CLVPartners

CLV-02
Menu

Corporate law

General information on the legal regulation of group of companies

Corporate law, News / / , , , , , ,

Reading time: 6 minutes

In modern economic life, in order to increase efficiency and share resources and market risks, companies are increasingly forming close cooperation systems, known as groups of companies (or conglomerates). However, this process often proves to be contrary to the basic principles of classical corporate law, which is based on the independence and separate liability of legal entities. Act V of 2013 on the Civil Code (“Civil Code”) offers a structured solution to this dilemma with the institution of recognized groups of companies, providing a legal framework and a strict warranty system for the responsible economic and legal operation of corporate groups.

Given that the regulation of group of companies will change this spring, our article presents the regulatory system for group of companies in order to provide greater clarity on the background to the changes.

The recognized corporate groups

In order for close cooperation between companies to qualify as recognized corporate groups, three conceptual elements must be present:

there must be a controlling member that is required to prepare consolidated annual accounts;

there must be at least three different legal entities controlled by the controlling member;

a uniform business policy must be established, which is laid down in the control contract itself.

The group of companies is established by drawing up a draft control contract and obtaining the approval of a three-quarters majority of the members (subject to the successful fulfilment of the relevant disclosure obligations). The controlling member must apply for registration in the commercial register within 60 days of the final approval.

The control contract

The control contract is the central regulatory instrument for the operation of the group of companies, as it contains the uniform business policy that forms the basis for cooperation. In addition to the most important identifying details of the members, the contract must also specify the form of their cooperation and its essential elements.

It is important that the contract only restricts the independence of the controlled members to the extent necessary to achieve the uniform business objective. Under the rules of the Civil Code, the management of the controlling member may instruct the management of the members within the framework of the control agreement. In this case, the rules on the exclusivity of decisions of the supreme body do not apply either.

In order to ensure transparent operation, the management of the members of the group of companies (including the controlling member) is obliged to report to the supreme bodies at least once a year on the activities related to the performance of the agreement. The management of the controlling member also has an additional obligation to inform creditors with significant claims. If the latter fails to do so, the creditor may apply to the court of registration.

Minority protection

The operation of a group of companies requires specific minority protection rules, as members with a small shareholding must adapt not only to the majority owner within their own company, but also to the majority owner of the controlling member. For this reason, the law provides for special minority protection guarantees both at the time of the formation of the group of companies and during its operation:

upon the formation of the group of companies: members of legal entities joining as controlled members who do not wish to participate in the group of companies may request, within 30 days of the second publication of the announcement of the formation, that the controlling member purchase their shares at market value;

during the operation of the group: if the controlling member substantially or repeatedly breaches the control agreement, members holding at least 5% of the votes of the controlled member, as well as the management of the controlled member, may initiate the convening of the supreme body of the controlling member. This creates an opportunity to bring the breach of contract before the highest decision-making forum of the controlling member. If the management of the controlling member does not comply with the request, the court may also convene the meeting or authorize the applicants to do so.

Creditor protection and underlying liability

One of the fundamental objectives of the establishment and operation of a group of companies is to protect the interests of creditors.

The main security provided by the system is the underlying liability of the controlling member. If any of the controlled members is liquidated, the controlling member is obliged to cover the unsatisfied debts. The controlling member may be exempted from liability if it can successfully prove that the insolvency was not a consequence of the implementation of a uniform business policy.

Supervision by the Court of Registry

The Court of Registry, which is responsible for registration, supervises the legality of the group of companies. In the event of a material or repeated breach of the control agreement, any legally interested party (e.g. a member or creditor) may request that the Court of Registry conduct a legality supervision procedure against the group of companies.

De facto groups of companies

A de facto group of companies exists when uniform management or close economic cooperation has been in place for three years without the parties complying with the formal requirements (control contract, registration). According to long-standing rules, at the request of any legally interested party, the court may oblige the group of companies to conclude a control agreement or to apply the relevant provisions in the absence of such an agreement, thereby creating both underlying liability and the possibility for minority members of controlled subsidiaries to exit.

Regarding actual groups of companies, the amendment, which will enter into force on March 1, 2026, clarified the concept of a legally interested party: in the future, anyone to whom the controlling member would be liable (i.e., typically the creditor of the controlled member) will be considered to have a legal interest. The amendment prioritizes creditor protection by directly linking the existence of an actual group of companies to the obligation to pay, thus making the underlying liability of the controlling member enforceable for aggrieved creditors despite the lack of a formal framework.

Summary

The regulation of groups of companies is based on the balance of ‘power and responsibility’. The institution of acknowledged group of companies offers legal certainty by ensuring the right to uniform management and instruction, while at the same time protecting economic actors with strict guarantees. It is in the fundamental interest of company managers to ensure that the group operates in compliance with legal guarantees and within a transparent contractual framework, thereby avoiding unexpected underlying liabilities and legal disputes.

