There are several standard legal entities through which a person may do business in Hungary. The most common and popular ones are (i) a limited liability company and (ii) a joint stock company. The most common legal entity in Hungary is a limited liability company, mainly due to lower administrative burdens. Joint stock companies are commonly used as vehicles for larger commercial transactions which involve high volumes of capital and a large number of parties. Here we will focus on branch offices and the most popular limited liability companies.
The branch office is an organizational unit without legal personality of a foreign company (“Founder”) registered in the commercial register as an independent form of company.
Generally, a limited liability company may be established by even a single natural person and the maximum number of quotaholders is not limited. This represents a typical form of “capital” legal entity, which means that certain amounts of registered capital must be paid by quotaholders either in the form of cash or in-kind contributions.
Foreign companies are entitled to conduct entrepreneurial activities through their branch office(s). Branch offices may act in their own name in legal relationship vis-à-vis third parties. A branch has legal capacity – it may obtain rights and undertake commitments under its corporate name on the Founder’s behalf, such as acquire property and conclude contracts, and may sue and be sued.
A limited liability company may conduct any kind of activities (holding, manufacturing, sales, importation, exportation, services, etc.).
Minimum Capital Requirement
There is no minimum capital requirement for branch offices. The Founder, however, shall continuously provide the funds and assets required for the operation of the branch office and the settlement of its liabilities throughout the existence of the branch office.
The minimum amount of registered capital of the limited liability company is HUF 3 million (approximately €9,700). A limited liability company does not issue shares; the ownership interest is represented by a quota. Each quotaholder has one quota, the nominal value of which corresponds with the quotaholder’s capital contribution.
The corporate governance structure of a branch office consists of the (i) Founder, (ii) representative officer(s) and (iii) auditor.
Mandatory bodies of the limited liability company are (i) the quotaholders’ meeting and (ii) one or more executives (managing directors). In case of a sole quotaholder company, the sole quotaholder exercises the rights of the quotaholders’ meeting. In addition, the company’s constitutional document may set up a supervisory board and the company may have an auditor, but these are generally not mandatory.
The Founder and the branch office shall be subject to unlimited joint and several liability for the debts of the branch office. With respect to the execution of liabilities incurred in connection with the activities of a branch office, all assets of the Founder in Hungary may be subject to such execution.
The liability of the quotaholders of a limited liability company is limited. The companies shall be liable for their debts with their own assets; quotaholders shall not be held liable for the companies’ debts. However, in the event of abuse of limited liability on the part of any quotaholder on account of which any outstanding creditors claims remain unsatisfied at the time of the company’s dissolution without succession, the quotaholder in question shall be subject to unlimited liability for such debts.
Hungarian law recognizes two phases in the process of setting up a capital company: (i) establishment and (ii) incorporation. The establishment of a company is achieved simply by the execution of constitutional documents. Once the company has been established, a filing for its registration needs to be made with the commercial register maintained by the relevant regional court, depending on the address of the registered seat of the company. The company is incorporated and fully recognized as a corporate entity capable of entering into relationships with third parties from the date of submitting the request to the court to register the company. Generally, time periods for registration are short and the company should be registered within 15 business days following the submission of a complete application. The set-up process of a branch office is identical to the company set-up proceedings.
From an administrative point of view, it is very easy to set up and operate a branch office. In general, the Founder shall, in respect of the establishment and operation of its branch office, receive the same treatment as a domestic economic organization.
Limited liability companies are the most common forms of entities in Hungary. These forms of companies may be founded by non-resident and resident natural persons and legal persons, and such persons may join these companies as a member or acquire participation (quotas) therein. As a general rule, permits are not required for foreigners to set up a company. However, in a few specific cases, a company engaged in certain activities will be required to obtain a permit from governmental authorities prior to commencing its activities.