When you decide to open a new company in Hungary and enjoy the benefits of the Hungarian economic environment you will probably face the question: what type of company suits me the best? The most popular is opening Kft company – but do you know what are your other options? In this article you will find an overview of the available company types in Hungary.
Based on Act on investments of foreigners such regular, profit oriented, risk-bearing business operation can be carried out in Hungary through an establishment, which can be:
- commercial representation
- branch office
- business organisation (ie. company)
1.1. Limited Liability Company
Limited liability companies (korlátolt felelősségű társaság – Kft) are business associations founded with an initial capital consisting of capital contributions of a pre-determined amount. The obligation of members to the company extends only to the provision of their capital contributions, and to other possible contributions as set forth in the articles of association. Members shall not be liable for the obligations of the company.
Membership rights are represented by so-called “business quotas”, which is listed solely in members’ list of the company. Voting and dividend rates may differ from shareholding rates of the members.
The private limited liability company is managed by at least one managing director, whose right to represent the company may be individual or joint with other directors or employees. In-kind contributions are allowed up to the full amount of the share capital.
Other special features regarding a limited liability company:
- Minimum share capital of HUF 3,000,000 is required
- Contributions to the share capital may be contributed in the form of cash or in-kind contributions
- Additional capital can be contributed to ‘Capital reserve’
- Two obligatory bodies – General Meeting, Executives
- Supervisory Board facultative
- Annual financial statements need to be disclosed
- Bank account is obligatory
- Annual audit is required if criteria are met (turnover, number of employees)
In conclusion opening Kft company is the most popular if we consider the easy company formation, relatively low capital requirement, and liability requirements.
1.2. Joint stock company
The joint stock company in Hungary (rt.) can be private (zrt.) if its shares are not listed to the public or public (nyrt.) if it is listed on the Stock Exchange. An important difference between the two also lies in the minimum share capital necessary at the incorporation: 5 million HUF for the private one and 20 million HUF for the public joint stock company. This company can be opened by one or more founders and a board of directors must oversee the actions of the company.
- Public joint companies need four obligatory bodies – Board of Directors, General Meeting of Shareholders, Supervisory Board, Audit Committee
- Public joint stock companies have annual audit requirement
- In case of private joint stock companies Supervisory Board shall be established only upon the request of shareholders with at least five percent of voting right. Audit Committee is not compulsory.
- Private joint stock companies have annual audit requirement once the criteria are met (turnover, assets, number of employees)
2.1. General Partnership
Individuals who wish to carry out business activity max form general partnership (közkereseti társaság – kkt.) The liabilities of the members are joint and unlimited, and consequently partners in such a company are liable for a breach of its obligations with all the partners’ assets and property (general liability). There is no minimum capital set out, and at least one member is required to form this company.
2.2. Limited Partnership
Limited partnership (Betéti társaság; Bt) needs minimum two founding members to establish the company. At least one of the members has unlimited liability, while at least another one partner has liability limited to the extent of his capital contribution.
There is no minimum capital requirement.
3. Enterprise of Branch Offices of Foreign Entity
The branch office (Fióktelep) can be suitable for foreign companies that want to open an office in Hungary and comply with the requirements for bearing full liability for the branch. Branch office has no legal personality, can carry out business activities in Hungary as division of the founding member. Registration with the Court of Companies is necessary, head of branch needs to be appointed who can be employee of any nationality, or can be mandate of Hungarian nationality. Branch offices have several taxation and accountancy specialities that require different treatment from general administration.