Photo source: pexels.com, Fauxels

General information on the legal regulation of group of companies Read More »

New developments in the regulation of energy cooperatives

Commercial Law, Corporate law, News, sustainability / / , , , ,

Reading time: 6 minutes

The Hungarian Act X of 2006 on Cooperatives (“Cooperatives Act”) has been amended with effect from 1 January 2026 with provisions governing energy cooperatives (“Amendment”). The purpose of this article is to briefly present the background to the Amendment, introduce the concept and key characteristics of energy cooperatives as a new legal institution, and provide an overview of the most important rules applicable to energy cooperatives.

The background of the Amendment

Legal basis and purpose of energy communities

In order to mitigate the adverse effects of climate change and promote the achievement of climate neutrality, the European Union adopted in 2019 the Directive (EU) 2019/944 on common rules for the internal market for electricity and amending Directive 2012/27/EU. This Directive introduced the legal framework for citizen energy communities within the EU.

An energy community is a voluntary association of energy producers and energy consumers. Its operation is based on open and voluntary participation, and it is governed by its members or shareholders, who may be natural persons, small enterprises, or local authorities.

Under EU regulation, energy communities may be established in various legal forms. For example, they may operate as associations, cooperatives, or non-profit companies.

The primary purpose of an energy community is not to generate financial profit, but to provide environmental, economic, and social benefits to its members, shareholders, or the area in which it operates. These benefits may be achieved, inter alia, through the generation, distribution, supply and consumption of energy, as well as through aggregation, energy storage and the provision of services aimed at improving energy efficiency. The activities of an energy community may also extend to solutions related to electric vehicle charging and to the provision of other energy-related services to its members or shareholders.

Energy community operations in practice

It is a legitimate question how an energy community operates in practice and how it can provide tangible benefits to its members.

An energy community can best be understood as a small-scale system that is partially or fully energy self-sufficient. Within the community, members with different roles cooperate with each other. Some are solely energy generators, others both generate and consume energy, while some participate exclusively as consumers. Energy producers may include, for example, households with their own solar panel systems, as well as biogas plants or even wind turbines. These production units are typically developed through community funding from the shared budget of the energy community.

Energy storage solutions form an integral part of the system, enabling the storage of energy that has been produced but not immediately consumed. The key to operation is the continuous interaction between generation, storage and consumption units. This is ensured by an intelligent management system, the so-called smart grid, which monitors production and consumption and directs energy to where it is needed at any given time.

Ideally, an energy community produces slightly more energy than its members consume, which may allow it to become fully independent from the public grid. However, if the balance between production and consumption cannot be maintained—meaning the community produces either too much or too little energy—the energy community may trade with the universal service provider to balance its energy needs.

In conclusion, it can be stated that by promoting energy communities, the European Union seeks to achieve interconnected short- and long-term objectives. In the short term, energy communities can contribute to alleviating energy poverty and strengthening local communities. In the long term, the EU aims to increase the share of renewable energy sources, establish a decentralized and sustainable energy system, and achieve its climate neutrality target set for 2050.

Regulation of energy communities in Hungary and practical experience

To fulfil its legislative obligations arising from EU law, Hungary established the legal framework for the operation of domestic energy communities through the amendment adopted in 2020 to Act LXXXVI of 2007 on electricity (“Electricity Act”).

According to the Electricity Act., an energy community is a legal entity operating in the form of an association, cooperative or non-profit company, whose purpose is to create environmental, economic and social benefits for its members or for the area of operation defined in its statutes. This purpose may be achieved, inter alia, through the generation, distribution, supply and consumption of energy—including the use of renewable energy sources—as well as through aggregation, energy storage and the provision of services aimed at improving energy efficiency.

In connection with energy communities, it should be noted that registration with the Hungarian Energy and Public Utility Regulatory Authority (MEKH) is a prerequisite for acquiring legal status. In addition, to conduct licensed activities—such as electricity generation, energy trading, aggregation or energy sharing—an energy community must obtain the relevant regulatory permits in the same way as any other market participant. According to the MEKH register, there are currently 17 registered energy communities in Hungary.

Rules applicable to energy cooperatives under the Cooperatives Act

It can be concluded that the concept of energy cooperatives has been present in the Hungarian legal system for several years as one of the possible legal forms of energy communities. Although the Electricity Act allows for the establishment of energy cooperatives, detailed and specific regulation had so far been lacking. This regulatory gap was addressed by the Amendment, as a result of which the Cooperatives Act has been supplemented with a separate chapter dedicated to energy cooperatives.

Cooperatives are legal entities established through the members’ capital contributions, with the objective of lending assistance to its members to satisfy their economic and societal needs. The primary obligations of members consist of making their capital contributions and providing the personal involvement specified in the articles of association. The general rules applicable to cooperatives are set out in Act V of 2013 on the Civil Code and in the general provisions of the Cooperatives Act. It is important to note that these general rules also apply to energy cooperatives, in accordance with the specific provisions applicable to them.

Under the Cooperatives Act, an energy cooperative is one form of energy community within the meaning of the Electricity Act, operating within a cooperative structure and conducting energy-related activities in the interest of its members. Its primary purpose is to improve the economic and social situation of its members, while also providing environmental, community and educational benefits, thereby serving the public interest.

Any natural or legal person who meets the statutory requirements may participate in the establishment and subsequent operation of an energy cooperative. At the same time, the regulation allows the energy cooperative to make membership subject to geographical or technical conditions as set out in its articles of association.

