Statutes in Hungary govern the various types of business associations and entities used for business operations, limiting choices to those outlined in regulations when contemplating investment.

The available company forms include:

• general partnership (“Közkereseti Társaság“, “Kkt.“);
• limited partnership (“Betéti Társaság“, “Bt.“);
• limited liability company (“Korlátolt Felelősségű Társaság“, “Kft.“);
• private company limited by shares (“Zártkörűen működő részvénytársaság“, “Zrt.“); and
• public company limited by shares (“Nyilvánosan működő részvénytársaság“, “Nyrt.“).

Notably, in certain types of partnerships, such as general partnerships and limited partnerships, members and general partners respectively are personally liable for the company’s debts unlimited. However, in limited liability companies and companies limited by shares, shareholders are not personally responsible for the company’s obligations.

Foreign companies have the option to establish a branch office (“Fióktelep“) or a commercial representative office (“Kereskedelmi Képviselet“) in Hungary. These entities do not have separate legal personalities, they are considered units of the foreign company. Branch offices can engage in various business activities similar to locally registered companies, while representative offices have more restricted operations.

The most common choice for investment in Hungary is the limited liability company, but establishing a private company limited by shares might be preferable if issuing shares is necessary. Both types of companies can be set up by a single shareholder. Branch offices are also popular for smaller operations or temporary business needs in Hungary, as they have no minimum capital requirements and can be wound up relatively quickly.

While corporate governance holds significant importance and is rigorously regulated for public companies limited by shares, our answers primarily focus on limited liability companies. Any distinctions related to private companies limited by shares will be explicitly highlighted due to the constraints of this article’s length.

As of 1 January 2025, the Standard Sectoral Classification of Economic Activities (TEÁOR) has undergone significant changes due to the continuous evolution of business processes and the widespread emergence of digital services and products. In accordance with the European Union’s updated NACE classification system, Hungarian authorities updated the classification of activities of business entities in the relevant Hungarian registers. In the first months of 2025, some proactivity will be required from companies to ensure that the updated list of their activities in the different registers accurately reflects their actual activities. In some instances, the newly assigned activities do not correspond to the entities’ actual economic activities. In such cases, the responsibility for identifying and reporting these discrepancies in the registers lies with the companies.

Applicable from 13 December 2024, General Product Safety Regulation of the EU introduces new challenges for all economic operators that are in any way connected to the products placed on the EU market, in particular manufacturers, importers established within the EU, distributors, or service providers involved in transport and storage. The key changes include new labelling requirements, the appointment of a responsible person for economic operators outside the EU, and additional obligations regarding the technical documentation provided for products, among others. Overall, the regulation emphasizes heightened accountability, especially in relation to operators outside the EU.

On January 1, 2025, significant changes came into effect for Hungarian citizens. Act CIII of 2023 on the Digital State and Certain Rules for the Provision of Digital Services (Dáptv.) introduced the Digital Citizenship Program (DÁP) in Hungary, which includes features such as the so-called eSignature. It is important to emphasize that while the DÁP eSignature is a qualified electronic signature, it is strictly limited to personal use. Its application for professional or business purposes (e.g., representing a legal entity) is expressly prohibited. For such cases, obtaining a paid, qualified electronic signing certificate from a commercial provider is recommended.

Starting 1 January 2026, the existing Company Procedures Act will be entirely replaced by Act XCII of 2021 on the Registry and Registration Procedure of Legal Persons, along with relevant amendments to the Civil Code. The new law will establish a consolidated register for business and non-business entities, including companies, foundations, and NGOs. Additionally, it will revamp regulations pertaining to incorporation, registration, and voluntary and compulsory liquidation procedures. A notable change involves the introduction of automated processes for company formation and registration of changes, functioning independently of human involvement.

The management of a company’s business and affairs is conducted by one or more executive officers, who may be natural or legal persons. These executive officers possess all the powers to manage the company’s business, except those explicitly reserved for the shareholder meeting, as explained in our answer to question 4.

The statutory right of representation held by executive officers may be restricted in the company’s Articles of Association/Deed of Foundation or distributed among multiple executives, specifying values, contracts, etc. However, such restrictions are ineffective toward third parties, meaning the actions of an executive officer are binding on the company even if performed beyond their designated powers.

The exclusive competencies of executive officers include the right of representation and signing on behalf of the company. This right may be individual or joint with another executive. If the company is properly represented or signed for in a legal action, the action is valid toward third parties, even if not approved by the board of directors, if applicable, in accordance with internal company rules.

