Doing Business in Hungary – Part five – Let’s found a Company Limited by Shares

A company limited by shares (in Hungarian: ‘részvénytársaság’) is a Business Association founded with a share capital consisting of shares of a pre-determined number and nominal value.

The company limited by shares may operate either as a public or as a private company. Any company whose shares are listed on a stock exchange functions as a public limited company (shortly in Hungarian: nyrt.) and any company whose shares are not listed on any stock exchange functions as a private limited company (shortly in Hungarian: zrt.).

Obligation of shareholders

The obligation of shareholders to the company extends to the provision of funds covering the nominal value or the accounting par value of shares. The shareholders must be held liable for the limited company’s obligations only in the event of abuse of the limited liability or if there are outstanding obligations towards creditors in case of a dissolution without succession that was brought about by the poor business decisions of the owner of the qualified majority of shares.

During the founding, members or the initial capital cannot be solicited via public invitation.

Minimum capital of the company

The share capital of a private limited company may not be less than five million forints; while the share capital of a public limited company may not be less than twenty million forints. The new Civil Code changed the basic rule on the foundation of the public limited company, since it may only be transformed from a private limited company, but cannot be established directly.

One share may have more than one owners and also, rights belonging to particular shares can diverge. Limited companies have to keep a register of shareholders and shareholders may exercise shareholder rights in dealings with the company only upon being registered in the register of shareholders.

The company can be registered only if, prior to the submission of the application for registration, the founders who agreed to provide contributions in cash have paid at least twenty-five per cent of the nominal value or accounting par value of the shares which they have committed to subscribe for in the articles of association; or, in the case where the company is founded with at least 25% of the share capital in asset contributions, these contributions have been made available to the company in full.

The amount of cash contributions at the time of foundation may not be less than thirty per cent of the share capital. Shareholders have to pay the nominal value or accounting par value of the shares to the limited company in full within one year from the date when the limited company is registered, and have to put asset contributions at the company’s disposal in full within three years from the date of registration.

General meeting and the management structure of the company

The supreme body of the company limited by shares is the general meeting.

An additional body is the management board, which manages the company and, as a general rule, is comprised of at least three natural persons; the maximum number of managers is not specified in the Civil Code. In the case of private limited companies, no management board exists, and the chief executive officer exercises its powers.

Public limited companies also have to install supervisory boards and set up audit committees.

Finally, all companies limited by shares have to employ auditors.