Due to the specific purpose and operation of energy cooperatives, members may contribute different amounts to the cooperative’s assets, but this does not affect the equality of membership rights. In decision-making, each member participates with equal weight, meaning that each member has one vote. The Cooperatives Act also allows for the admission of members who are not required to provide personal participation but support the operation solely through capital contributions; such members are referred by the law as investor members.

The operation of an energy cooperative must be conducted in a manner that is consistent with the interests of its members and is both efficient and sustainable. To ensure this, the Cooperatives Act provides that matters affecting the articles of association fall within the general meeting, thereby guaranteeing the cooperative’s autonomy. The legislation regulates in detail the procedure for transferring cooperative and investor shares and the related notification obligation and grants pre-emptive rights to members and the cooperative itself.

A key rule concerning the fiscal management of energy cooperatives is that the legislation requires the creation of mandatory reserves. In this context, the energy cooperative must establish a reserve fund amounting to 10% of the profit generated. The purpose of the reserve fund is to ensure the long-term financial sustainability of the energy cooperative. The regulation also requires the establishment of an education and information fund, which serves as the financial basis for the continuous training and knowledge-sharing of members. At least 2% of the profit from the previous fiscal year must be allocated to this fund.

Summary

Overall, it can be concluded that the amendment to the Cooperatives Act, in line with EU objectives, establishes the legal framework for the operation of energy communities in cooperative form. As non-profit organisations, energy cooperatives may participate in the energy market while promoting community, environmental and economic interests, thereby contributing to sustainability, energy efficiency and environmental protection. The regulation prioritises democratic decision-making, transparent operation and the protection of members’ interests, while also allowing for the involvement of external investors.

Photo source: pexels.com, Centre for Ageing Better

New developments in the regulation of energy cooperatives Read More »

The cessation of AVDH and the related tasks of companies

Corporate law, News / / , , , , , , , ,

Reading time: 4 minutes

Electronic administration has undergone significant changes in recent years with the introduction of the Digitális Állampolgári Program (DÁP). The previously widely used document authentication (AVDH) has been phased out and is now completely obsolete. Given that this has a significant impact on the way individuals and companies conduct their electronic administration (e.g. ePapír administration, either as individuals or through the Company Gate), we outline below the essence of the changes, the parties affected and the practical steps to be taken.

AVDH in brief

AVDH was previously a free document authentication solution available to all users with a client gate. It was a widely applicable, easily accessible and simple to use service, and was also considered suitable for corporate signatures. Documents authenticated with AVDH were considered private documents with full probative force, so they could be used in a wide range of procedures and administrative processes.

The general availability of AVDH ended at the end of last year, so it could only be used in a limited scope, integrated into the ePapír service. This meant that when individuals and companies submitted documents to government agencies (e.g. to the labour authority) via ePapír, they could authenticate their submissions and attachments with AVDH, thus eliminating the need for electronic signatures.

Changes in November

On 31stOctober 2025, the AVDH service was completely discontinued (i.e. in official procedures as well). It was replaced by a service for user document assignment (FEDOR) with significantly reduced functions, starting from 1 November 2025.

However, FEDOR does not provide nearly all the features of its predecessor. The FEDOR service does not replace the signature, but only assigns it to the individual, so it does not result in a fully probative private document. However, for an electronic document to be considered authentic, it must at least have the probative value of a private document (and an electronic time stamp).

Necessary steps

Given that authentic electronic documents must be submitted during electronic administration, authorities currently ask clients to resubmit the appropriate documents in cases where the documents do not qualify as private documents with full probative value.

Under current legislation, documents bearing a qualified electronic signature or an advanced electronic signature based on a qualified certificate are considered private documents with full probative value, so the documents to be submitted must be signed with one of these.

In order to ensure that the company’s communication with authorities does not become impossible, we know that many companies have quickly opted for a qualified electronic signature provided by a Hungarian trusted service provider. However, it is important to note that choosing the right partner in the long term opens up many more opportunities for digitisation.

Practical options

Private individuals have access to the eAláírás function provided by DÁP, which is considered a qualified electronic signature. However, it is important to note that this can only be used by private individuals, i.e. the DÁP eAláírás function is not suitable for corporate signatures under the provisions of the law, so business organisations will have to look for other solutions.

Qualified electronic signatures and advanced signatures based on qualified certificates can only be provided by so-called trust service providers. It is important to note that this is regulated at European Union level, which means that such services can be used not only from the three providers registered in Hungary, but also from providers registered in any EU Member State, as Member States are obliged to accept them. In Hungary, the National Media and Infocommunications Authority (NMHH) is the competent supervisory authority, which maintains this register, and the list of registered service providers can be found here. Service providers registered in the various EU Member States can be accessed via the following link.

It is also important to note that it is, of course, possible to act through an authorised representative (e.g. a private individual, accountant, legal representative) in electronic procedures, in which case the authorised representative must have the appropriate signature.

Summary

With the complete discontinuation of the previously widely used AVDH service, an appropriate electronic signature is required to use the ePapír service.

