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DO WE NEED SUPERVISORY BOARD IN A HUNGARIAN LLC?
09 August 2023
In some cases, setting up a supervisory board is mandatory. Its main function is to control the management and the managing directors of the company. In this article, we will summarise the most important rules concerning the supervisory board and its importance for deciding whether we need one in a Hungarian LLC.
1. Setting up a Supervisory Board
The members of the first supervisory board shall be designated in the articles of association; subsequent members shall be elected by the members’ meeting.
The supervisory board comprises three members and the term of office of supervisory board members is five years or, if the company is established for a shorter term, that term.
Establishing a supervisory board is mandatory in a company where the annual average number of full-time employees employed by the company exceeds two hundred, and the works council did not waive employee participation in the supervisory board.
The supervisory board must have at least three members who may not be employees of the company and who perform their duties on a mandate basis.
If the annual average number of full-time employees at the company exceeds two hundred, employee representatives shall make up one-third of the supervisory board.
2. Powers of the supervisory board
The supervisory board may
- have access to the documents, accounting records and books of the legal person,
- request information from the executive officers and employees of the legal person, and
- inspect or have an expert inspect the legal person’s payment account, petty cash, securities portfolio, inventories and contracts.
The articles of association also provide for the possibility of setting up a supervisory board with ultimate decision-making powers. In such cases, the memorandum and articles of association may refer certain decisions to the supervisory board or make certain decisions subject to its approval. Thus, the role of the supervisory board may, in certain cases, go beyond the control function.
3. Advantages of a supervisory board
The supervisory board monitors the company's operations, decisions and management activities to ensure that shareholders' interests are protected.
The supervisory board participates in the development and evaluation of the company's strategy and advises management on the achievement of long-term objectives.
The supervisory board oversees the company's internal control system, monitors financial reporting, verifies compliance with legal and regulatory requirements and responds to risks and crisis situations.
The supervisory board supervises management and is involved in the selection, evaluation and remuneration of managers.
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