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Hungary Limited Liability Company (LLC)

A Hungary Limited Liability Company (LLC) is very popular with foreigners. The Hungarian Company Law of 2006 (Article 4) regulates Business Associations including Limited Liability Companies which use the abbreviation “Kft.”. This law is known as the “Companies Act”.

Foreigners can own 100% of the shares in a Hungary LLC.

Background
Hungary is located in Central Europe. Its political system is a unitary parliamentary constitutional republic with a President, Prime Minister, and a National Assembly. It is a former Soviet Republic which gained its independence in 1989 and joined the European Union (EU) in 2004.

Benefits

A Hungary Limited Liability Company (LLC) has these benefits:

100% Foreign Ownership: Foreigners can own 100% of the shares in a Hungary LLC.

Limited Liability: Members liabilities (can be also single member company) to the company extends only to their capital contributions.

Low Cost Fast Registration: Online registration is available which is fast and low cost.

One Member/Manager: Only one member and one manager are required which can be the same person or legal entity from any country.

Lowest Corporate Tax in Europe: The corporation tax rate is only 9%, the lowest in Europe. However, U.S. taxpayers and all others residing in countries taxing global income must report all income to their tax authority.

Member of the EU: Hungary joined the European Union in 2004.

Company Name
The LLC must select a company name which is not similar to any other legal entity’s name in Hungary. Every LLC name must end with the abbreviation “Kft.”.

Registration
There are two ways to register a LLC in Hungary with the Court of Registration:

1. Online: This is the fastest method for registration. However, either an attorney or notary must countersign the Deed of Association and the application. An attorney is required during the entire registration process. The Hungary Companies Act provides a standard charter document which can be copied and filled in for faster registration online. Registration can be completed in one business day online.

2. The General Application: When the shareholders decide to use their own terms and conditions in the Deed of Association. This type of registration may take up to one week for approval.

Fee: Currently, LLC’s general application registration fee is 100,000 HUF which is approximately 335 Euro. Online registration has a reduced fee of 50,000 HUF (approximately 172 Euro).

Limited Liability
Members liabilities (can be also single member company) to the company extends only to their capital contributions (quotas). Members are not personally liable for the company’s liabilities and debts.

Members
A LLC may have one or more members (quota holders), which includes both foreign natural persons and foreign legal entities. Hungarian LLC’s label their shareholders as “members”. They are actually quota holders by owning a “quota” of the company’s total share. The Deed of Association should specify all the rights and privileges of the members including voting rights.

By law, profits cannot be distributed to members until all capital contributions have been paid in full.

Management
LLC’s do not have a Board of Directors. Management is performed by one or more managing directors.

At least one managing director must be appointed (who can be a member) who does not have to be a Hungarian resident. In addition, a legal entity can be the managing director of the company. The managing director(s) administer the company’s daily affairs. The Deed of Association will specify the managing director(s) duties and obligations. Managing directors must keep records of all financial matters and meeting minutes and adopted resolutions. Under the Companies Act, managing directors are considered executive officers of the LLC.

The managing directors may only be removed by a resolution supported by at least 75% of the members.

Company Manager
The Companies Act also provides for the appointment of a company manager. The managing director oversees and manages the company manager who is regarded as an employee for the company. The law allows the company manager to represent the company before third parties and the government including signing documents on the company’s behalf.

However, the Deed of Association can limit the responsibilities for the company manager such as signature rights on behalf of the company.

Audits
An auditor can be appointed for the company, but one is not required. The auditor will perform audits of all financial documents as specified by the Hungary Accounting Act.

An annual report is required to be filed with the government related to the company’s business activities which must conform to applicable laws. The report will provide an accurate view of the company’s assets, financial position, liabilities, profits and losses.

Required Minimum Share Capital
A Hungary LLC minimum share capital currently is 3 million Hungarian Forints (approximately 10,000 Euro) which does not have to be paid in full at the time of registration. Member’s contributions can be in cash or in kind in varying value. However, the value of each contribution may not be less than one hundred thousand forints (approximately 300 Euro). The Deed of Association must specify the due date and method of payment for every unpaid capital contribution. All cash contributions must be paid in full within two years of the company registration.

Taxes
The corporation tax rate is 9% which is the lowest in Europe.

However, U.S. taxpayers and all others residing in countries taxing global income must report all income to their tax authority.

Annual General Meetings
Annual general meetings are required. LLC’s have more flexibility in regards to how general meetings are called for and held. In addition, the members can adopt resolutions without a formal meeting by using the written resolutions procedures specified in the Deed of Association.

The Deed of Association determines how often and where physical meetings occur. However, the members’ meeting must have a quorum of at least half of the initial capital or the majority of the eligible votes being represented.

Public Records
The public records will include the names of the members and managing director(s) along with the bank accounts of the company which are accessible to the public. Minority quota holder’s names will not be included in the company register with the government.

Time Required for Registration
The typical time period required for the formation of a LLC online is one business day. However, filing manually with unique Deed of Association may take up to one week.

Shelf Companies
Shelf LLC’s are available in Hungary to purchase for faster registration.

Conclusion

A Hungary Limited Liability Company (LLC) has these benefits: 100% ownership by foreigners, limited liability, simple and fast online registration at a low cost, only one member required who can also be the sole managing director, a member of the EU, and has the lowest corporate tax rate in Europe.