Although this may initially be perceived as a burden by those affected, electronic signatures can be used in a much wider range of applications and can practically replace the role of previous paper-based signatures entirely. Electronic signatures may, of course, entail additional costs, but it should also be noted that their use reduces several other costs (e.g. paper, printing, postage, courier and travel costs). Given that there are several types of electronic signatures, which result in different types of documents with varying degrees of evidential value, and that they can be used in a wide range of situations (e.g. company procedures, employment relationships, official notifications), it is definitely advisable to consider the purpose and scope of use when selecting a specific service (signature type). In our practice, we have assisted numerous group of companies with their digital transition, and we can clearly state that companies choose different service providers based on their varying priorities (e.g., mass document uploading, document management, a wide range of signatories, signatures that can be provided to employees by their employer, cost).

Photo source: pexels.com, Karola G.

The cessation of AVDH and the related tasks of companies Read More »

Special rules in case of foreign founder(s) and/or managing director(s)

Corporate law, News / / , , , ,

Reading time: 4 minutes

Introduction

In the following article, we have compiled the most important topics that inevitably arise in the life of companies with foreign members or executives. Regardless of the type of foreign person, if he plays a role in the company’s life from a company law viewpoint, there are a few additional matters that will certainly arise during the company establishment or change procedure.

Company extract of the foreign member

If a foreign legal person becomes a member of a company, either at the time of incorporation or later, or if there is a change in its data (e.g., the foreign member’s registered seat changes), the foreign company’s company extract or other document with identical content (e.g., a notarial statement), and its certified Hungarian translation must be submitted to the Court of Registry. The purpose of this is to certify the

registration of the foreign company under its own law,

data of the foreign company, and

person(s) authorized to represent the foreign company.

In this case, the foreign company member must request its company extract from its own court of registry/registry authority, which must then be prepared in a certified Hungarian translation by a qualified translator.

Delivery agent

If a foreign legal person or a foreign natural person, who has no address in Hungary holds a position in the company (e.g., member or managing director of the company, member of the supervisory board, etc.), he/she must designate a person to be his/her delivery agent.

A delivery agent can be an organization with its registered seat located in Hungary or a natural person with a permanent residence in Hungary. This is a frequently asked question, thus it is important to clarify that members of the company, its management and supervisory board members are not allowed to perform such a function. This means that if the only member of the company is a foreign entity, its delivery agent cannot be the company’s managing director, even if he or she has Hungarian nationality and residence.

The function of the delivery agent is to receive and deliver certain documents (e.g., court/authority documents) addressed to the foreign person. The reason for this is obviously the difficulty and cost of delivering documents abroad, which the authorities/courts do not want to bear. In the case of a delivery agent, the law provides for a presumption as to the date of delivery: the foreign person is presumed to have knowledge of the document on the 15th day following the day on which it was duly delivered to the delivery agent.

It can therefore be seen that the task of the delivery agent is important and crucial, as he/she often has to forward notices, requests to foreign addressees with tight deadlines, the failure to comply with which may entail serious legal consequences.

Tax identification number

Although few people are aware of it, since 2018, the executive officer of the company, or in certain cases its member or shareholder, who does not have a tax identification number, is required to request one from the National Tax and Customs Office.

It is often the case, for example, that the foreign managing director performs his/her position on the basis of a free-of-charge mandate agreement, in which case no taxable income is generated in Hungary. In such cases, the absence of a tax identification number does not necessarily arise from a tax viewpoint. However, companies are obliged to use electronic communication, via Company Gate. The managing director(s) can register a Company Gate on the basis of their existing Client Gate access, which requires the Hungarian tax identification number.

The prominent role of e-signatures

There is no doubt that with the increasing use of electronic signatures processes are becoming faster, more convenient and more efficient for all of us. This is even more true in case of companies with a foreign person(s). If, for example, the company has foreign members and managing directors, even from different countries, signing certain documents can take weeks and incur unnecessary costs (e.g., courier services, travel, notarization). With e-signatures, however, this time can be reduced to minutes or even seconds, as it takes just a few clicks to place 1 signature and there are no associated costs beyond providing the e-signature.

In legal procedures, such as company proceedings, it is also possible for the legal representative to identify the signatories online, also within a few minutes, saving additional time and costs.

It is therefore worth considering the use of electronic signatures, which can be a convenient, time- and cost-effective solution, and can have the same legal effect as a physical signature.

Photo source: pexels.com, Kampus Production

Special rules in case of foreign founder(s) and/or managing director(s) Read More »

Capital difficulties and their possible remedies in case of limited liability companies

Corporate law, News / / ,

Reading time: 4 minutes

 

The preparation and adoption of the annual accounts each year is an important step in the operation of a company as it clearly shows the results of the previous financial year. Act V of 2013 on the Civil Code (“Civil Code“) provides for a number of capital requirements and the obligation to intervene to remedy them for the purposes of protection of creditors. In our article below, we will examine the possible cases of undercapitalization and the legal solutions available, focusing on the rules governing limited liability companies.

