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Hungarian company law (real estate) Company law (legislation concerning companies) was one of the first areas of law that was formulated after the revolution. By doing so, Hungary intended to create the legal framework for the modern market economy as soon as possible. The 1988 VI.e Act on companies sets out the legal structure in Hungary and forms the basis of Hungarian company law to date. The rapid changes in the economic environment as well as the desire to synchronize legislation with European law, has brought about changes in company law legislation and corresponding procedures. Following multiple extensive changes, company law legislation was amended and the 2006 V. Acts concerning Companies and VI. concerning Company Procedures were adopted. In addition to the protection of creditors, the primary principle of this legislation was to speed up and simplify the process of forming companies. As a result thereof, the registration of a company is completed within one hour of the application, provided certain conditions are met. Hungarian company law is “kógens”, i.e. departing from a law is possible only if so explicitly allowed by the law. An important difference between Hungarian law and that in most other countries is that the registration of the details of the companies is carried out by the (provincial) Data Protection Authority - which functions in conjunction with the provincial courts - instead of Chambers of Commerce. In all procedures concerning companies (including those with regard to the formation, reporting changes and the termination) the assistance of a lawyer is compulsory. The explanation below sets out what needs to be investigated when an individual wishes to start economic activities in Hungary. 1. Forms of enterprise First it needs to be decided whether the investors wish to form an enterprise with Hungarian corporate personality or merely a commercial delegation. The main difference between these forms is that a commercial delegation is not an independent legal entity, yet an extension of e.g. a Dutch company. A Hungarian company is a fully independent legal entity. If it is decided to form a Hungarian company (independent legal entity), the main decision concerns that surrounding the responsibility and liability of the owners. In the event of a firm (közkereseti társaság, Kkt.) and limited partnership (betéti társaság, Bt.), the owners have unlimited liability for the debts of the company which, in the event of a limited partnership, are limited to the liability of the managing partner(s). In the event of a private limited company (korlátolt felel sség társaság ) or a public limited company (részvénytársaság, Rt.), the liability of a partner is limited to his contribution (share). The main forms of enterprise according to Hungarian company law are: General partnership (Közkereseti társaság – Kkt.) The formation requires a minimum of two partners. The partners carry out their commercial activities on the basis of their unlimited and joint responsibility and make the capital required to that end available to the company. The assets that are made available are not subject to a lower limit. Limited partnership (Betéti Társaság - Bt.) Through the partnership contract of a limited partnership, the managing partners undertake to accept full liability for the liabilities not covered by the company capital. In addition, at least one external member must make available the capital deposit that has been laid down in the partnership contract. The formation requires a minimum of two partners. The start-up capital is not subject to a minimum amount. Private limited company (Korlátolt felel sség Társaság – Kft) The Kft is a company that is formed on the basis of a pre-defined start-up capital (mandatory share-capital). The obligations of the partner towards the company are limited to making available his contribution to the start-up capital and payment of any capital contributions as laid down in the company contract. The partner is not responsible for any other obligations of the company. Public limited company (Részvénytársaság – Rt.) An Rt is a company that is formed on the basis of a pre-defined number of shares and a pre-defined nominal value of the shares. The obligation of the shareholder towards the company is limited to making available the amount (nominal value of the value at which the share is issued) of the shares. The shareholders are not responsible for the obligations of the Rt, bar a few statutory exceptions. An Rt can be formed privately or publicly and can function as a private or public – listed – company. Through a private formation, the founders undertake to take over all shares of the company. An Rt that functions publicly can be formed by means of a public procedure with registration of shares in accordance with the statutory provisions. 2. Company name After a decision has been taken on the type of enterprise, the company must be named. In Hungary, the following basic principle applies: the exclusivity of the company name. Under normal circumstance, 4 to 5 name variants are asked. This serves to investigate whether the relevant company name is still available. If so, it is possible to reserve this name for a period of 60 days. 3. Place of business In Hungary, the registered office of the company, which is equal to the postal address of the company, is deemed the place of business. The true location of the activities can deviate from this. The place of business must be indicated by means of a company town. The company must provide documentary evidence of the title to the use. It is possible that the company owns the property where the office is located. In that instance, the lawyer, who prepares the partnership contract, adds an extract from the land registry office to the documents indicating the property rights. If the office location is leased, the lessor must produce a statement – either in the lease contract or in a separate document – indicating that he has granted approval for use of the leased object as place of business of the company. In accordance with the latest legislation, a lawyer’s office, as a service, can offer his office as place of business. In that instance, the lawyer’s office will be the place of business and the lawyer ensures that all requirements set to a place of business are met, particularly those in relation to the receipt and retention of correspondence. 