For different types of limited companies:

A. Limited Liability Companies:

Executive officers, whether Hungarian or foreign natural persons or legal persons, generally represent limited liability companies individually, not as a collective body. Alternatively, shareholders may appoint a board of directors in the Articles of Association, which acts as a collective decision-making body.

B. Private Companies Limited by Shares:

Shareholders typically appoint a board of directors for the management of a private company limited by shares. The board comprises at least three members, who collectively make decisions. Alternatively, shareholders may elect a single chief executive officer with full board powers.

In addition to executive officers, shareholders may appoint a company manager with either individual or joint representation rights, valid toward third parties. The company manager’s powers can be either full or limited. Deed of Foundation may specify certain employees in predefined positions who can represent the company within specific powers, and their liability is limited accordingly. The shareholders may confer on the supervisory board the right to adopt or approve certain decisions within the competence of executive officers.

Primarily, the responsibility for corporate governance lies with the executive officers, except for issues that fall within the exclusive or expanded competence of the shareholders.

Shareholders possess extensive rights and authority in the operation and management of a company, especially when compared to other jurisdictions. The primary decision-making body is the shareholder meeting, where shareholders exercise their authority. The primary responsibilities of the shareholder meeting include making decisions on crucial business and personnel matters, as well as approving the annual financial statement and profit distribution. Notably, in Hungary, even minor issues such as changing the registered address or scope of activities require the approval of the shareholder meeting if they involve updating the company’s Articles of Association/Deed of Foundation.

Shareholder approval is also necessary for any agreements between the company and any of its shareholders, executive officers, members of the supervisory board, the auditor, or close relatives of any of these.

It’s important to note that shareholders have the flexibility to expand the exclusive competence of the shareholder meeting by amending the powers outlined in the Articles of Association/Deed of Foundation. In other words, shareholders can choose to withdraw specific powers from the management.

We can distinguish between ordinary and extraordinary shareholder meetings. An annual meeting, known as the ordinary shareholder meeting, is mandatory, while any other matters requiring shareholder decisions necessitate the convening of an extraordinary shareholder meeting. It’s noteworthy that shareholders have the option to make decisions in writing without the need for a physical meeting, and meetings can also be conducted through electronic means, such as telephone conferences, or video conferences, as specified in the company’s Articles of Association/Deed of Foundation.

Every shareholder is entitled to take part in the proceedings of the shareholder meeting either in person or through a proxy. Typically, the voting rights of shareholders at the shareholder meeting align with the proportion of their capital contribution.

The primary foundations of corporate governance for Hungarian Companies encompass a blend of (i) statutes, (ii) corporate documents and bylaws, as well as (iii) stock exchange regulations (apply to listed companies only).

i. Statutes:

• Act V of 2013 on the Civil Code (“Civil Code”) lays down the fundamental rules under which a company operates in Hungary;
• Act V of 2006 on Public Company Information, Company Registration and Winding-up Proceedings (“Company Procedures Act”);
• Act CXX of 2001 on Capital Market (“Capital Market Act”);
• Act C of 2000 on Accounting (“Accounting Act”);
• Act CLXXVI of 2013 on Transformations, Mergers and Demergers of Certain Types of Legal Entities;
• Act LIII of 2017 on the Prevention and Combating of Money Laundering and Terrorist Financing (“AML Act”); and
• Act CXXIV of 2021 on Cross-border Reorganisations, Mergers, Divisions of Limited Liability Companies and Other Legislative Amendments for Harmonisation Purposes;
• Act CXXXII of 1997 on Branch Offices and Commercial Representative Offices of Foreign Established Enterprises in Hungary.

ii. Corporate documents and bylaws:

• Articles of Association/Deed of Foundation: this document serves as the fundamental constitutional framework, outlining the fundamental regulations that govern the company. Upon its mandatory filing with the Court of Registration, it becomes available to the public.
• Shareholders’ Agreement: with certain limitations, it may govern the transfer of shares, pre-emption rights, corporate governance issues, distribution of profits, etc.
• Coordination Agreement between a holding company and its subsidiaries in case of a recognised group of companies.
• Bylaws, internal policies.

iii. Regulations for public companies:

• Corporate Governance Recommendations of the Budapest Stock Exchange for companies listed on the stock exchange.

Regarding private companies limited by shares, shareholders may appoint a board of directors to oversee the management of the company. This board should consist of at least three members, who may be either natural or legal persons. The board, as a collective entity, makes decisions based on the votes of its members. The chairman is elected from among the board members. Alternatively, shareholders have the option to elect a single person to serve as the chief executive officer (CEO), granting them the authority to exercise the full powers of the board.