Cases of undercapitalization

The Civil Code defines four cases, when the members are obliged to intervene and provide additional necessary funds or decide on appropriate restructuring of the capital structure. These are, in summary, the following:

  • the company’s equity capital has fallen below the minimum amount of registered capital laid down by law
    • an LLC can be established with a minimum registered capital of HUF 3 million, therefore this case arises if the equity capital is less than HUF 3 million
  • the company’s equity capital has fallen to half of the registered capital due to losses
    • with regard to the case of undercapitalization above, this can only arise if the registered capital exceeds the minimum amount, so for example its amount is HUF 10 million. In this case the members shall intervene, when the equity capital is HUF 5 million, or less
  • the company is threatened with insolvency or has stopped making payments
    • threat of insolvency is a situation where the directors of a company foresee, or with reasonable diligence should foresee, that the entity will not be able to meet its obligations as they fall due
  • the company’s assets do not cover its debts
    • this is the case when the company’s debts (e.g. debt, loans from members, other claims against the company) exceed the company’s total assets.

Obligation to intervene

In the event of undercapitalization, the Civil Code imposes specific obligations on both the managing director and the members.

The managing director shall without delay convene the members’ meeting (sole member) or initiate the decision of the general meeting without holding a meeting in order to take the necessary measures.

Members shall then decide on a solution to the situation and the adopted measures shall be implemented within 3 months. If the undercapitalization is due to the fact that the company’s equity capital dropped to half of the registered capital due to losses, and the members are unable to eliminate this within 3 month, the company’s registered capital must be reduced.

Possible actions by members

Members can remedy the cases of undercapitalization in several ways, as follows:

  • supplementary payment
    • in the event of authorization in the articles of association, the general meeting may impose a supplementary payment obligation on the members to cover losses
    • in addition to the authorization, the articles of association must specify the maximum amount of supplementary payment that members may be required to pay, as well as the frequency with which such payments may be imposed. If these conditions are not met, supplementary payment may not be made even with the support of the general meeting
    • in connection with the supplementary payment, it must be stated that its amount does not increase the financial contribution of the members. The supplementary payment may only be used to cover losses and, as a general rule, any unused supplementary payment shall be returned to the members
  • reduction of capital
    • in this case the members reduce the registered capital of the company, which entails a reduction in the member(s)’ business quotas;
    • it is important to note that this can only happen if the original registered capital exceeds the minimum value of the registered capital set by law, i.e. HUF 3 million
  • to provide equity capital by other means
    • it is clear that, compared to the previous measures, this is an open option, i.e. it is not possible to define in a taxonomy exactly what actions may be appropriate in this regard;
    • such possible solution for example: granting/cancelling loan by the members, assumption of (intra-group) debt from the company. However, it is also important to consider the tax implications of these possibilities
  • transformation, merger, division and dissolution without legal succession
    • if the members do not decide on supplementary payment, reduction of the capital, provision of equity by other means, the members must decide on transformation, merger, division or dissolution without legal succession
    • of course, there is no obstacle to members taking such a decision immediately, if they so wish and if their other conditions for such decision are met

Summary

As can be seen from the above, there are a number of options available to restore the limited liability company’s capital position. Which of these options is the most appropriate cannot be generally determined, as it is always necessary to look at the specific company, its characteristics and the underlying causes of undercapitalization on a case-by-case basis, and to identify which measures offer a real long-term solution.

Image source: Mikhail Nilov, pexels.com

Capital difficulties and their possible remedies in case of limited liability companies Read More »

New provisions on foreign direct investment

Corporate law, News / / , ,

In 2022 the Government issued the Government Decree 561/2022 (XII. 23.) on the different application of certain provisions necessary for the economic protection of business companies in Hungary during the state of emergency („Decree”) under which it imposed restrictions on foreign investors acquiring ownership in strategically important companies owned by domestic investors, citing the crisis caused by the Covid pandemic. At the end of June, Government Decree 163/2025 (VI. 23) (“Amendment“) was published in the Hungarian Gazette No. 75, further tightening the rules on foreign direct investments.

A significant change in the regulations will be brought about by Act L of 2025 on the elevation to the status of acts of the emergency decrees issued in view of the armed conflict in Ukraine (“Act“), which will repeal the Decree with effect from August 19, 2025. It’s worth noting that at the same time, the general parts of the current regulations will be regulated at a statutory level, with some changes and additions. In addition to the currently effective Decree, our article summarizes the most important provisions of the Act applicable from mid-August and the related changes.

Scope of the regulation

In accordance with the regulations, all transactions involving limited liability companies, private share companies and public limited companies registered in Hungary and operating in strategic sectors must be reported to the Minister of National Economy, as the minister responsible for the domestic economy (“Minister”) if it would result in the acquisition of ownership or a certain degree of influence by third-country nationals or, in certain cases, by nationals of other Member States of the European Union, other states party to the EEA Agreement or the Swiss Confederation, where the value of the legal transaction reaches or exceeds HUF 350 million.

In addition, notification to the Minister and acknowledgement thereof are also required for foreign investors or companies over which foreign investors have direct or indirect majority influence to acquire operational rights necessary for the continuation of activities in strategic sectors. Strategic companies include, among others, pharmaceutical manufacturing, retail and wholesale trade, motion picture production, tobacco product manufacturing, temporary employment agencies, construction of residential and non-residential buildings within the construction industry, manufacturing of machinery and equipment, computer programming, consultancy and related activities.

