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.
ONLINE SALE OF MEDICINAL PRODUCTS WITHOUT BORDERS? LUXEMBURG RULED
Cross-border online sale of medicinal products is a recurring issue before the Court of Justice of the European Union. This is no coincidence, as trade in medicines is a strictly regulated area in all Member States, which can easily conflict with the EU principle of freedom to provide services, and in the end, the "price" of excessive national restrictions is borne by the consumers. In our article, we summarize the recent ruling of the Court of Justice of the European Union on the limitation of the principle.Read more »
HOW REPORTING OF EMPLOYEE-TRAININGS HAS CHANGED FROM SEPTEMBER 2020 IN HUNGARY?
From September 2020 the rules, which regulate the status of the adult educators and the organisation of adult educations have changed. There are significantly more educations, which are considered as adult education and performing an adult education entails a lot more obligation. The changes affect almost every employer who organises certain kind of educations for its employees. We summarize the most important changes concerning the adult education.Read more »
LUXEMBOURG RULED: MESSI DRIBBLED PAST EVEN THE EUROPEAN TRADEMARK OFFICE
Messi hit the legal news again, this time not because of his tax issues. In September, the match between the EUIPO and the world-famous football player, which was ongoing since 2011, finally ended. Messi won the match, as the European Court of Justice ruled that because of his significant reputation, his name can be registered as a trademark despite the fact that it is similar to several earlier trademarks, which is otherwise a ground for exclusion. In our short article, we summarise the details of the case and the legal significance of the decision.Read more »