Hungary – Types of Companies

Kfts

A Kft. is a company limited by quotas or business shares similar to a German GmbH. The nearest English equivalent is a private limited liability company. A Kft. can be owned by a single person. However there are further regulations imposing an increased level of liability upon single owners of companies. Even though the single owner of a company has limited liability in general, this rule may be set aside and unlimited liability imposed upon the single owner, for example, if it is shown that the single owner carries on a business which has an adverse effect in the long-term upon the company and this fact is upheld by a court upon the claim of a creditor.

Quotas

A Kft. may have one or more quotaholders (members), who may include both foreign individuals and foreign legal entities. Membership of a Kft. is evidenced by entering the names of members into a list of members which the directors of the Kft. are obliged to maintain under the Companies Act. Unless the specific provisions of the Kft.’s deed of association provide otherwise, the quotaholder’s liability for the obligations of the Kft. is limited to the value of their quota. A quota in a Kft. is indivisible (except with the consent of the Kft. itself in special cases listed in the Companies Act), must be denominated in Hungarian Forints, divisible by 10,000 and may not be less than HUF 100,000. Voting and dividend rights can be set out in the deed of association, subject to the proviso that at least one vote must be allocated per stake of HUF 100,000.

Kft

A Kft. offer limited liability, for many investors a Kft. is attractive. Some of the reasons include: a Kft. requires a lower minimum paid up initial capital. Only HUF three million need be paid to found a Kft.; the procedures for calling a general meeting and taking corporate decisions are generally considered to be more flexible as regards a Kft. The members of a Kft. may also adopt certain resolutions, without convening a meeting, by using the written resolution procedure; and a Kft. has managing directors but no decision making Board of Directors. The directors of a Kft. may only be removed by a resolution supported by at least 75% of the quotaholders.

Directors’ Responsibilities

The role of the managing director of a Kft. is regulated by the Companies Act. The managing director or Board member qualifies as an executive officer of a limited liability company. The signature rights can be individual or joint depending on the provisions of the articles of association of the company (or deed of foundation for an Rt.). The managing director or Board member may transfer his right of representation to employees in respect of particular issues. The managing director should be elected by the Members’ Meeting and his appointment can be withdrawn at any time by the same company body. The managing director can perform his obligations on the basis of an employment contract or a mandate agreement.

Company Manager

The Companies Act also provides for the appointment of a company manager. The main difference between the managing director or board member and the company manager is that the company manager must be an employee and he should perform his tasks by following the instructions of the managing director. Otherwise the company manager also has the right to represent the company before authorities and third persons and to act and sign documents on behalf of the company. The signature rights – whether the company manager should sign individually or jointly – should be determined in the articles of association. The company manager cannot transfer his right of representation to employees.