The notification must be submitted to the Minister within 10 days of the conclusion of the legal transaction concerned.

Legal transactions include not only the sale of shares or stocks, but also any acquisition of ownership rights by way of transfer, including contributions in kind, transfer of ownership without any consideration, capital increase, transformation, merger, division and even the establishment of rights (e.g. convertible bonds, beneficial interest).

Natural person or companies that fail to comply with their reporting obligation may be subject to an administrative fine of up to twice the value of the transaction, provided that they are not subject to criminal liability.

After examining the notification, the Minister shall prohibit or acknowledge the legal transaction concerned. A prohibitive decision may be taken in the following cases:

  • if the acquisition of ownership, the acquisition of the bond, the acquisition of the right to usufruct, or the acquisition of the right to operate by the notifying party would harm or endanger the national interests, public security, or public order of Hungary, or if there is a possibility that this could occur;
  • the notifying party is directly or indirectly not controlled by the government of a Member State of the European Union, including state bodies or armed forces, either through its ownership structure or through significant financing;
  • the reporting entity has been involved in activities threatening security or public order in any Member State of the European Union,
  • or there is a serious risk that the reporting entity will engage in activities constituting a criminal offense.

Any legal transaction or corporate resolution that is contrary to a prohibitive decision shall be deemed null and void. The party affected by the prohibition decision may not be listed in the company register or share register, nor may it exercise any rights based on the legal transaction.

Rules applicable from 24 June 2025

  • Longer administrative time limits

As a result of the Amendment, the Minister must decide within 45 working days of the notification whether the circumstances for the prohibition continue to exist. In order to clarify the circumstances, the Minister may extend the period available for the investigation by a further three occasions, each time by 30 working days, thus extending the total period by up to four to five months.

  • Extension of the State’s right of pre-emption

With this amendment, the Government has significantly expanded its preemptive rights. The State may exercise its right of pre-emption through MNV Zrt. or another organization designated by it, under the same conditions as those specified in the relevant legal transaction, within 90 days of the date of the prohibitive decision. This right applies not only to strategic companies engaged in solar power generation activities, but to all companies in sectors of strategic importance.

Rules applicable from 19 August 2025

As mentioned in the introduction, pursuant to the decision of the legislator, the Decree will cease to be effective on August 18, 2025, and certain provisions will be regulated at the statutory level. The differences between the Decree and the Act are summarized below.

  • Shorter administrative time limits

Under the Act, the Minister must decide within 30 working days of the notification whether the circumstances for prohibition exist. An important element of statutory regulation is that the Minister has no opportunity to extend the deadline for investigation. With these changes, the legislator returns to the regulation that was in force prior to the June amendment.

  • Restriction of the state’s right of pre-emption

The extension of the right of pre-emption is also excluded from the provisions of the Act, meaning that, going forward, the State will not have a right of pre-emption, except in the case of strategic companies engaged in activities related to solar power plants.

  • Extended deadline for pre-emptive rights in the qualified sector

Under the Act, in the qualified energy sector, the time limit related to the State’s pre-emption right exercised through MNV Zrt. is increased – in deviation from the regulatory provisions – from 60 working days to 90 working days, counted from the date of receipt of the notification sent to the notifying party. At the same time, the response period of the minister responsible for energy policy in this matter is also doubled, i.e., increased from 15 working days to 30 working days.

  • Possibility of contesting the decision

From August 19, 2025, prohibitive decisions may be challenged in administrative court proceedings in numerous cases. For example, the prohibitive decision concerned may be contested if the Minister assessed incorrectly that the conditions establishing the notification obligation specified in the Act were fulfilled.  This right can still only be exercised at the Budapest-Capital Regional Court. Another new feature is that immediate legal protection is now also available in the event of an appeal. However, it is questionable whether the provision of further legal remedies in itself influences foreign investors during the stage of considering the structure of their investments.

Summary

Given that, according to our current knowledge, the provisions of the Act – will be applicable until December 31, 2026, foreign investors and Hungarian companies should take into account that the State will continue to have very widespread rights during transactions related to company acquisitions (M&A). It can be considered a positive step forward that, on the one hand, the scope of the State’s right of pre-emption is being narrowed and, on the other hand, the possibility of legal remedy against prohibitive decisions is being introduced. However, in overall, Hungarian regulations remain strict compared to international standards. It is therefore advisable to carry out a classification at the planning stage of the transaction, and to consider the possibility of state intervention in the letter of intent and the contract.

Image source: Andrea Piacquadio, pexels.com

New provisions on foreign direct investment Read More »

The deadline for publishing annual accounts is approaching – company law matters to do

News, Corporate law / / , , ,

The preparation and approval of annual accounts is an important part of the operation of any company in each year and requires the involvement of an auditor if certain conditions are met. Depending on the outcome of the accounts, there may be cases where the capital situation needs to be reviewed and adjusted. In this newsletter, we set out the main points to be noted with regard to the general deadlines for the adoption and publication of the annual accounts.

