Requirements to Companies in Hungary

The most commonly used companies are the Limited Liability Company (KFT) and the Corporation (RT).

THE LIMITED LIABILITY COMPANY (KFT)

The Hungarian KFT is very similar to the German GmbH. This is an ideal company form if the number of members is low.

KFT can be established with a minimum registered capital of HUF 500,000 (app. EUR 1,800), of which at least 50% must be paid up at the time of incorporation. If a KFT is incorporated with only one member the whole amount of the registered capital shall be deposited and all contributions in kind must be put at the company's disposal by the member before applying for company registration. The remaining balance must be paid in 365 days. The company has no issued shares. The business shares of the members represent the ownership of the company. The nominal value of each business share is at least HUF 100,000 and must be divisible by HUF 10,000.

It is a statutory requirement that a KFT must have a bank account open in a Hungarian financial institution.

Statutory audit is required for a KFT unless the average net sales revenues and the average number of employees have not exceeded HUF 100 million and 50 people respectively in the past two years preceding the business year. In case of a newly incorporated KFT the estimated sales revenues for the first business year has to be taken into account.

A KFT must have at least one director who can only be a natural person. Annual General Meeting shall be held at least once a business year but no personal attendance is required.

A Supervisory Board of 3-15 members shall be elected by the members if the KFT has more than 200 full-time employees.

THE CORPORATION (RT)

The Hungarian Corporation is not used as often as a KFT, although large scale foreign investments are typically channelled through an RT.

It gives limited liability to all of its shareholders, and it is well suited for cases where the number of shareholders is high or shares will be listed in a Stock Exchange.

In case of closed joint-stock companies (Zrt) only information about the director is public. Information about shareholders is closed and is provided only at request of government organs by directors.

In case of open joint-stock companies (Nyrt) the information about directors and shareholders is open to the public.

The minimum amount of share capital is HUF 5,000,000 (app. EUR 18,000), of which at least 25 percent must be paid up at the time of incorporation. The remaining balance must be paid in 365 days.

An RT must have a bank account open in a Hungarian financial institution.

Statutory audit is required for an RT where shares subscribed by the public, otherwise the same rules apply as for a KFT. If contribution-in-kind is provided, then it must be valued – taken into account internationally accepted transfer pricing principles - by an independent auditor other than the statutory auditor.

At the time of incorporation, an RT must appoint the Board of Directors and the Supervisory Board, with at least 3 natural persons as members in each Board, or may elect a General Director instead of the Board of Directors. Annual General Meeting shall be held at least once a business year, but no personal attendance is required.

The business share of an RT might be pledged with mortgage.

DIRECTORS AND SHAREHOLDERS

According to the Hungarian law, the Director can only be a physical person. In order to maintain the Hungarian residence a company is strongly recommended to have a director who is a resident of Hungary. This is due to the fact that in Hungary the test of the location of the effective management and control is used for determining the residency of a company. The location of effective management and control means the Board of Directors. Consequently, apart from having a resident director of Hungary it is also required that the board meetings are conducted in Hungary.

In view of the mentioned above, we strongly recommend to use a nominee service, mainly, the nominee Director. It is important to notice that due to the high level of responsibility of directors in accordance with Hungarian law, the position of nominee director in Hungarian companies is substantially different from the position of nominee directors of companies registered in classic offshore jurisdictions.

The key features are the following:

• Nominee Director jointly with the beneficiary or a person designated by beneficiary, or individually (in accordance with the orders of beneficiary) manages the company's account
• Nominee Director does not issue general power of attorney

Thus, the nominal director, in essence, is a person employed by the beneficiary for the conduct of company affairs. This is a professional manager, who personally responsible for the activity of the company in front of the beneficiary and the state.

Information about the shareholders of the company is kept in the Hungarian Registry and is open to the public. In this regard, for confidentiality it is proposed to use the services of nominee shareholders.

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