The primary act of law in Hungarian company law is Act 4 of 2006 on Business Associations (Companies Act). The main types of business associations under the Companies Act are identical to those regulated in EU countries. The procedures on founding, implementing changes in data and winding up of Hungarian associations are primarily governed by Act V of 2006 on Public Company Information, Company Registration and Winding-up Proceedings (Company Procedures Act).
Under the Companies Act, business associations may be founded by non-resident and resident natural persons, legal persons and business associations without legal personality. Hungarian laws do not provide an exhaustive list of legal persons but, on the basis of the Civil Code, state, municipal, business, social and other organisations may have legal personalities. International treaties may contain regulations in derogation from these provisions in respect of the participation of non-residents in Hungarian business associations.
The law may require a special permit from the authority for the foundation of a business association (foundation permit), such as, for instance, companies with an interest in financing, insurance or capital market activities, which may only be founded with approval from the Hungarian Financial Supervisory Authority (PSZÁF). Where authorisation by the authority is prescribed as mandatory by law to engage in a certain economic activity, the business association can be founded and registered but it may only begin and pursue the activity in question when in possession of such authorisation. Activities subject to qualification may only be pursued by business associations if there is at least one person among its participating members, employees, or persons working for the benefit of the company under a permanent civil law contract concluded with the business association who satisfies the qualification requirements set out in the legal regulations.
FOUNDING OF BUSINESS ASSOCIATIONS:
General partnerships, limited partnerships, limited liability companies, single member companies or private limited companies may be founded in a simplified procedure by enclosing with the application for the registration of the company the deed of foundation drawn up on the basis of a template in the annex of the Company Procedures Act.
For a detailed description of the procedure, please refer to the “Starting up in Hungary” section.
TERMINATION AND TRANSFORMATION OF BUSINESS ASSOCIATIONS:
Business associations may be terminated with or without a legal successor. Cases of termination without a legal successor:
- the period of time specified in the articles of association expires or any other condition of termination is realised;
- the company’s supreme body has adopted a decision for the company’s termination without succession (voluntary winding-up or liquidation);
- the number of members of the business association decreases to one, except for limited liability companies and companies limited by shares;
- it is terminated by the court of registration for reasons provided for in the Companies Act;
- it is required to do so by law.
If the business association is terminated by liquidation, the provisions of Act XLIX of 1991 on Bankruptcy and Liquidation Proceedings shall apply.
A business association is terminated with succession in the case of conversion, merger and demerger. ‘Merger’ means the operation whereby two or more business associations are wound up without going into liquidation and the companies combine as one legal entity. ‘Demerger’ of a business association is when the business association is split into two or more business associations.
The rules for transformation are contained in the Companies Act and the Accounting Act.
BRANCH OFFICES AND COMMERCIAL REPRESENTATIVE OFFICES:
Foreign entrepreneurs may conduct their business in Hungary by opening a branch office in the country. Such a branch office is a separate organisation unit of the foreign business association without legal personality registered by the Hungarian court of registration. Through their branch offices, foreign business associations are entitled to carry out business activities in Hungary and are represented towards the authorities and third parties by their branch offices. The branch office has full legal capacity, it acquires rights to the benefit of and assumes liabilities for the foreign enterprise under its own company name.
Each branch office shall be registered to the company registry. Branch offices may be represented by natural persons employed at or assigned to the branch office or with a permanent contract of employment and a domestic place of residence. Representatives of branch offices and their close relatives may only conclude transactions within the activities of the branch office if the deed of foundation of the branch office or the foreign business association approves it.
The laws applicable to companies with domestic registered offices apply to the business activities and the domestic business behaviour of branch offices, and its books shall be kept in accordance with the Hungarian laws on accounting. Special rules apply to the branch offices of foreign businesses conducting financial activities. The employees of the branch office are in employment relationship with the foreign business association and employer rights are exercised by the foreign business association through its branch office.
A commercial representative office is an organisational unit of a foreign company without a legal personality, which can operate from the time it is registered in the company register. The scope of activities of commercial representation offices are limited to mediating and preparing contracts and carrying out information, advertising and propaganda activities on behalf of the foreign company.
In their own names, commercial representative offices may not conduct business activities that yield profits or other proceeds; however, they can conclude contracts related to their operation in the name and for the benefit of the foreign company. The same employment rules apply to commercial representative offices as to branch offices.
The rules of labour law are regulated in Act I of 2012 (Labour Code). The regulation is very similar to the labour laws of other European countries in that it has only minimum requirements as to the content of employment contracts. Employment contracts, modification and termination of employment must be incorporated in writing. Employment contracts are usually concluded for an indefinite period of time.
At the beginning of the employment relationship, the parties may specify a probationary period for a maximum of three months, or in case of a collective bargaining agreement for a maximum of six months. Employment contracts may also be signed for definite terms but the extension thereof requires the existence of the legitimate economic interest of the employer, and the period thereof may not exceed 5 years together with the extension of the contract.
Termination of employment is usually based on mutual agreement of the parties or a unilateral notice given by one of the parties. Note that the employer is required to provide a reason for its termination of the employee’s contract and that the reason must be realistic and rational. Employees may terminate their employment by notice without the obligation to provide a reason. In case of termination with immediate effect, both the employer and the employee are required to provide a substantial and verified reason. Employees have a 30-day forfeit period for legal remedies if the reason provided for the termination with notice or with immediate effect is contrary to the law.
Even though the law has provisions for part-time employment and distance working (“home office”), these methods are not yet widely used. Regular working hours are 40 hours per week, Monday to Friday. Working time conditions (e.g. the ceiling) and extra payment for overtime are strictly regulated by the law.
The annual paid holiday is 20 workdays, which increases with the age of the employee in categories with the maximum being 30 days. Pregnant women are entitled to 24 weeks of maternity leave. By the main rule (i.e. in the case of one healthy child), childcare benefit is available until the child reaches the age of 3. The labour law protects women on maternity leave and those receiving childcare benefit against regular termination of their employment. The age limit for the full old-age pension varies between 62 and 65 years depending on the date of birth.
Citizens of EU member states and their family members may be employed in Hungary without a work permit since 1 January 2009. For statistical purposes the employer is required to report the employment data of EU citizens to the employment centre.
No residence permit is necessary for EU citizens who plan to spend more than 3 months in the country for employment purposes. Nevertheless, they are required to report the details of their extended stay to the Office of Immigration and Nationality and to apply for a residence card.
With a few exceptions, non-EU citizens need work permits to work in Hungary. Individual work permits are usually valid for a maximum of 2 years with the option of extension for another 2 years. Officially, the employee applies for the work permit, but first the employer must document that they had already tried to fill the position with a Hungarian citizen with the help of the employment centre. Non-EU citizens may only begin their employment in Hungary after they have obtained all permits and documents necessary for their employment.