HUNGARY Law and Practice Contributed by: Mihály Barcza and József Bulcsú Fenyvesi, Oppenheim Law Firm
always results in a reduction of the registered capital and requires the amendment of the articles of asso- ciation, as well as registration of the changes with the commercial court. In a Zrt or Nyrt, shares are usually cancelled in connec- tion with a capital decrease or following the redemp- tion of redeemable shares. Cancellation may also be required in extraordinary situations: eg, if the company acquires its own shares through an unlawful buyback and fails to transfer them within the statutory deadline; or if employee shares cannot be reassigned after the termination of the relevant employment relationship. In a Kft, quotas may also be cancelled in a variety of situations, typically as a last resort to resolve excep- tional cases: eg, if a shareholder terminates without a legal successor and the quota is not duly allocated in the termination proceedings; if the company buys back a quota and the shareholders’ meeting decides not to reallocate it among the remaining sharehold- ers or transfer it to a third party; or if a shareholder is expelled or fails to pay its capital contribution, and the quota cannot be sold to another person. 4.2 Buybacks Share/quota buybacks are permitted and regulated for both private and public companies, except for single- member companies, which are not allowed to acquire their own shares or quotas. Buybacks are typically based on a resolution of the shareholders’ meeting and may only be implemented within the statutory volume limits and in compliance with capital protec- tion rules. In the case of a Nyrt, share buybacks are subject to additional restrictions under capital market regula- tions, including further limitations on the volume, price and duration of the buyback. In some cases, notification to the Hungarian National Bank may also be required. Shares or quotas held by the issuer do not, for as long as they are owned by the company, carry sharehold- ers’ rights such as voting or dividend entitlements, and must not be considered when determining a quorum.
Buybacks are often used to support employee share ownership programmes, restructure capital or prepare for a later transaction.
5. Dividends 5.1 Payments of Dividends
Dividends may be paid to the members from the untied retained earnings and the after-tax profit of the previous financial year upon the resolution of the shareholders’ meeting, provided that the relevant accounting requirements are met (including that the company’s equity will still reach its registered capital and the company’s solvency is not at risk). A resolu- tion on dividends may be passed upon the approval of the company’s financial statement for the previous financial year. Dividends may be paid to shareholders in proportion to the capital contribution they have already provided to the company. Dividends are usually distributed between the share- holders pro rata of their shareholdings – ie, pro rata of their quota in a limited liability company (Kft) and pro rata of the face value of their shares in compa- nies limited by shares (Zrt or Nyrt). However, based on the provisions of the articles of association and/ or the relevant priority shares in companies limited by shares (Zrt and Nyrt), dividends payable to certain shareholders or for certain quotas/shares may come ahead of others and/or may exceed the proportion of the relevant shareholding. 6. Shareholders’ Rights as Regards Directors and Auditors 6.1 Rights to Appoint and Remove Directors Appointment of Directors The directors (managing directors in Kfts, or mem- bers of the board of directors or the CEO in Zrts) are elected and removed by the resolution of the share- holders’ meeting. Although this decision generally requires a simple majority of the votes, the articles of association may
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