The importance of the annual accounts

The annual accounts of companies required by Act C of 2000 on Accounting (the “Accounting Act“) must be published annually by the last day of the fifth month following the balance sheet date of the financial year in question, i.e. 31 May for companies with a financial year ending on 31 December and are available to the public.

The purpose of the accounts is to give a true and fair view of the assets, liabilities, financial position and profit or loss of the company and of changes in those assets and liabilities, including to enable third parties to obtain a true and fair view. The accounts include the company balance sheet, which details the company’s assets and liabilities, and the profit and loss account, which shows the company’s assets and liabilities for the previous year and the current year in a comparable manner.

Necessity of an audit

The preparation of the accounts is essentially the responsibility of the management, and their adoption is the responsibility of the supreme body. Under certain conditions, the adoption of the accounts may be subject to an audit. This includes the auditor’s responsibility to determine whether the annual accounts have been prepared in accordance with the law and whether they give a true and fair view of the company’s financial position.

The Accounting Act requires all companies keeping double-entry books to have a statutory audit. Exceptions to this requirement are those companies whose annual net sales did not exceed 600 million Hungarian Forints (until 31 December 2024, 300 million Hungarian Forints) on the average of the two financial years preceding the financial year under review, and whose average number of employees was less than 50. In other words, if any of these conditions are not met, the company is obliged to be audited. If the company is subject to an audit, the auditor’s report is a prerequisite for the lawful adoption of the annual accounts. Of course, companies that are not otherwise required by law to have an auditor may also decide to audit the accounting documents.

Appointment of an auditor

The appointment and engagement of an auditor is necessary for the company to be able to fulfil its audit obligations. The first auditor must be appointed in the instrument of incorporation. The mandate of the auditor must last at least until the adoption of the accounts following his/her election, with a maximum duration of 5 years. In view of this, the supreme body must decide on the election of an auditor several times during the operation of the company (at least every 5 years), which must be notified to the court of registry in the context of a change registration procedure. Once the appointment has been made and accepted by the auditor, the management must conclude a contract with the auditor within 90 days, in accordance with the conditions laid down.

In view of the above rules, companies typically determine the end of the auditor’s mandate by 31 May. With regard to the upcoming deadline for the adoption of the annual accounts, it is worth checking whether the company is required to have an audit and whether it currently has an appointed auditor to fulfil its obligations under the Accounting Act.

Capital position analysis

Once the annual accounts have been drawn up and adopted, the company’s economic result, which may be negative, becomes clearly visible. The Civil Code imposes a number of capital requirements on companies, which are not met if

  • the equity of the company decreased to half of its original value due to losses;
  • the equity of the company decreased under the minimum limit of initial capital determined by law (currently HUF 3 million for a limited liability company);
  • the company is threatened with insolvency or has stopped making payments; or
  • the assets of the company do not cover its debts.

In the case of limited liability companies, the law imposes an obligation to intervene, which must be remedied by the most appropriate and long-term solution for the company, and the result of which must be reported to the court of registry, if necessary.

There are a number of solutions to remedy a negative capital situation, but they will only be effective if they respond to the cause of the capital shortfall and take into account the short and long-term company law related effects. Experience over the years has shown that we always recommend that, in addition to our company law lawyers, accountants and auditors should be involved in preparing the appropriate decision – even before the adoption of the accounts, if necessary.

Image source: Nataliya Voitkevich, Pexels.com

The deadline for publishing annual accounts is approaching – company law matters to do Read More »

The most important, recent changes affecting the Accounting Act

News, Corporate law /

At the end of last year, Act LV of 2024 on amending certain tax laws was published, which, among other things, amends certain provisions of Act C of 2000 on Accounting (the “Accounting Act“). In our article, we summarise the most important changes of the Accounting Act.

Changes effective from 29 November 2024

  • Consequences of non-compliance with the audit requirement

If the company fails to comply with any publication or deposit obligation under the Accounting Act, including the auditing obligation, any third party (e.g. natural person, legal entity, public authority) may initiate a legal supervisory procedure before the Court of Registry.

  • New provisions relating to sustainability reporting

The Accounting Act states that companies who are required to prepare a sustainability report or a consolidated sustainability report, as well as persons who voluntarily undertake to do so, must appoint an auditor or audit firm that is a member of the Chamber of Auditors and has a sustainability qualification. The result is that only an auditor with a specific qualification can proceed in the case of a sustainability report. This circumstance shall be taken into account when engaging and appointing the auditor concerned. According to the transitional provisions, in the case of the sustainability report and consolidated sustainability report for the financial year 2024, instead of the company’s supreme body the management of the company will elect the auditor or audit firm that is a member of the Chamber of Auditors, no later than the balance sheet date.

 Changes effective from 1 January 2025

  • Increase in the threshold for statutory audit

As a general rule, all double-entry bookkeepers must be audited. However, there are exceptions to this obligation, subject to certain thresholds and number of employees. The Accounting Act has amended (doubled) the threshold amount, so that an audit is not required if, on average over the two financial years preceding the financial year

  • the company’s annual net turnover did not exceed HUF 600 million, and
  • the average number of employees of the company did not exceed 50.

