Company Formation in Hungary: A Guide for Entrepreneurs

Company formation in Hungary is particularly popular in the form of limited liability companies (Kft.) and joint-stock companies (Rt.). These corporate forms offer attractive options for both domestic and international businesses. Below we provide an overview of the key details involved in setting up a Kft. and Rt. in Hungary.

Limited Liability Company (Kft.)

The limited liability company is the most common corporate form in Hungary. A Kft. is a separate legal entity with its own assets, and the company’s liabilities are limited to its assets. The personal assets of the members are protected, as they are only liable for the company’s debts up to the amount of their contributions, except in special cases (e.g. bad faith conduct).

To establish a Kft., a minimum capital of HUF 3 million (approximately EUR 7,900) is required currently. This capital can be provided by the members through monetary contributions or contributions in kind (non-monetary assets). The Hungarian Kft. is regulated similarly to the German GmbH, having a similar structure and operational principles, meaning it is managed not by a board of directors but by one or more managing directors who typically have sole authority to represent the company, depending on the owners’ decision.

The members of a Kft. do not receive shares in exchange for their ownership stakes but rather acquire business shares which confer a bundle of rights and obligations. Instead, their information is recorded in a member register maintained by the company and submitted to the company registry. Members have preemptive rights concerning each other’s business shares. These business shares can be pledged as security, and the extent of the secured claim and the beneficiary of the pledge are included in the public and official company register.

Joint-Stock Company (Rt.)

A joint-stock company (Rt.) in Hungary exists in two forms: privately held joint-stock companies (Zrt.) and publicly held joint-stock companies (Nyrt.). A joint-stock company operates with share capital divided into a predetermined number of shares with a nominal value. Shareholders are only liable for the company’s debts up to the nominal value or issue price of their shares.

To establish a privately held joint-stock company (Zrt.), a minimum share capital of HUF 5 million (approximately EUR 13,000) is required, while becoming a publicly held joint-stock company (Nyrt.) requires a minimum share capital of HUF 20 million (approximately EUR 52,000). Shares of a privately held joint-stock company cannot be publicly traded and can only be owned by those specified in the company’s articles of association. A company can become publicly held after its establishment through a stock exchange listing.

Shareholders subscribe to and receive shares, which are freely transferable and can be pledged as collateral. Shares can be issued in physical form or as dematerialized securities, but in both forms, they are transferable and can be encumbered. It is important to ensure the timely issuance of shares after incorporation (or capital increase), as failure to do so may call into question the legality of general meeting resolutions or the transfer of ownership interests.

Branches and Representative Offices of foreign businesses

It is important to note that foreign investors have the option to establish a branch or a commercial representative office in Hungary instead of a Hungarian-registered company.

A branch is a part of the foreign company that operates independently in Hungary, but it does not have separate legal personality. Despite this, interestingly, it can acquire rights and assume obligations in its own name during its operations. Generally, a branch does not act as the foreign company’s commercial representative, and it must be separately registered in the Hungarian company register before it can commence operations. The foreign company is responsible for providing the assets necessary for the branch’s operations, and under Hungarian law, it has unlimited liability for the branch’s debts.

In contrast, a commercial representative office is a unit of the foreign company without legal personality and it cannot act in its own name. This means that it can only represent the foreign company, mediate contracts, and carry out preparatory and auxiliary activities on its behalf. The commercial representative office can enter into contracts necessary for its operation, but it must do so in the name of its foreign parent company. The commercial representative office must also be registered in the Hungarian company register but operating it does not in itself create a taxable presence for Hungarian corporate tax purposes unless it engages in activities that may establish tax liability.

Why is it Worth Establishing a Company in Hungary?

Besides its favorable geographical location, Hungary’s tax environment and stable legal framework make it attractive for businesses. The 9% corporate tax, the lowest in the European Union, makes conducting business through a Hungarian company very competitive and efficient. The flexible corporate structures of limited liability companies and joint-stock companies allow for the implementation of various business models, entry into international markets, and the realization of long-term business plans.

Whether establishing a company in the form of a limited liability company or a joint-stock company, the public company register contains all the important information about it, including the manner of representation and the identity of the representative. Company formation is a quick and straightforward process with automatic tax number allocation and without a significant minimum capital requirement, as the legal framework allows for up to a two-year deferment of the full registered capital payment.

In Hungary, all business entities are required to publish their financial statements at least annually, ensuring transparency even for non-listed companies. Auditing of financial statements is mandatory above a certain company size. The capitalization of Hungarian companies is governed by the provisions of the EU’s ATAD directive.

Hungarian-registered companies can be wholly foreign-owned, and foreigners can also serve as managing directors. Neither citizenship nor a domestic residence is required for this role.

Generally, companies do not need government licenses or notifications to engage in economic activities, except for some specific and sensitive activities.

It is also worth noting that Hungarian companies communicate with authorities electronically, so at least one representative must have a client gateway (Ügyfélkapu) account 

Conclusion

Company formation in Hungary can be a simple and quick process. Whether in the form of a limited liability company or a joint-stock company, both provide excellent opportunities to achieve entrepreneurial goals. 

If you wish to establish a business entity in Hungary and have further questions, feel free to contact our colleagues! We are happy to assist with every step of the company formation process so that you can focus on realizing your business plans.