1. Preliminary observations

The corporate law related provisions became part of the new  Civil Code

One of the most important innovations affects the position of the corporate law related provisions: these rules are no longer regulated in a separate act, and have been incorporated into the new Civil Code. The legislator has decided to introduce the monist system, as opposed to the dualist system that had been used so far, that meant having a separate act on corporate law. It also entails that the Civil Code is no longer a “subsidiary act” for the corporate dispositions.

On the other hand, the Civil Code naturally does not include various dispositions affecting the business associations in their daily operations, such as corporate registration, capital market, accounting and labour law related dispositions.

(Lack of) substantial changes

Before we review the changes described below, let us highlight that the regulation of company law has not changed in a real, substantial manner; a large difference cannot be detected between Act IV of 2006 on business associations (hereinafter the “Act on business associations”) and the Third Book (“The legal person”) of the new Civil Code.

 2. General dispositions applicable business associations

 The dispositive legislation as a principle

One of the most important company law related changes is a conceptual one: the Third Book of the new Code is based on the principle of dispositive legislation. The Act on business associations (currently in effect) follows the principle of cogency, meaning that, as a rule, the parties can only derogate from the provisions concerned, if the law itself allows them to do so.

By comparison, according to the concept of the new Civil Code, the derogation from its dispositions by the members and founders of the legal person is only forbidden (a) if the derogation is prohibited by the law (and there are not so many dispositions in the new Civil Code that would exclude these kinds of derogations, only for example the prohibition of excluding the members from the profits and losses); or (b) if the derogation violates the apparent interests of the creditors or employees of the legal persons, it seriously infringes the minority rights of the members, or it obstructs the supervision of their legal functioning.

The principle of dispositive legislation allows much greater freedom for the members of the business associations; this freedom, however, does not go so far as to allow the establishment of new types of business associations not included in the new Civil Code.

Other general dispositions

Ø  The Third Book does not include the dispositions concerning non-profit associations. Owing to the principle of dispositive legislation, all business associations are entitled to opt for non-profit operation.

Ø  The new Civil Code declares that, as a contribution in kind, the members are also entitled to assign a claim to the company, if it was acknowledged by the debtor, or if it is based on a judicial decision. However, the member’s commitment to work, to personal cooperation or performance cannot be regarded as a contribution in kind.

Ø  The business association may also decide not to register its place of business or its branch office, neither in the articles of association, nor in the register of companies.

Ø  The executive officers need to have either an employment contract, or an engagement contract; the appointment in the articles of association is no longer sufficient.

Ø  In order to ensure the independence of the statutory auditor, the auditor cannot provide for the business associations any kind of services and cannot develop any kind of cooperation with the management that would jeopardize its independence.

3. General partnership and limited partnership related dispositions

The legal person

It is also a significant innovation that from the entry into force of the new Civil Code, every business association is qualified as a legal person. Even though the general partnerships and the limited partnerships are not considered at the moment as legal persons, under the name of their association, they may acquire every right and obligation that the legal person is entitled to. Therefore this change has no practical significance and does not require the amendment of the articles of association. (The distinction between the legal person and the business associations without legal personality had historical reasons.)

“Managing Director”

The terminology becomes more unified, since (similarly to the limited liability companies) the new Code prescribes the term of “managing director” for the general partnerships and limited partnerships as well, as opposed to the previous term “business manager”.

General partnerships – obligatory order during the judicial execution proceedings

The most important problem of the general partnerships remains the enforcement of the absolute and joint responsibility of the members. As a new rule, the members may be sued along with the partnership; the court can only order the execution of the damning verdict against the members, if the execution against the partnership itself was ineffectual.

As a consequence, although the members can be sued jointly with the partnership in one single process, if the court decides against them, the new Civil Code introduces an obligatory order during the enforcement process.

Limited partnerships – the status of the limited partner

The most relevant rule of the limited partnerships is that (as a principle) the limited partners cannot be executive officers. Compared with the new rule, as for now, the Act on business associations allows even the articles of association to appoint limited partners as executive officers.

4. Limited liability company related dispositions

3.000.000 HUF as the minimal amount of equity capital

Ø  The first and maybe most important change is that the new Civil Code restores the minimal registered capital of HUF 3 000 000. This is rather an economic than a dogmatical decision: considering the present financial circumstances HUF 3 000 000 (which is substantially higher than the HUF 500 000 now in effect) will hopefully ensure a more serious, responsible and financially stable system for the establishment and also for the operation of the corporations.

Ø  As a result, the registered capital under HUF 3 000 000 has to be increased by March 15, 2016.

Other changes affecting the equity capital

Ø  The declaration of the members concerning the appreciation of the contribution in kind will not be obligatory any more.

Ø  It is no longer necessary that the capital contributions provided by the members be divisible by ten-thousand with no remainder, and it does not need to be expressed in HUF.

1. Private limited companiy related dispositions

Minimal share capital unchanged

As opposed to the minimal capital rule of the limited liability companies, the minimal share capital remains HUF 5 000 000 for the private companies limited by shares, and HUF 20 000 000 for the public companies limited by shares.

Entering to the stock exchange

The public companies limited by shares have to be listed in the stock exchange. Therefore, it is not possible to establish a public limited company by shares any more, only the private companies limited by shares can change their form of operation by entering the stock exchange, while those companies that are not listed in the stock exchange cannot operate as public limited companies any more.

New types of shares

In addition to the already existing types of shares, the shareholders are entitled to create new types of shares that are not listed in the new Civil Code.

5. Other organizations

Foundation

The most essential change concerning the regulation of foundations is that the new Civil Code restored the institution of the private foundations by not requiring the general interest as an objective any more. Naturally new foundations intending the public interest can still be established, but this regulation will also open up possibilities for family or other types of private foundations. However, the interdiction of the establishment of a foundation for economic goals remains unchanged.

Co-operative

The new Civil Code contains only the general rules on co-operatives. This shortage will necessitate individual acts, taking also into consideration the fact that the new code does not even regulate the shares of co-operatives.

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