More flexibility to design most popular company forms in Hungary

As of 1 January 2022, the most recent amendments to the Hungarian Civil Code entered into force, introducing changes to the prevailing regulatory regime of certain forms of Hungarian legal entities. This update, the second in the past 12 months, concerns the corporate governance of limited liability companies (in Hungarian korlátolt felelősségű társaság) and private companies limited by shares (in Hungarian zártkörűen működő részvénytársaság); the company forms most often favoured by investors.

Updates as of January 2022

Changes brought about by the current amendment are intended to loosen the legal boundaries and give shareholders greater freedom to design their preferred corporate setup, often catering to the business needs of financiers alike.

Some of the changes most relevant for investors include:

• similarly to managing directors and members of the board, the law now allows legal entities to become members of a supervisory board. In addition, supervisory board members are allowed to hold multiple votes, enabling the combination of effective representation of majority shareholders and the leanest setups;

• all company forms can receive additional payments (in Hungarian “pótbefizetés“) from their shareholders, enabling the use of this convenient (albeit temporary) financing method in addition to the conventional toolset of shareholder loans and registered capital injections. Furthermore, in case of sole shareholder companies such additional payments can be performed even in the absence of detailed provisions in their respective constitutional documents;

• an interesting change allows shareholders of a limited liability company to hold multiple business quotas (in Hungarian “törzsbetét“), either through purchase of additional quotas or by division of an already existing one.  This opens the door for various use cases in external financing or better structuring of shareholder rights in joint ventures;

• finally, with the removal of mandatory proportions applicable to certain share types within private companies limited by shares, new possibilities emerge to customize shareholder rights in ways previously legally impossible, allowing shareholders to freely issue and allocate preference share types best fitting to their envisaged corporate governance goals.

Future changes to anticipate

Based on laws already passed, a new corporate registry act is set to completely replace the current law as of 1 January 2023, accompanied by relevant amendments in the Hungarian Civil Code. The new act introduces automated incorporation processes, while also limiting the amount of corporate data available to the public. New, community and local legislation is also on the horizon implementing the EU harmonized rules of Directive (EU) 2019/2121 regarding cross-border conversions, mergers and divisions, and introducing the long-awaited rules governing the movement of business ventures from one member state’s jurisdiction to another, but maintaining its legal status and continuity.