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
Legal persons are established for a definite or indefinite period of time. If the founding document does not provide for the term of the legal person, the legal person enters into existence for an indefinite period of time.
The deed of foundation of a Kft. shall function as its founding document.
Liability of incorporators / shareholders
Subject to limited mandatory exceptions, members shall not be directly liable for the company’s obligations.
Managing director, supervisory board and auditor.
Can this type of entity be involved in international transactions and restructurings (e.g. cross border mergers, asset acquisitions, equity acquisitions, etc.)?
Under Hungarian law it is possible for a Kft. to enter into legal mergers and demergers 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 also the legal form changes).
Can this type of entity be publicly listed or held?
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
Main documents: Founding document, Member’s list, Declaration of acceptance of the managing director, Declaration of the technical account holding bank that the registered capital has been contributed to the company, Power of attorney for corporate representation, Application form.
Involvement of notary, company register, governmental authorities
The Kft. must be registered in the company registry.
The court of registry shall resolve, whether to approve or reject, applications for registration by way of a ruling within fifteen working days.
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 incorporator upon incorporation. No residency requirements apply.
Minimum number of directors (or other applicable officers) and residency requirements
There must be at least one director upon incorporation, there are no residency requirements for directors.
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: 8,600 EUR).
Is the physical presence of incorporators / directors required in the jurisdiction for incorporation, formation or organization?
Execution of incorporation may be carried out by virtue of a 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 by the court. The request to the tax authority shall be submitted as an annex to the court application.
What is the title of the applicable company registry?
In Hungary, there are twenty courts of registration, mainly assigned to the count towns.
What types of information must be filed at the (company) register, and which of them will it be publicly available, e.g.:
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 address details of the registered office
- The activities of the company
- Share capital
- Directors and their representative authority, including their date of birth and address details
- Auditor (if there is any) – Supervisory board
- Shareholders and their address details
- Information regarding insolvency and liquidation
- The annual accounts
- Merger and demerger documents
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 limited liability company, the executive officers do not form a body (as opposed to the company limited by shares).
Decisions that are related to the governance of a legal person, and are beyond the competence of the members or founders, shall be adopted by one 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 shall be delegated in the legal person’s founding document. After the legal person is established, executive officers are selected, appointed and dismissed by the members of the legal person.
Is it possible to appoint corporate directors or must all directors 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 allows (i) appointing an executive director with no representative rights and (ii) creating, as a separate body, a supervisory board, principally 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 supreme body of a limited liability company is the members’ meeting (“taggyűlés”). The members’ meeting shall have exclusive competence for the approval of contracts to be concluded between the company and one of its members, its managing director, supervisory board member, auditor, or their close relatives. The principal duty of the supreme body of a business association is to adopt decisions on fundamental business and personnel issues. The responsibilities of the supreme body shall include the approval of the annual account and decisions on the distribution of profits. The decision for the enforcement of claims for damages against the company’s members, executive officers, supervisory board members and against the auditor lies with the business association’s supreme body.
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)
- Majority requirements:Subject to limited mandatory exceptions, majority (at least 50% +1)
Any special governance regimes (e.g. depending on size, being listed at a stock exchange, or other criteria)?
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 general meeting.
The (adopted) annual accounts must be filed to 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 differ from the calendar year in case the company is a credit institution, financial service provider, insurance company, or is a foreign higher education institutions authorized to operate in the territory of Hungary, which is justified by the characteristics of their business activity. In addition, after three completed business years, or upon being involved into accounts consolidation, or upon a change in the mother entity it is possible to change the turning date.
Is the entity subject to any statutory (external) auditor obligations?
According to the Act on Accounting, the auditing of accounting documents shall be statutory for all companies keeping double-entry books subject to other requirements.
Requirements to appoint other persons (officers, secretary, internal auditor / accountants). If so, what are their functions? Are there any residency requirements?
What is the title designated for 'ownership interests' (e.g. shares, quota, interests, membership)?
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 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 shall notify the company within eight days following the acquisition of the quota. The notice shall 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?
Yes, registration fee and publication fee shall be paid, which is altogether 18,000 HUF (approximately 50 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 asset contribution does not reach the value indicated in the founding document, the legal person may demand payment of the difference from the person having provided the asset contribution within five 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’ meeting.
- Members may resolve on the capital reduction by at least a three-quarters majority for the purpose of withdrawal of equity, consolidating losses or for increasing other capital components.
Any requirements with respect to distributions to shareholders?
Members shall be 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 percentage consistent with their capital contribution. Dividends shall be 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 shall 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 quotaholders 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 per cent of the positive tax base.
Summary of any specific matters, e.g. recent or prospective major legal developments
Amendments are envisaged 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.