October 26, 2017

FORM OF COMPANY

What form of company should be chosen?

There are several forms of company in Hungary, among the most common – LLC (Kft.), JSC (Rt.) and partnership (Bt.).

The most optimal in terms of costs for the creation and maintenance of the company, management and distribution of liability is the LLC.

Of course, the staff at LAVECO can also provide information on other company forms on request.

Limited Liability Company

The Limited Liability Company is the most common form of company. The liability of its owners is limited by the company’s authorised capital.

When the company is created, the owners sign the Memorandum and Articles of Association of the company and appoint a managing director. Once a year, it is necessary to hold a meeting of shareholders.

Unlike countries with Anglo-Saxon law, where companies are registered with the widest range of activities, in Hungary it is necessary to indicate accurately the planned activities of the company, with each activity having its own number. It is possible to form a company with several activities, while only doing some of them. It is also possible at any time to add new activities, by making the appropriate amendments to the company’s Memorandum of Association.

The minimum authorised capital of an LLC is 3 000 000 HUF (about 10,000 EUR). The company’s authorised capital must be paid into the bank even before the submission of the constituent documents to the Court of Registration.

It is also possible to avoid paying the authorised capital in such a way that the director of the company signs a written statement that the amount of the capital is at his disposal and has been paid into the company’s cash desk. However, in this case the amount of the company’s authorised capital becomes accountable, and it is reflected in the company’s accounts.

The company’s authorised capital can be spent on the running of the company.

Company address, provision of real office space

Each Hungarian company must be registered with a valid Hungarian address. A company’s registered address can not be a mailbox.

The company is registered by the relevant branch of the Court of Registration, in accordance with the location of its registered address, and will remain under that branch in the future. If, for example, a company has its registered address in Debrecen, the registration will be done through the Debrecen branch of the Court of Registration. If the company decides to operate in Budapest, it will then need to register a local office in Budapest.

After registration, all letters to the company from the tax authorities, banks, etc. will be sent to its registered address. Thus, when registering a company, it is necessary to determine how correspondence will be passed on to the directors and owners of the company.

LAVECO can provide companies registered in Hungary with an address in our own office complex. If necessary, we can also provide real office space for doing business in our Co-working office (sharing office space and infrastructure with several companies). Also, companies are provided with dedicated telephone and fax lines, as well as an e-mail address registered on a Hungarian server.

LLC directors and their responsibility

A limited liability company must have at least one director, even if the company does not conduct any activity.

The number of directors is not limited.

The directors of Hungarian companies are not obliged to be citizens or residents of Hungary, and there are no restrictions on the nationality and place of residence of the directors.

The director of a Hungarian company can be both a physical person and a Hungarian legal entity. However, in cases where the company director is a foreign company, it becomes extremely difficult to open a bank account for the Hungarian company, and furthermore, the foreign company must declare the name of the individual responsible for the management of the company. Thus, it is better to register a company with a private individual as director.

It is not obligatory to pay a salary to the director.

The director is responsible for everything that happens in the company, and it is impossible to reduce or exclude this responsibility. In certain cases, the director may be criminally liable for the company’s misconduct.

Nominee directors

Hungarian law does not recognize such a category as a nominee director. If it turns out that the company was managed by others and the director was just a figurehead, both the company and the director could face prosecution.

In this regard, nominee directors do not exist in Hungary. The director should have full information on all events taking place in the company. Also, the director should have the right to dispose over the company’s bank account and receive bank statements. However, it is possible to establish joint signature rights for the director and the representatives of the client (for more details see the “Company’s bank account” section).

LAVECO provides local director services for Hungarian companies, but  the directors will not issue general powers of attorney to conduct business. It is only possible to provide special powers of attorney for certain transactions (holding negotiations, signing contracts, opening subsidiaries, etc.), but not for the opening of bank accounts for the company and disposing over them.

The company’s financial statements are signed by the director.

LLC owners

The owners of the Hungarian LLC may be both physical and legal persons of any nationality, and it is not necessary to have Hungarian resident status.

The minimum number of owners is 1.

Hungarian banks do not look favourably on multi-level corporate structures, so it is advisable to create a company with an individual owner, open an account for it, and after a while change the owner from a physical person to a legal one. In this case, the bank account will be opened, and the identification process of the new owner will not affect the company’s activity in any way.