g. cross border mergers, asset acquisitions and divestitures, equity acquisitions, conversions etc.)?

Under Hungarian law, it is possible for a Kft. to enter into legal mergers, divestitures and divisions of all or a portion of its assets and liabilities, and conversions.

International restructurings are possible, however, only pursuant to specific legislation (cross border mergers within the EU) or pursuant to the relevant European Court of Justice rulings (e.g. migrations whereby the legal form also changes).

Can this type of entity be publicly listed or held, or its securities be issued to members of the public?

No, this form of entity cannot be listed or publicly held.

Can this type of entity be used for a non-profit or charitable organization?

Generally, no, given its nature as a commercial entity, with the ability to make profit distributions, and being subject to corporate income tax.

Give a brief summary of the process of incorporation, formation, or organization, including:

Main documents required

Deed of foundation or articles of association, members’ list, declaration of acceptance of the Managing Director, confirmation of payment of the registered capital to the company (unless the deed of incorporation allows for payment to be made over time within the statutory deadline), power of attorney for corporate representation, seat usage certificate and application form.

Involvement of notary, company register, governmental authorities

The Kft must be registered in the Hungarian company register maintained by the Hungarian courts. The founding document shall be notarized upon issuance or countersigned by a licensed Hungarian attorney-at-law.

Timing (estimate)

The competent court maintaining the company register in the respective county must approve or reject registration applications within fifteen business days of application.

Main costs, including registration and similar fees (excluding legal fees)

The main costs are the lawyers' fees. No registration fees apply.

Is a description of the anticipated business or purpose of the entity required for incorporation, formation or organization?

The corporate objects/purpose must be stated in the founding document and filed with the court of registry.

Minimum number of incorporators / shareholders and residency requirements

There must be at least one (1) incorporator upon incorporation. No residency requirements apply. Foreign incorporators shall appoint a Hungarian agent for service.

Minimum number of directors (or other applicable officers) and residency requirements

There must be at least one (1) director upon incorporation. There are no residency requirements for directors. Foreign directors shall appoint a Hungarian delivery agent for service.

Minimum share capital, or equivalent, and payment requirements (including opening a bank account)

The minimum share capital cannot be less than 3,000,000 HUF (approximately 7,511 EUR).

Is the physical presence of incorporators/directors/shareholders required in the jurisdiction for incorporation, formation, or organisation?

The incorporation process may be carried out by power of attorney.

Is a tax identification number, or equivalent, required? If so, how is it obtained?

The tax identification number is provided by the tax authority upon registration of the company. The request to the tax authority must be submitted as an annex to the court application.

What is the title of the applicable company registry?

In Hungary, there are 20 courts of registration, mainly assigned to different counties.

What types of information must be filed at the (company) register, and which of them will it be publicly available, e.g.: Articles or other formation document, Articles or other formation document, Group structure, Share capital, Directors, Accounts, Insolvency, good-standing, liquidation, Liens and encumbrances on the shares, Liens and encumbrances on assets of the entity, Other (e.g. litigation, tax matters)

The information listed below must be filed at the companies' register and is publicly available:

• Founding document;
• Date of incorporation;
• Name of the company and the registered office address;
• The activities of the company;
• Share capital;
• Directors and their representative authority, including their date of birth, mother’s maiden name, tax identification number and address details;
• Auditor (if there is any) – Supervisory Board (if there is any);
• Data of the members;
• VAT declaration
• E-mail address

What is the title of the executive body and its members? What are their main duties, tasks and responsibilities?

The executive officer or officers (ügyvezető). In a Kft, the executive officers do not form a body (as opposed to a company limited by shares).

Decisions that are related to the governance of a Kft and are beyond the competence of the members or founders, must be adopted by one (1) or more executive officers or by a body consisting of executive officers.

How are the members of the executive body appointed, dismissed and replaced?

The first executive officers of a legal person are appointed in its founding document. After the legal person is established, executive officers are selected, appointed, and dismissed by its members.

Is it possible to appoint corporate directors or must all directors be natural persons?

Yes, an entity can be appointed as a director. All of the directors do not need to be natural persons.

Is there a requirement to have non-executive directors? How are they appointed, dismissed and replaced? Do non-executive directors serve on a separate body (two-tier structure) or can a one-tier board (with executive and non-executives) be appointed, or is some alternate structure used?

Hungarian law does not differentiate between executive and non-executive directors, however it permits (i) the appoint of an executive director with no representative rights and (ii) the creation of a Supervisory Board, as a separate body with no executive function, to supervise the activities of directors. A person may not be an executive director of a company and a member of its Supervisory Board at the same time.

What is the title of the body of owners / shareholders / members, and what are the main tasks / responsibilities / powers of that body?

The members of the Kft deliberating and voting upon matters at a meeting of the members have authority over the approval of contracts made between the company and one (1) of its members, its Managing Director, Supervisory Board member, auditor, or their close relatives. The principal duty of the members’ at a meeting of the members of a limited liability company is to adopt decisions on fundamental business and personnel issues. The responsibilities of the members’ at a meeting include the approval of the annual account and decisions on the distribution of profits. Decisions for the enforcement of claims for damages against the company's members, executive officers, Supervisory Board members and against the auditor lie with its members’ meeting.