However, in the case of other company forms, appointing a board of directors is only an option. For instance, at limited liability companies, the shareholders may appoint a board of directors in the company’s articles. The board collectively exercises its rights and carries out its responsibilities e.g. making decisions through board meetings.

In addition to the executive officers, shareholders have the authority to designate a company manager. The company manager may possess either individual or joint representation rights, similar to executive officers. The powers of the company manager, whether full or limited, are valid even towards third parties as well.

The Articles of Association/Deed of Foundation may also allow the establishment of a supervisory board with decision-making powers. In such cases, the Articles of Association/Deed of Foundation may refer certain decisions to the supervisory board with decision-making powers or make certain decisions subject to its approval.

Regarding the responsibility for day-to-day management, please see our answer to question 3.

The shareholders have exclusive authority over the approval and removal of executive officers. A resolution must be passed at a shareholder meeting to appoint an executive officer, who may serve for a definite or an indefinite period. The appointment becomes effective upon the appointee’s acceptance and is subsequently registered with the Court of Registration. Once accepted, the executive can commence duties, and the court retroactively registers the appointment to the acceptance date.

Shareholders can remove executive officers at any time through a resolution, without the need to provide reasons. Unless specified otherwise in the Articles of Association/Deed of Foundation, a simple majority vote at a shareholder meeting is required for both the election and removal of an executive officer.

An executive officer is allowed to resign at any time. However, if crucial for the company’s operation, the resignation takes effect 60 days after the announcement, unless shareholders arrange for the appointment of a new executive officer earlier. During this period, the resigning executive officer remains involved in urgent decision-making and measures.

The members of the board are subject to the rules applicable to executive officers. If the board member is not a resident of Hungary, a delivery agent must be appointed. The delivery agent may be either a corporate entity with its registered office in Hungary or a natural person with a permanent residence in Hungary. Only persons over 18 years of age whose capacity to act is not restricted to the extent necessary for the performance of their duties may be board members.

In addition, a person who has been sentenced to a prison sentence by a court of law for the commitment of a criminal offense cannot be a board member until he or she has been acquitted of the adverse consequences of the criminal record and a person who has been disqualified from performing such duties by a court of law may not be a board member.

Moreover, the Civil Code, the Company Procedures Act, and the Act CL of 2017 on the Order of Taxation impose further administrative restrictions on the appointment of executive officers.

The Civil Code establishes that an executive officer may not acquire shares in a company, except shares in a public company limited by shares, and may not be an executive officer in a company, that carries out the same economic activity as the company in which he/she is already an executive officer. If an executive officer accepts a new appointment as an executive officer, he/she must notify the companies in which he/she is already an executive officer or a member of the supervisory board within fifteen days of accepting the appointment. Furthermore, the executive officer and his or her relatives may not, except in the case of transactions of a normal day-to-day nature, conclude contracts in their own name or for their own account which fall within the scope of the company’s main business.

In Hungary, the management typically exercises broad authority to execute the company’s strategy, a strategy that must, however, be determined by the shareholders. The managers or the management body bears the responsibility for implementing this strategy in the day-to-day operations of the company. Consequently, the management plays a pivotal role in executing the company’s strategy throughout its daily operations.

Executive officers have the option to undertake management responsibilities through either an employment agreement or a service agreement.

When operating under a service agreement, the executive officer may either work without compensation or receive remuneration. However, if working under an employment agreement, the individual is entitled to at least the minimum wage stipulated by statutory regulations.

The primary legislative frameworks influencing the interaction between the company and the management body are the Civil Code (for service relationships) and Act No. I. of 2012 on the Labour Code (for employment relationships).

In accordance with Hungarian law, the power to decide on the remuneration of the executive officers lies with the shareholders.

Regarding public companies limited by shares and regulated entities, specific legislation on remuneration policies applies.

The members of the board are subject to the rules applicable to executive officers. The executive officer must carry out his or her management activities in the interests of the company.

The executive officer is liable to the legal entity for damages caused during managerial activities according to the rules of liability for damages caused by the breach of a contract.

The legal entity is liable for any damage caused to third parties by the director acting in this capacity – but the director is jointly and severally liable to the legal entity if the damage was caused intentionally.

Shareholders have the authority to absolve the executive officer of liability while simultaneously approving the company’s annual financial statement. In doing so, the shareholders recognize the executive officer’s adherence to business activities in the preceding business year.

If shareholders provide such indemnity, the company could pursue a claim against the executive officer for breaching obligations in the covered year only if the information presented to shareholders when issuing the indemnity was inaccurate or incomplete.

