The Act CXCVII of 2011 (the “Amendment Act”) adopted by the Parliament has significantly amended the provisions of Act IV of 2006 on Business Associations (the „Companies Act”) and Act V of 2006 on Public Company Information, Company Registration and Winding-up Proceedings (the “Company Registry Act”). The Parliament has also passed the amendment to the Economic Chambers Act, which imposes additional administrative obligations on enterprises.

I. New provisions concerning company registration proceedings

I.1.      Obligatory appointment of delivery agent

The Amendment Act sets forth that companies and natural persons (as owners or executive officers, etc. of Hungarian companies) not resident in Hungary must appoint a delivery agent and have to have the agent registered in the company registry.

The following persons may not serve as delivery agent:

• the members (shareholder) of the company,
• executive officers and
• the members of the supervisory board.

The delivery agent must be appointed and reported to the Court of Registration at the time of the first change in the data registered in the company registry but by February 1^st, 2013 at the latest.

I.2.      Obligatory statement on registered seat

Companies will have to prove their title to use the property, which serve as their registered seat, branch office or business site, by submitting appropriate documentation to the court (e.g. land registry extract, extract of the lease agreement, certificate of usage).

I.3.      Additional data required for the company registry

The administrative burden increases, as more data and documentation will need to be submitted to the Court of Registration. Therefore, the following data is required in case of every company registration proceedings:

• tax numbers of shareholders (members),
• dates of birth of the persons indicated as representatives of the Company in the company registry,
• the trade registry extract of the foreign shareholder entity.

I.4.      Duty related changes

As of March 1^st, 2012, the duty for the registration of companies by the simplified proceeding shall increase to 50,000 HUF in case of private companies limited by shares and limited liability companies,  to  25,000 HUF in case of general and limited partnerships and  to 15,000 in case of  sole proprietorships instead of the previous flat duty of 15,000 HUF for all company registrations made under the simplified procedure.

I.5.      Data on the activities of the company

All business activities of the company (not just the main activity) need to be indicated in the articles of association of the company and in the company register, however, generally changes to the activities has to be reported to the tax authority (and not to the court of registry) together with statistical classification numbers.

I.6.      Abolition of registered seat services

Registered seat services (including law firms and specialized firms) provided by third parties will no longer be permitted but the current ones will not be affected.

I.7.      Company extracts of foreign company owners

Pursuant to the Amendment Act, in case of a foreign owner of the company, after March 1^st, 2012 it is mandatory to submit the company extract (or other document which verifies the registration of the owner according to its jurisdiction and the representation powers of the authorized representative) of the foreign owner to the Court of Registration along with a certified Hungarian translation of the company extract.

II. New provisions for the protection of creditors

II.1.     Grounds for incompatibility of the owners of the company

The Amendment Act sets forth stringent prohibitions with respect to persons holding positions as executive officers and those persons with ownership (members) in the company exercising exclusive or majority influence who have been found liable for unsettled claims under a final and binding decision that concluded the termination of the prior company without a legal successor and who have not settled their payment obligations.

Pursuant to the Amendment Act such persons may not

• be the sole member in a newly formed single  owner  company,
• acquire ownership ensuring direct or indirect majority influence in a company or
• become members with unlimited liability in general and limited partnerships.

The Amendment Act also sets forth that persons who have not fulfilled their obligations in connection with their previous ownership interest under the Companies Act may not become members with unlimited liability in general or limited partnerships or acquire ownership stakes ensuring direct or indirect majority influence in the company.

The above restrictions are applicable to the persons concerned for 5 years from the occurrence of the fact serving as the basis thereof.

II.2.     Additional grounds for incompatibility regarding executive officers and company managers

Would-be executive officers (e.g. managing directors) will have to face stricter disqualification criteria. Information from the criminal records which relate to them will be obtained by the Court of Registration, and if a certain person is banned from becoming an executive officer this will appear in the companies’ register.

Under certain special circumstances company managers (“cégvezető“) may also be held liable for the unsettled debts of the company.

II.3.     Incompatibility criteria to be checked by tax authority

The tax authority may also check, in the event that there is a change to the owner or executive officer of the company subsequent to the company’s establishment, whether any of the incompatibility criteria mentioned above in relation to the establishment of the company will apply with respect to such change. If the tax authority finds that any of the incompatibility criteria is applicable, it will give notice to the tax payer to resolve such incompatibility within 15 days; failure to do so could result in the cancellation of the company’s tax number.

II.4.     Quota (share) transfer after March 1^st, 2012

In the event of a change in the ownership structure of a company, the Court of Registration will obtain information from the Hungarian Tax Authority as to whether the company has public debts. If the unsettled debts of the company exceed HUF 15,000,000, it will be obliged to submit its audited balance sheet with the effective date of the transfer.

In the event of a transformation, merger or de-merger, as well as the reduction of the share capital of a limited liability company (Kft.) or a private company limited by shares (Zrt.), non-secured creditors of the company will be entitled to request security from the debtor company in relation to both their expired and non-expired claims.

III. Miscellaneous amendments and changes

• The executive officers’ obligation to report the changes to the company’s data to the Court of Registration within 30 days of the signing and/or approval of the deed of foundation has remained unchanged. However, from March 1^st, 2012 if the executive officer fails to do so, the Court of Registration shall impose a mandatory fine on the executive officer, the amount of which shall extend from 50,000 HUF to 900,000 HUF.
• Financial sanctions for not publishing the financial statement within the statutory deadline is harsher as of 1^st January 2012, as a fine of up to HUF 500,000 may be imposed on a company which does not meet the above obligation. If the company does not fulfil its obligation, despite the additional 30 day period set by the Hungarian Tax Authority, the maximum amount of the fine increases to HUF 1,000,000. Non-compliance with the repeated notification will result in the deletion of the tax number of the company.
• Pursuant to the Amendment of the Company Registry Act, the 15 business days deadline for deciding on the request for the registration of the amended company data will apply in all cases (i.e. the expedited proceedings applicable to companies operating with the statutory template articles of association shall be terminated as of March 1^st, 2012).
• For limited liability companies and companies limited by shares, new rules specifying the preconditions for the payment of dividends were introduced. After January 1^st, 2012, the interim balance sheet serving as the basis for the interim dividend payment may be used within six months from the balance sheet’s date and interim dividends may be paid out within six months from the balance sheet’s date on the basis of the annual report as well.
• Following March 1^st, 2012 only the shareholders of public companies limited by shares are entitled to request not to be registered in the company’s book of shareholders.
• Stricter liability rules will apply to shareholders (members) with majority influence, and executive officers for the unsettled creditors’ claims in the event of an involuntary deletion procedure (“kényszertörlési eljárás”), or a liquidation procedure.

 IV. Amendment to the act on Economic Chambers 

• Pursuant to the amendments, business associations are now obliged to apply for their registration with their local economic chamber residing at the company’s seat. Companies registered after January 1^st, 2012 shall fulfil this obligation within 5 days of their registration, whereas companies already registered shall do so by March 1^st, 2012.
• Although already registered companies will not become members of the chamber by way of the aforesaid registration and thus will not be required to pay membership fees, companies are obliged to pay an annual ‘chamber contribution’ of 5,000 HUF. Unpaid chamber contributions may be collected as public debt.

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The above information is for general purposes and guidance only and do not purport to give professional or legal advice. Should you have any further question in relation to the above, please do not hesitate to contact us.