What are the majority and quorum requirements for decisions by the shareholders? Can they be varied or changed?

Quorum requirements: Majority (at least 50% +1).

Decision requirements: Subject to limited mandatory exceptions, majority (at least 50% +1), that is a simple majority of the votes cast at a meeting of the members.

Any special governance regimes (e.g. depending on size, being listed at a stock exchange, or other criteria)?

No.

What are the periodic accounting obligations incumbent upon the entity? To whom must those accounts be submitted?

The company must maintain accounting records that are sufficient to determine the financial position of the company at any moment.

The annual accounts must be prepared by the Managing Directors, reviewed by the Supervisory Board (if applicable), and subsequently adopted by the members’ meeting.

The (adopted) annual accounts must be filed with the company registry.

Is the entity permitted to determine its own financial year?

Generally, the financial year shall coincide with the calendar year. However, the financial year may not necessarily coincide with the calendar year in the event that its parent company has a different financial year end date and also if the company is a credit institution, financial service provider, insurance company, or foreign higher education institution authorized to operate in the territory of Hungary, and engages in such business activity(ies). In addition, after three (3) completed business years, or upon being involved into accounts consolidation, or upon a change of the parent entity, it is possible to change the financial year ending date.

Is the entity subject to any statutory (external) auditor obligations?

Appointing an external auditor is mandatory if both of the following conditions are met:

• the company's average annual net sales revenue (converted to an annual level) for the two financial years preceding the financial year exceeds HUF 600 million (Approx. EUR 1,501,557), and
• the average number of employees of the company in the two financial years preceding the financial year exceeds 50.

Requirements to appoint other persons (officers, secretary, internal auditor / accountants). If so, what are their functions? Are there any residency requirements?

No.

In regulated industries additional obligations may apply (such as the requirement to have an internal auditor).

What is the title designated for 'ownership interests' (e.g. shares, quota, interests, membership)?

Quota (‘üzletrész’).

Are different classes of ownership interests possible? If so, what are some examples of different classes?

The Hungarian Civil Code allows creating quotas with different rights, which need to be regulated by the Articles of the company.

What documentation is required for the transfer of ownership interests?

Quota sale and purchase agreement, which must be in writing.

Are there any additional formal requirements required for the transfer of ownership (notary, approvals, stamping, filings, corporate records)?

In order for the change of ownership to be entered in the members list, the party acquiring the quota must notify the company within eight (8) days following the acquisition of the quota. The notice must contain a statement that the party acquiring the quota acknowledges the provisions of the founding documents as binding on himself.

Are there any applicable stamp duties imposed when transferring ownership interests?

Upon transferring ownership interest in a company, a registration fee and publication fee must be paid, which is altogether 18,000 HUF (approximately 45 EUR). In case one of the members of the company obtains majority influence, the registration and publication fee is 53,000 HUF (approximately 132 EUR).

How are shares issued? (including information on payment obligations, registration requirements)

Under Hungarian law, the quotas are not issued, they do not exist in an electronic or physical form.

Further information on equity contributions, e.g., non-cash payments on shares, (share premium) contributions without issuances of shares, can partially paid shares/ownership interests be permitted and what are the restrictions on them?

The founder or member may provide in-kind contribution by transferring ownership rights of tangible or intangible assets to the legal person. If, at the time of transfer, the value of the asset contribution does not reach the value indicated in the founding document, the Kft. may demand payment of the difference from the person who or which provided the asset contribution within five (5) years from the date of transfer.

Any requirements with respect to share cancellation, share repurchase and other capital reductions

Under Hungarian law, the quotas are not issued, they do not exist in an electronic or physical form, therefore, they cannot be cancelled. Limited liability companies may acquire their own quotas by decision of the members' made at a meeting of the members.

Members may resolve to reduce the capital of the Kft. by at least a three-quarters majority (i.e. ¾ of the votes cast a meeting) for the purpose of withdrawal of equity, consolidating losses or for increasing other capital components.

Any requirements with respect to distributions to shareholders?

Members are entitled to receive a share from the company's own funds that is available for distribution for the benefit of members and has been ordered for distribution by the members' meeting in the percentages consistent with their respective capital contribution. Dividends are paid to the members entitled to exercise membership rights with respect to the company at the time of decision for the payment of dividends.

Can the owners or shareholders adopt a restrictive or governing agreement among themselves such as a Shareholders Agreement?

Yes. The provisions in such agreement must not contradict the founding document, but additional and/or more detailed provisions are allowed.

Which are the typical annual maintenance costs of maintaining the existence and legal good standing of such an entity (excluding legal fees)?

The company must maintain its business address and have directors. The quota holders must each year hold their annual members' meeting (or adopt a resolution in writing). In addition, annual accounts must be prepared and adopted each year and the applicable tax filings must be made.

What are the general corporate tax rates? (Specify if there is a national versus local distinction).

The corporate tax rate is 9% of the positive tax base.

Summary of any specific matters, e.g. recent or prospective major legal developments

There are anticipated amendments to Act V of 2006 on Public Company Information, Company Registration and Winding-up Proceedings, which regulates corporate registration matters. The goal is to achieve a largely automated registration procedure relating to all legal persons (not just companies).