Beyond what was mentioned earlier, there is no specific Hungarian legislation overseeing the indemnification or insurance of executive officers or others. Nevertheless, it is customary in practice for companies to indemnify executive officers through agreements or declarations, often with the involvement of the shareholders.

Obtaining Directors and Officers (D&O) insurance is a widespread practice, aiming to protect executives from any liabilities that may arise during their managerial responsibilities. The beneficiary of such a policy can be either the executive or the company itself.

In the Articles of Association/Deed of Foundation, the members or the founders may provide for the establishment of a supervisory board of a minimum of three members with the task of supervising the management of the company. Consequently, the supervisory board monitors the work of the board of directors to safeguard the interests of the company.

The supervisory board may inspect the documents, accounting records, and books of the company, request information from the executive officers and employees of the company, examine the company’s payroll, cash, securities, and goods and contracts, and have them examined by an expert.

Under certain limitations, upon the request of a shareholder, the executive officer must provide information about the company’s affairs and allow the inspection of the company’s books and documents.

It belongs to the power of the shareholders to initiate any civil lawsuit or criminal investigation against the executives for any misconduct in their executive role.

One of the main demands on the functioning of the board is that it should be responsive to shareholders’ needs. There is no explicit legal requirement for the maintenance of the relationship between shareholders and the board, but there are several channels for this purpose, which in practice promote communication with shareholders. These include annual reports and providing regular information etc.

In the case of companies limited by shares, we can categorize shares into two primary groups. The first is the common share, and the second is the preference share, the latter affording its owner priority in certain entitlements as specified by the company’s Deed of Foundation, which outlines the relevant conditions. Beyond those stipulated by law, shareholders have the option to establish additional classes of shares through the Deed of Foundation.

The Deed of Foundation may specify within the preference classes of shares:

(a) dividend preference;

(b) priority of the distribution of the assets to be distributed in the event of the dissolution of the company without succession (liquidation preference);

(c) preference of voting rights (voting preference);

(d) preference for the appointment of an executive officer or a member of the supervisory board;

(e) pre-emption rights; and

(f) may determine classes of shares which confer more than one of the preferences referred to in points (a) to (e) at the same time.

In the case of limited liability companies, in principle, identical membership rights shall be attached to equivalent business shares. However, since the law is dispositive in this matter, different membership rights may be attached to the equivalent business shares, subject to the provisions of the Articles of Association. In practice, therefore, multiple classes of shares may be created at limited liability companies too.

The following obligations pertain to corporate governance disclosure:

• Changes in corporate data must be reported to the Court of Registration and recorded in the trade registry.
• The company’s annual financial statement must be published on the Ministry of Justice’s relevant site.
• During the transformation or merger, capital decrease or voluntary dissolution, the company is required to publish notices to safeguard creditors’ interests.

In addition, public companies limited by shares have more frequent reporting obligations in a much broader scope.

According to Hungarian law, minority shareholders have several avenues to safeguard their interests in a company. A shareholder or a group of shareholders holding at least five percent of the voting rights may:

• Request the convening of a shareholder meeting or the decision-making without a meeting at any time.
• Propose an independent audit if the shareholder meeting rejects or does not address a proposal to audit the last annual accounts, an event, or a commitment related to the management’s activities in the past two years by a separately appointed auditor.
• Initiate a legal claim (e.g., for damages) against a shareholder, executive officer, member of the supervisory board, or auditor of the company if such a motion has been rejected by the shareholder meeting or not put to a vote.

Under Hungarian law, minority shareholders have several avenues to safeguard their interests as company shareholders as detailed in our response to question 17.

Furthermore, a shareholder, executive officer, or supervisory board member can seek judicial review from the court regarding a resolution adopted by the shareholders and company bodies if it is unlawful or conflicts with the Articles of Association/Deed of Foundation. This action can aim to annul a resolution passed by any company body, such as the shareholder meeting, supervisory board, or executive body.

In contrast to various European countries where a structure for shareholder activism has been established, Hungary lacks common practices in this regard, and there is no explicit definition of shareholder activism within Hungarian legal frameworks.

The acceptance of the annual financial statements is within the exclusive competence of the shareholder meeting. To make decisions regarding the approval of the annual financial statements and the distribution of dividends, at least one shareholder meeting needs to be held annually, which is called the ordinary shareholder meeting.

Shareholder proxy advisory is a relatively new institution in Hungary, the Parliament passed the Act LXVII of 2019 on the encouragement of long-term shareholder engagement and the amendments of certain acts for legal harmonization purposes on July 2, 2019, adopting the amendment to Directive 2007/36/EC [amended by Directive 2017/828 of the European Parliament and of the Council of 17 May 2017], which was promulgated to encourage long-term shareholding.

