Blog » RESTRICTIONS TO SHARE TRANSFERS IN HUNGARY
RESTRICTIONS TO SHARE TRANSFERS IN HUNGARY
05 December 2016
The transfer of business shares in Hungarian Limited Liability Companies is an under-regulated domain of Hungarian company law, however there are some “opt-out” and “opt-in” restrictions that shareholders should bear in mind if they want to set up a working shareholders’ structure. We summarise the must-knows of this topic in this article.
Restrictions to share transfer
The Civil Code offers a wide range of restrictions on share transfer in order to prevent third parties to enter into the limited liability company.
The most important restrictions are
1) the right of pre-emption (default)
2) the consent to sale (optional)
3) the “succession clauses” (optional)
4) excluded legal titles (optional)
Right of pre-emption
Business shares may be freely transferred among shareholders of the company, but if a shareholder wishes to sell his business share to a third person, then the following persons have right of pre-emption in this order of priority:
1) the other shareholders (proportionally)
2) the company itself, or
3) a person appointed by the shareholders' meeting
The right of pre-emption is a restriction by “default” in the Civil Code, but shareholders are entitled to “opt-out” from the application of this instrument it in the articles of association
Consent to sale
While the shareholders must “opt-out” to avoid the right of pre-emption regime, when it comes to the consent to sale, they have to “opt-in”.
It means that this restriction applies only if the shareholders decide to adopt a special clause in the articles of association, conferring the right of consent to the share transfer on the general meeting.
In this case the general meeting has 30 days to consent to the sale, in the absence of which, there is a presumption by law that the consent is given. It must be noted, that the articles of association cannot lengthen this 30 days’ deadline.
Another “opt-in” restriction to the share transfer is the so-called “succession clause”.
In case of the death of a natural person shareholder, or the transformation of a legal entity shareholder, the articles of associations may grant a right for other shareholders to prevent that the successor enters into the company and becomes shareholder. In this case the shareholders shall “buy” the business share of the deceased shareholder for market price, within 30 days at the latest.
Excluded legal titles
Shareholders are free to exclude certain legal titles of share transfers in the articles of association in order prevent other shareholders from circumventing the right of pre-emption, or other restrictions. In this case the shareholder cannot conclude a valid contract with the excluded legal title (e.g. “donation”) for the alienation of business share to third party.
It must be noted that the “purchase” as legal title, cannot be excluded by the articles of association.
General rules of share transfer
The Civil Code lays down only the basic rules relating to share transfer in Hungarian Limited Liability Companies.
The share purchase contract shall be in writing, but the modification of articles of association of the company because of the share transfer is not necessary.
The purchaser of the business share shall notify in writing the managing director of the company about the share acquisition within 8 (eight) days, by sending him the share purchase agreement. The purchaser shall also confirm in the notification, which shall be in a notarized document or at least in a private document having full evidentiary force, that he accepts the provisions of articles of association as binding.
Based on the share purchase, the shareholders’ rights and obligations transferred to the purchaser as new shareholder. The new shareholder shall be registered by the managing director into the registry of shareholders, but he can exercise his shareholders rights and obligation from the notification.
While the share transfer among shareholders is free, there are some restrictions when third party wishes to acquire the business shares.
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 »