If any of the above conditions are not met, the company is obliged to be audited.

The amended conditions apply for the first time to the accounts for the financial year starting in 2025.

  • Changes for the threshold for simplified annual accounts

Another general rule is that companies that keep double-entry accounts must prepare annual accounts and annual reports. However, there is indeed an exception to this rule, depending on the threshold and the number of employees. In view of the doubling of thresholds, a double-entry bookkeeper may now prepare simplified annual accounts if, for two consecutive financial years, any two of the following three values do not exceed the following thresholds at the balance sheet date:

  • the balance sheet total does not exceed HUF 2000 million,
  • the annual net turnover does not exceed HUF 4000 million,
  • the average number of employees in the financial year does not exceed 50 persons.

The general rule is that the new, increased thresholds apply to the accounts for the financial year starting in 2025, but the companies may choose to apply the higher thresholds for the financial year starting in 2024 .

In light of the entry into force and applicability of the above accounting rules, all concerned parties are encouraged to consider to what extent and in what way they affect their current and future operations and practices.

(Image Source: Tima Miroshnichenko, pexels.com)

The most important, recent changes affecting the Accounting Act Read More »

New year’s changes related to TEÁOR codes

News, Corporate law / / ,

Introduction

Over the last two decades, the economy has undergone a major transformation, as a result of which the previous statistical classification of economic activities (“TEÁOR”) could no longer adequately reflect real business processes. In response to that, the European legislator has amended the NACE classification system, which means that from 1 January 2025, TEÁOR’08 – used since 2008 – will be replaced by TEÁOR’25. In our article, we have collected the most important information and obligations related to the change of TEÁOR.

The process of the conversion:

  • In case of the main activity

As of the first days of January 2025, the Hungarian Central Statistical Office (“KSH”) has converted the main activity codes of all economic entities according to TEÁOR’25, which will automatically change the statistical identifier of all companies. It must be stated that it is possible that the new main activity automatically defined by the KSH may not fully reflect the real business activity of the enterprise, as the scope of activity defined under the previous classification may have been split into several different new classification categories.

  • In case of other business activities

In the case of other business activities, the National Tax and Customs Administration of Hungary (“Tax Authority”) carries out the conversion. However, for these activities, the Tax Authority only performs its task if the codes are clearly conversable according to the official translation key (i.e. 1:1 correspondence between the old and the new TEÁOR system). Therefore, in cases where an activity code cannot be converted explicitly (i.e. the previous code is split into several parts), the Tax Authority does not modify the activities. In that case, if the entity concerned does not initiate the change to the new nomenclature by 30 June, the non-transferable activity will be deleted.

The KSH also informs businesses about the change of the main activity via the company gate, at the same time the codes of the translated main activities will be sent to the Tax Authority. The Tax Authority is obliged to forward the main activity codes it receives, and other activity codes converted by itself to the company registration authority by 31 January at the latest. Companies will therefore also be able to find out their activity codes according to TEÁOR’25 through the Companies Gazette and the services of the company information service available on the internet for a free of charge.

If the company concerned does not wish to accept the main activity code set by the KSH, or if the automatic conversion of other activities has not been carried out, it may request the NAV to amend the activities concerned or to record new activities by 30 June, using a form provided for that purpose. If a company does not initiate the change, that will be deemed to have accepted from 1 July. As a result, the main activity code will be the one provided by the KSH, whereas other business activity codes that cannot be expressly converted will be deleted by 31 August at the latest.

Tasks in connection with the articles of association

Given that only the company itself can amend its articles of association, the question may arise as to the timing at which companies need to implement changes related to the new TEÁOR codes.

Although the wording of the legislation and the information letters issued by the authorities raise a number of questions of interpretation, in our view, an enterprise that accepts the code automatically translated by the KSH for its main activity must amend its articles of association at the first other data change (affecting the articles of association and the register of companies itself) after 1 July. On the other hand, if the company concerned does not agree with the translated code, it must notify the new TEÁOR code identifying its main activity to the Tax Authority (by 1 July at the latest) on the basis of the new TEÁOR’25 code and at the same time arrange to notify the change in the data in its articles of association to the commercial court by amending its articles of association.

Companies are required to transfer changes to other activities and to initiate the corresponding change registration procedure when they make their first change to their data in the other companies register after 1 July.

An advantage in relation to the amendment of the instrument of incorporation is that the procedure at the Court of Registration is free of charge of fees and publication costs if the amendment of the instrument of incorporation is made solely to comply with TEÁOR’25.

Summary

It is clear from the above that the shift to TEÁOR’25 will affect all economic operators. To ensure that the changes take place in accordance with the real economic activity of the company, it is worth monitoring the process, and in the first weeks of February comparing the former and current status, so to ensure that the company’s list of activities is uptodate.

(Image source: Adem Podrez, Pexels.com)

New year’s changes related to TEÁOR codes Read More »

CLVPartners
Powered by  GDPR Cookie Compliance
Privacy Overview

This website uses cookies so that we can provide you with the best user experience possible. Cookie information is stored in your browser and performs functions such as recognising you when you return to our website and helping our team to understand which sections of the website you find most interesting and useful.