HUNGARY LAW AND PRACTICE Contributed by: Pál Szabó, Barnabás Simon, Eszter Katona, Ádám Simon, Mihály Harcos, Karim Laribi, Gábor Kutai and István Szalay-Csala, Bird & Bir d
Legal Entity Forms Private companies (Kft or Zrt)
provisions of Act CXXIV of 2021 (the “Cross-Border Mergers Act”) are also applicable. The procedural aspects of registering corporate changes in relation to M&A deals in Hungary are set out in Act V of 2006 on public company information, company registration and winding-up proceedings (the “Companies Registration Act”), including setting out the specific documents to be submitted to the competent court of registry to register an acquisition or a merger/demerger. From 1 January 2027, Act LIX of 2025 on the registry of legal persons (the “Legal Persons Registration Act”) will replace the Companies Registration Act and will completely reform the rules on the registration process of legal persons. One of the most significant changes will be the consolidation of the separate registers of the various types of legal persons into a unified register, which will include all types of legal entities. This is anticipated to have the effect of standardising procedural rules, expediting registration procedures, eliminating the differences in judicial practices, and further reducing administrative burdens for clients. Other than foreign ownership screening requirements (see 7. Foreign Investment/National Security ) and merger control approval (see 6. Antitrust/Competi- tion ), which can be applicable to a transaction regard - less of the industry or sector concerned, special rules may apply to companies operating in certain regu - lated industries, such as media and financial, invest - ment, insurance, energy or capital market sectors. The merger and demerger of such companies may also require the prior approval of the competent regulatory authorities. 4. Corporate Governance and Disclosure/Reporting 4.1 Corporate Governance Framework There are two sets of corporate governance rules in the Hungarian Civil Code, which is the main source of legislation in this respect. The first set of rules, setting out governance rules and principles in general, apply to all company forms, while the second set of rules only apply to certain specific company forms.
The most common company forms for investments in Hungary are the Kft (limited liability company) and the Zrt (private company limited by shares). These two company forms are very similar in terms of internal organisational structure and operation. The most sig - nificant difference is that the registered capital of a Kft is divided into quotas, while the registered capital of a Zrt is divided into shares. It is noteworthy that the publicly available Hungarian companies register contains all members of a Kft while it only indicates the majority shareholder (if any) of a Zrt . A Kft has long been the most popular company form in Hungary, mostly because: • it can be set up quickly, within a day in certain cases; • its capital requirement and operation costs are lower than that of a Zrt and • members of a Kft have greater flexibility as to how they want to structure the governance of their Kft than shareholders do in a Zrt . However, most foreign investors struggle with under - standing the concept of the “quota” as it is not uni - tised and, therefore, the ownership of a quota is only evidenced by an entry in the register of the members, but no security or certificate will be issued for the investor in exchange for its investment. Public companies (Nyrt) There is only a single type of publicly traded company form available in Hungary: the Nyrt (public company limited by shares). Setting up an Nyrt is a two-step process; first a Zrt must be established, and then that Zrt can be transformed into an Nyrt by a shareholders’ resolution and by introducing its shares to the stock exchange. 4.2 Relationship Between Companies and Minority Investors The relationship between the company and its minor - ity shareholders is governed by the Hungarian Civil Code. Generally, the shareholders’ meeting decides with the simple majority of votes, however a company may deviate from these rules and set higher thresh -
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