4. Activities Stating only the core activity of the company in the partnership contract suffices. If later on the company wishes to carry out any other additional activities, reporting this to the tax authorities suffices. There is no need to amend the partnership contract. Note that this rule applies to additional activities only. If the core activity is changed, the partnership contract must be amended accordingly. In the event of a Hungarian company with foreign interested parties, it is extremely important to investigate which rules and regulations are applicable to the activities to be carried out in this company. The “freedom of enterprise” does not mean that anyone can do as he sees fit. In terms of carrying out an activity, Hungarian law can impose the following requirements: - Approval from the competent authorities; - Permit for the workplace (by virtue of 80/1999. (VI. 11.) Government decision); - Survey of the environmental effects (by virtue of 314/2005. (XII. 25.) Government decision); - Obligation to report; - Concession requirement; - Activities that are solely carried out by the state or state-run enterprises ; - Other activities that are subject to conditions; - Obligation to register; - Municipal approval. Stating a complete list of all activities and their classification in the different categories would be too extensive. As recommendation and based on the above, it can be stated that the business plan, which is used to prepare the Hungarian company, must contain the survey of the activity to be practiced at all times. 5. Partners According to the principal rule, the formation of a partnership requires a minimum of two partners. In the event of a private limited company (kft), Hungarian law does include the single person Kft. (sole proprietorship). In the event of a public limited company (Rt.), it can of course not be excluded that all shares are owned by a single individual. In the event of a private individual, the personal details of the partner are required (in particular the surname, first names, place and date of birth, address and passport number). It needs to be noted that in Hungary, the name and date of birth of the mother form part of the official registration. In the event that the owner of the Hungarian company is e.g. a Dutch legal person, the registration of the company requires an extract of the Chamber of Commerce of the Dutch parent company not older than thirty days. In addition, a certified translation thereof prepared by the Hungarian National Translation Agency (OFI) is required. 6. Board of management The company is managed – in accordance with the legislation of the different types of undertaking – by the executive partners or by a board comprising the managers. In the event that multiple directors are appointed, it can be decided whether they will be authorized to represent independently or only jointly. Only a natural person can become an executive partner (with the exception of the general partnership or the limited partnership). 7. Start-up capital In the case of a Kkt. and a Bt., there is no statutory regulation for the minimum amount of the start-up capital. For a Kft. the minimum start-up capital is 500,000 forint, for a private limited functioning Rt. it is 5 million forint, and for a public Rt. it is 20 forint. Since 01/07/08, the incorporation procedure has been effectuated by electronic means only; the paper version has been abandoned. This does of course not mean that the partnership contract, any changes thereto and the obligatory appendixes are not signed on paper. The essence of the electronic registration is that the legal representative (lawyer or civil-law notary) must submit all of the documentation, which bears his electronic signature, to the Data Protection Authority electronically. Any further communication is also effectuated electronically. Even the decision on the registration is sent to the lawyer by e-mail. The deadline of the procedure is as follows. As a general rule, the deadline is 15 days after the application. In the event that the judge of the Data Protection Authority “remain silent” (i.e. it does not take a decision on the registration), the director of the Data Protection Authority has 3 days to check the application and to make a decision. If nothing happens during this period, the undertaking will be automatically registered after three days, according to law. The law provides for the so-called simplified registration. In that case, the incorporation is documented on the basis of a model document, designed by the Ministry of Justice. The lawyer involved in the procedure has the duty and responsibility to check the data. If the application contains no errors, the Data Protection Authority is obliged to register the undertaking within 1 hour. The drawback of this procedure is that no corrections can be made later. If the application does not meet the statutory requirements, the application is denied. Between signing the partnership contract and the registration of the undertaking, the partnership acts as a so- called "initial partnership" (el társaság). Specific rules apply at this stage. During this period, all of the contractual contacts by the undertaking must bear “b.a. –bejegyzés alatt” (to be registered). When this obligation is not observed and the undertaking is not registered by the Data Protection Authority, all contracts will be regarded as transactions effectuated by the incorporators, and they will bear joint responsibility for this (this rule therefore replaces the principle of limited liability in the case of a private limited company or a public limited company). It is recommended to select the future accountant no later than this “initial phase” and to put him in charge of the accounts, as the undertaking is obliged to prepare a balance sheet and tax return for the “initial phase” following registration. Every company is obliged to put an accountant or chartered accountant in charge of accounting. As a general rule, the accountant must fulfill all his obligations towards the tax authorities by electronic means. It is recommended to draw up a detailed contract with the accountant that properly lays down the duties and responsibilities, as tax legislation imposes hefty fines (a maximum of HUF 1 million, approximately EUR 4,000) when a return is submitted too late. In order to avoid subsequent discussions, it is extremely important to lay down the tax return deadlines and to set tight procedures for the submission and registration of the documents to be booked. The company may prescribe the appointment of an auditor. In other cases stipulated by law, an audit is obligatory.
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