Shareholder proxy advisors are legal entities that, in a professional and business-like manner, analyze the information disclosed by publicly traded companies and other relevant information. The purpose of proxy advisory firms is to inform investors during the decision-making process of voting decisions through research, advice, or voting recommendations related to the exercise of voting rights.

The stakeholders have a crucial role in upholding transparency and accountability. Their involvement ensures that the board can have confidence in the information used to guide decision-making and oversee the company.

Therefore, certain decisions require consideration of specific external factors.

For instance, if a company’s annual average number of full-time employees surpasses 200, the establishment of a supervisory board becomes obligatory. In such instances, one-third of the supervisory board members must consist of employee representatives, who possess identical rights and responsibilities as other board members. If the unanimous opinion of the employee representatives differs from the majority stance of the supervisory board, the minority perspective is to be presented at the subsequent shareholders’ meeting. Employee representatives are also responsible for keeping the company’s employees informed about the supervisory board’s activities.

In the presence of a functioning works council at the company, the council is empowered to seek information and initiate discussions with the company’s management. Additionally, the executive officer exercising the employer’s rights over the employees is required to notify the works council every six months about significant matters within the company, including changes in wages and issues related to the company’s liquidity concerning wage payments.

The appointment of an auditor becomes mandatory if the company’s average annual net sales revenue for two consecutive business years exceeds HUF 600 million (approximately USD 1,528,000), or if the average number of employees surpasses 50 during the same period. Otherwise, the appointment of an auditor is discretionary.

In all companies (except public companies limited by shares) a supervisory board with decision-making powers may be set up. In this case, the company’s Articles of Association/Deed of Foundation may provide that the management must obtain the approval of the supervisory board with decision-making powers on certain matters.

As mentioned before, if the establishment of a supervisory board becomes obligatory, one-third of the supervisory board members must consist of employee representatives, who possess identical rights and responsibilities as other board members. If the unanimous opinion of the employee representatives differs from the majority stance of the supervisory board, the minority perspective is to be presented at the subsequent shareholders’ meeting.

Furthermore, the works council at the company is empowered to seek information and initiate discussions with the company’s management. In addition, the works council must be informed by the executive officer who exercises the employer’s rights over the employees about significant matters within the company.

The Articles of Association/Deed of Foundation also allows the establishment of a supervisory board with decision-making powers. In such cases, the Association/Deed of Foundation may refer certain decisions to the supervisory board with decision-making powers or make certain decisions subject to its approval.

Hungary has adopted Directive 2014/95/EU concerning the disclosure of non-financial and diversity information by certain large undertakings and groups. If any of the criteria outlined in the Accounting Act are fulfilled (such as the company employed over 500 individuals in the preceding business year), the company’s yearly financial report must incorporate a section dedicated to corporate social responsibility. This section, among other things, outlines the company’s business model and its policies related to environmental, social, and employment concerns, human rights, and efforts to combat corruption, along with presenting the outcomes in these domains.

The Hungarian Parliament passed Act CVIII of 2023 concerning Sustainable Finance and Unified Corporate Responsibility (ESG Act) on 12 December 2023, which came into effect on 1 January 2024. Through the ESG Act, Hungary transposed the EU Directive 2022/2464, focusing on the Corporate Sustainability Reporting Directive (“CSRD”), which officially became operative on 5 January 2023.

According to the new regulations, undertakings that are subject to the ESG Act must fulfill obligations including but not limited to, such as establishing a risk management system, meeting ESG reporting requirements, or ensuring a complaint handling procedure.

Essentially, the primary responsibility for corporate governance lies with the executive officers, except for issues explicitly within the exclusive or expanded competence of the shareholders, as detailed in our response to question 4.

In Hungary, the management typically wields significant authority to execute the company’s business strategy, a strategy defined by the shareholders (please see our answer to question 9).

Depending on the management’s compensation structure, the managers may be interested in achieving immediate economic objectives, potentially sacrificing the emphasis on sustainable value. The legal framework lacks an inherent corporate governance mechanism to address conflicting interests among involved parties. However, shareholders can actively participate to mitigate management short-termism, such as appointing a supervisory board to oversee managerial activities. Shareholders also retain the power to remove or restrict the authority of individuals or all members of the management at any time (see our answer to question 7).

Moreover, shareholders have the option to alleviate these conflicting interests by granting ownership stakes to the management. This corporate governance approach is widely adopted in practice, where members of the management body often receive shareholdings as incentives. Additionally, management may participate in employee ownership programs.