Limited Liability Company

General Information

A limited liability company (Hungarian name: Korlátolt felelősségű társaság, in short: Kft.) is a very popular corporate form in Hungary. It may be established for any legitimate purpose.

The liability of the members is limited to the provision of the company's initial capital. As a general rule, members are otherwise not responsible for the company's liabilities, which is a main advantage of this corporate form.

The members of the company may not be recruited through public offerings.

A limited liability company is a legal person.

Incorporation

A limited liability 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.

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 legal representation (lawyer, legal counsel) is mandatory. 

A limited liability 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.

Capitalisation and Financing

The initial capital of the company consists of the capital contribution of the individual members. The amount of initial capital may not be less than five hundred thousand HUF.

Capital contributions are provided by the members in cash and in kind to comprise the capital of the company. The capital contributions may be of varying value, however, the value of each contribution may not be less than three hundred HUF.

Each member shall have one capital contribution. However, according to the provisions of common property, one capital contribution may have several owners.

During the company's existence, members may not reclaim from the company the capital contributions which they have provided, apart from capital reduction.

Board Structure

The supreme body of a company is the members' meeting. Members' meetings shall be convened at least once every year.

Administration of the company's affairs and representation of the company are carried out by one or more managing directors elected from among the members or third persons.

The managing directors must be individuals. The managing directors must discharge their duties relating to the company's internal affairs and its bodies and other officers in person; no representation is allowed.

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

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, a supervisory board shall be established at the company and 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.