Joint-stock company

General Information

Joint-stock companies (Hungarian name: Részvénytársaság) are business associations founded with a share capital (subscribed capital) consisting of shares of a pre-determined number and face value, in the case of which the obligation of shareholders to the joint-stock company extends to the provision of the face value or the issue price of shares. Shareholders do not bear liability for the obligations of a joint-stock company.

Joint-stock companies may be established privately or open to the public, thus they may operate in the form of publicly or privately held joint-stock companies.

Publicly held joint-stock company (in Hungarian in short: Nyrt.) is a company whose shares (all or some) are traded publicly in accordance with the conditions set out in the Securities Act. Privately held joint-stock company (in Hungarian in short: Zrt.) is a company whose shares are not offered to the public.

Publicly and privately held joint-stock companies may change their operating form without transformation of the company.

Joint-stock company is a legal person.

Incorporation

1. Privately held joint-stock company

A privately held joint-stock company may be established by one or more individuals, partnerships, companies or other legal entities. The founders may freely establish the contents of the articles of association.

A privately held joint-stock company is established upon the commitment of the founders to subscribe for all shares of the company.

The articles of association shall be drawn up in an authentic instrument prepared by a notary public, or in a private document countersigned by a lawyer or the legal counsel of the founder.

The foundation of the company shall be notified to the competent court of registry for registration and publication within thirty days after conclusion of the articles of association. The company shall be considered established when admitted into the register of companies, effective as on the day of admission. The registration procedure is made electronically and the legal representation (lawyer, legal counsel) is mandatory. 

A privately held joint-stock company may be registered in a so-called simplified registration process, which is quicker and involves less official costs than the regular process, however in this case an official template shall be used as articles of association, in which no amendments and no specific provisions are allowed.

2. Publicly held joint-stock company

A publicly held joint-stock company may be founded by means of share subscription through a public procedure, according to the conditions laid down in the statutory provisions on securities.

The subscriptions of shares shall take place in accordance with the document called 'draft terms of foundation'. The draft terms of foundation shall be signed by all founders, and it shall then be published by the founders as a part of the prospectus prepared according to the statutory provisions on securities, and after that share subscription takes place.

Founders shall hold a founding general meeting within a period of sixty days after the closing date of a successful share subscription. The founding general meeting shall determine the outcome of the share subscription and establish the articles of association.

The foundation of the company shall be notified to the competent court of registry for registration and publication within thirty days after conclusion of the articles of association. The company shall be considered established when admitted into the register of companies, effective as on the day of admission. The registration procedure is made electronically and the legal representation (lawyer, legal counsel) is mandatory. 

Capitalisation and Financing

The share capital of a privately held joint-stock company may not be less than five million HUF.

The company may be registered only if, prior to the submission of the application for registration the founders who have undertaken to provide contributions in cash have paid at least twenty-five per cent of the face value or issue price of the shares which they have committed to subscribe for in the articles of association.

The share capital of a publicly held joint-stock company may not be less than twenty million HUF. In case of publicly held joint-stock companies all contributions which are in kind shall be made available to the company before the application for registration is submitted.

Joint-stock companies may be established without cash contributions, with in-kind contributions only.

Board Structure

The supreme body of a joint-stock company is the general meeting, which consists of all shareholders.

The general meeting shall be convened at the intervals specified in the articles of association, but at least once every year. An extraordinary general meeting may be held at any time when deemed necessary.

The administrative and representation duties of joint-stock companies is handled by the management body, consisting of minimum three and maximum eleven members, all natural persons. The management body elects its chairman from among its members.

The articles of association may provide that a management board is not required, and the rights conferred in the Corporate Act upon the management board shall be exercised by a single executive officer (general director). However, in the case of publicly held joint-stock companies the management board may not be substituted by a general director.

If permitted by the articles of association, the company's supreme body may decide to appoint one or more managers to assist the management board (general director) in their work. Managers work under the management board (general director) in directing the company's operations according to their instructions.

Establishment of a supervisory board shall be mandatory for publicly held joint-stock companies. However, establishment of a supervisory board shall be mandatory for those privately held joint-stock companies only, by which it is requested by the founders or members (shareholders) controlling at least five per cent of the total number of votes.

Annual Costs

Annual cost may consist of legal, information and control costs especially expenses regarding accountancy, auditing and publicity. Other possible items are legal and tax consultancy. The amount of these costs varies and depends on size, structure and equity requirements of the company. 

Corporation Taxation and Financial Reporting

The corporate income tax rate is 16 per cent from January 2010. If certain conditions are met, a 10-per cent rate can be applied to the portion of the tax base below HUF 50 million, and a 19 per cent rate to the portion in excess of HUF 50 million.

As a general rule, the fiscal year is the calendar year. The management of the company is responsible for issuing an annual report within 150 days of the end of the financial year.

The minimum reporting obligations for a business entity depend on the company's size, the nature of its operations, ownership control, its form and whether the company has a controlling interest over other companies.

The three alternative levels of statutory reporting are: full annual report, abbreviated annual report and consolidated annual report. An abbreviated annual report is allowed for companies with less than HUF 500 million (EUR 2 million) in total assets, with up to HUF 1000 million (EUR 4 million) in turnover, and an annual average of less than 50 employees over two consecutive years.

Companies not satisfying the above criteria must prepare a full annual report. Separate guidelines apply to financial institutions and insurance companies.

Employee Participation in Corporate Bodies

According to the Business Association Act, if the annual average of the number of full-time employees employed by the company exceeds two hundred, the employees shall have the right to take part in the supervision of the company. In this case the representatives of the employees shall comprise one-third of the members of the supervisory board.