Sunday, 22 February 2009

Foreigners starting business in Hungary

By Dr. Kinga Horvát Szováti
Budapest Times
In autumn 2005 Parliament passed a law on business associations (Act IV of 2006) and the new company law (Act V of 2006). Why was it necessary to reform the legislation on associations, companies and bankruptcy? The reforms were necessary because of the fast-paced changes to business relations. It is characteristic of the regulations that – similarly to legislative changes in Western Europe – that the decision-making freedom of associations and their members and shareholders is only justified if it serves the purpose of protecting investors, creditors or public interests.

In Hungary, as in the past, the signing of a contract of association and acceptance of articles of association in the case of companies limited by shares and a deed of foundation in the case of a one-person business entity is necessary to establish a company. In Hungary the company court registers business entities and keeps a company register, which is public and may be viewed by anyone. The contract of association, articles of association, or deed of foundation – which must be signed by all members (founders) – must be contained in a public document drawn up by a public notary, or a private deed countersigned by a solicitor or legal advisor of the founder.

Contract template
It is new that in the case of unlimited partnerships, limited partnerships and limited liability companies (which can now be established with initial capital of HUF 500,000, EUR 1,710) the contract of association can be prepared by suitably filling out a contract template. Company foundation based on the template is recommended to those who would like sign the simplest possible contract of association, and with the fastest possible registration by the company court. Countersigning by a solicitor or public document drawn up by a public notary is also necessary if the template is used, because legal representation is mandatory to register as a company. Company court registration of associations using a contract template takes place electronically. The legal representative concerned (public notary or solicitor) gives the necessary documents, which have been compiled electronically, an electronic signature and submits them electronically to the competent company court, which reaches a decision within one hour of the registration request arriving. That is significantly quicker than the earlier 30-60 day deadline. The deadline given for the registration process also applies to registering changes, providing the contract template is used.
Foundation deed
Of course it is also possible not to use the contract template, and to draw up a traditional contract of association (foundation deed) and articles of association, if required by the complexity of the case or the contracting parties so desire. This means that foreigners living in Hungary can establish a company, which is recognised throughout the European Union, within as little as an hour with the assistance of a public notary or solicitor.Hungarian law regards companies limited by shares (Rt) and limited liability companies (Kft) as legal persons, which is not the case with other forms of business entity. In associations with legal personality the financial liability of the members is limited, whereas the liability of the office-holders to the members can be unlimited if they have caused damage to the owners through their careless actions.A foreigner founding a company in Hungary who is not resident here can proceed with the assistance of a trustee-on-delivery. The trustee-on-delivery can be a public notary or a solicitor, but only solicitors can offer so-called company seat service, whereby the solicitor concerned offers their own office as the seat of the new company.
To summarise
Either a public notary or a solicitor may assist the foundation of the company, and the use of a legal expert is obligatory. For companies using the contract template, registration can take place within as little as an hour. We would not recommend making use of an intermediary because this increases costs considerably. Public notaries and solicitors with experience in international cases can provide clients with the necessary information and offer advice, as well as enabling the constitutive document of the new business entity to be drawn up in a language known and understood by the client so that they really know what they are signing.

For more information about public notaries and their work please see our website or contact us: (06-1) 476-0270.e-mail:

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