Blog » 6 HIGHLY EFFECTIVE TOOLS FOR MINORITY SHAREHOLDERS IN HUNGARIAN LIMITED LIABILITY COMPANIES
6 HIGHLY EFFECTIVE TOOLS FOR MINORITY SHAREHOLDERS IN HUNGARIAN LIMITED LIABILITY COMPANIES
06 February 2017
A minority shareholder often finds it hard to protect his interest without real decision-making power in the shareholders’ meeting. At the same time Hungarian company law offers a wide range of protective measures that every minority shareholder should know inside and out, in order to effectively safeguard its investment. We summarise these legal tools in this article.
Approval of shareholder’s meeting
Under Hungarian company law the managing directors have very wide competence. They can make decision in any operational questions not listed expressly in the articles of association as issues belonging to the shareholders’ meeting’s competence.
In order to exercise more control over the management, shareholders’ can make a list of subjects in the articles of association, in which the managing director shall obtain the shareholder’s meeting approval before decision (e.g. signing a contract above x thousand Euros, etc.).
Even if the infringement of such an internal limitation cannot produce third-party effects (ie. the contract concluded above the budgetary limit will be valid), it can serve as a basis of the managing director’s management liability.
Decisions by unanimity
The vast majority of company decisions are made by simple majority in the shareholders’ meeting. The Civil Code sets forth unanimity for only those cases, where the decision would impair the rights of individual shareholders, or would make their situation more burdensome.
Given that the above clause is too vague and scarcely enforceable, if you are in the company formation phase, it is worth to make a list of exact topics in the articles of association, where unanimity is required.
By creating such a unanimity clause, the minority shareholder(s) can become a “blocking minority”, without which the decision cannot be passed.
Convening the shareholders’ meeting
While the two foregoing technics need the introduction of special clauses in the articles of association, the right to convene the shareholders’ meeting is given to minority shareholders by the law itself.
Those shareholders who have at least 5 % of the voting rights of the company may initiate to convene the shareholders’ meeting. The initiative needs to contain the reason and the objective of the shareholders’ meeting and shall be sent to the CEO of the company.
If the CEO fails to comply with the request of the minority shareholders within eight days as of the receipt of the notice and fails to convene the shareholders’ meeting, the minority shareholders can refer to the court of registry, which may convenes the shareholders’ meeting on his own or empowers the minority shareholders to convene the shareholders’ meeting.
Making additions to the agenda
The shareholder’s meeting can discuss only those questions that are on the agenda of the meeting, except the case when all shareholders agree otherwise.
If the shareholder’s meeting was convened by the management, and certain important issues are not on the agenda, the minority shareholder can suggest these issues to be discussed during the meeting. It is important that the additions to the agenda shall be received by the other shareholders and the management at least 3 days before the shareholder’s meeting.
Enforcement of claims
It can happen that the CEO or the auditor cause damage to the company and thus the company has claims against these persons. However it might be the case that the majority shareholders do not want to enforce these claims: for various reasons.
If the shareholders’ meeting has refused or has not presented for decision the initiative to enforce a claim against the shareholder, the CEO, the supervisory board member or the auditor of the company, the shareholders who have at least 5 % of the votes may enforce such claim themselves on behalf and for the benefit of the company within 30 days.
When adopting the yearly financial report by the shareholders’ meeting it may happen that the minority shareholders find suspicious business transactions or financial indicators in the report.
In this case those shareholders who have at least 5 % of the votes may propose that the last financial report or any economic event which occurred in connection with the activity of the CEO during the last two years shall be examined by an independent auditor to be engaged specifically for this purpose.
If the shareholders’ meeting has refused or has not presented for decision this proposal of the minority shareholders they can refer to the court of registry within 30 days as of the shareholders’ meeting. Upon the request of the minority the court may order the examination and appoint an independent auditor at the company’s expense.
5 THING YOU SHOULD NOT MISS OUT FROM YOUR ONLINE SHOP TERM&CONDITIONS IN HUNGARY
Online shopping is more and more trendy. While it is a very good opportunity, it has more risks for consumers than traditional retail shopping. For example, you cannot see the product in reality, so what if the shirt you ordered for your father as a Christmas present does not fit? The European Union recognized the risks of online shopping and adopted several consumer protection rules. In this short article I collected 5 issues you must include in your terms&conditions if you operate an E-shop in Hungary. Please note that these rules only apply if your buyer is a consumer (a natural person who is not acting for business purposes).Read more »
HOW TO OPEN AN ONLINE SHOP IN HUNGARY?
Online shopping is more and more popular among customers for certain reasons: it is more convenient and often cheaper than traditional shopping. Online shopping is not only an attractive alternative for the shoppers but for the traders, too. By opening an online shop, you can remove the need for expensive retail premises and customer-facing staff. Another huge advantage is that you can expand your market beyond local customers very quickly. Here are 4 things that you need to clarify if you decided to open an online shop in Hungary.Read more »
INTERNATIONAL LAW FIRMS CONFERENCE IN CYPRUS
We are members of International Law Firms (ILF) a worldwide network of small & medium sized law forms around the world, with around 70 members from 50 jurisdictions. The goal of ILF is improving client service in cross border business legal issues. Every year there are annual and regional conferences where we can share our experiences, meet new people, new viewpoints, and make our community better.Read more »