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4 REASONS TO FORM A LIMITED LIABILITY COMPANY IN HUNGARY
12 April 2023
In this article we summarize the key-points of the limited liability company (LLC) formation in Hungary. By presenting the main features of the Hungarian LLC, we show why it is the favourite company form among foreign investors.
1. Formation, capital contribution
LLC are founded with a capital contribution of at least HUF 3.000.000 (~EUR 8.000). The capital contribution of the members may be provided in the form of in cash contribution or as in-kind contribution.
According to the Hungarian Civil Code[1], members do not have to provide all of their cash contribution at company formation, however in that case – the LLC cannot pay any dividend to members, and - the members will be liable for the company’s debts up to the unpaid part of their cash contribution,
until the full cash contribution is paid.
An in-kind contribution can be a thing of any kind with pecuniary value, rights pertaining to intellectual properties or any other right having pecuniary value, including any claim recognized by the debtor or based on a binding court decision. If the amount of the in-kind contribution exceeds the half of the capital contribution, then the whole in-kind contribution shall be provided by the member at company formation.
2. Liability of the foreign company
An LLC may be founded by a single-member or by more members as shareholders.
In Hungary, a foreign company may found an LLC as a subsidiary, in which it holds 100 % of the shares (so called single member LLC). In this case the mother company is only obliged to provide the subscribed capital of the LLC. As its name shows, the shareholder’s liability is restricted towards the creditors to the capital contribution.
Only in exceptional cases (eg. when the LLC was liquidated) is the shareholder with its own assets liable for the LLC’s debts.
3. Representatives and signature rights
In order to be a CEO at a limited liability company, one has to fulfill several conditions. The CEO must have clean criminal records and he cannot be prohibited from being an executive officer in Hungary.
Besides these conditions the CEO may be also a foreign citizen and he does not have to be a resident in Hungary. The LLC can hire the CEO not only as an employee but also as a civil law agent, thus the parties have more contractual freedom. If the CEO is hired under a labour contract, then the contract has to be concluded between the CEO and the LLC.
4. Online company formation
Due to the recent amendment of the Companies Act[2] with effect from 1 August 2022, EU citizens and companies can form a limited liability company or a branch office in Hungary fully online, in a fast-track registration procedure. The new provisions make it easier and faster to start a business in Hungary, even if there is minor restriction in relation with capital contributions (the share capital of the company shall consist exclusively of a money contribution).
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