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Do you run a business in Hungary? The following modifications shall sound your alarm!

 

The New Year brings modification to the Hungarian dividend rules.

On January 1, 2022 a bunch of new Civil Code provisions entered into force or was amended affecting the operation of the Hungarian companies. Among others, the provision of payment of dividends and the business shares held in the hands of one member has changed, as the rules for the payment of supplementary capital contribution, points out the act Bán & Karika Attorneys at Law.

Establishing business from dividend

According to the new provisions in the Hungarian Civil Code, when setting up a limited liability company, a shareholder may decide not to pay his part of the capital contribution into the company's "pocket", but instead to make a financial contribution in whole or in part from the dividend itself at the end of the financial year, counting on the early success of the company. The Civil Code expresses that the shareholder has a maximum of 2 years to pay in full his capital contribution and receives the dividend only afterwards. If he fails to complete this financial obligation within this period, its membership may be terminated by the company.  

One shareholder one business share

From the beginning of the year, it is no longer compulsory to merge different business shares belonging to the same shareholder but acquired under different legal titles or at different time. “As a fundamental rule, irrespective of the number of business shares, if a shareholder has more than one business shares, he is still considered as one shareholder of the company. For instance the votes attached to different business shares are added up when the shareholder casts its vote on the shareholders' meeting. Also if the shareholder fails to provide its financial contribution in due time, even in respect of only one business share, he may be excluded from the company," points out Dr. Lilla Majoros LL.M., an expert at act Bán & Karika Law Office.  

Almost all companies can order the provision of supplementary capital contribution

As of January, the rules on supplementary capital contribution have been moved from the provisions applicable to limited liability companies to the general rules for companies. As a result, beyond limited liability companies, partnerships and private limited companies are permitted to order supplementary capital contribution if the company has losses but wishes to remain solvent. Only public limited companies are exempt from the new rule.  

From January, the unused fund received by the company on the title of supplementary capital contribution is no longer necessarily to be repaid to the contributors, but may be retained for reserve purposes. In this way, the company will not have to make a new order of supplementary capital contribution for each economic event that negatively affects its liquidity.

Shareholders’ meeting can be reconvened within three days

When the shareholders’ meeting did not have a quorum, the reconvened meeting had to be convened within 3-15 days after the original date in order for the shareholders to discuss the same agenda items, regardless of the number of votes represented by those present. The civil code still contains a minimum period of 3 days to reconvene the meeting, but since January 2022, the shareholders can decide otherwise in the articles of association. The practice presents that the mandatory provision for a minimum time between shareholders' meetings was unnecessarily strict. In addition, experience has shown that more people did not show up at the reconvened meeting either than at the original one. In the light of the amendment, it is already possible for the company to hold its reconvened shareholder’s meeting 1 day or even 1 hour later than the firstly scheduled one, if permitted by the articles of association.

Rules on conflict of interest has also changed

The rules on conflicts of interest for managing directors have also changed since the beginning of this year. If there is a conflict of interest in the case of a managing director, it no longer means that his or her term of mandate is immediately terminated by law. In future, companies will be able to specify in their articles of association the legal consequences of this situation. According to the reasoning of the new legal provisions, the previous regulation was too strict, the occurrence of the conflict of interest in general does not necessarily mean that the managing director has become unable or unworthy to fulfill its duties.

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