Hungary, a country located in the heart of Europe, is increasingly asserting its position as an attractive destination for international investors and businesses. With its strategic geographical location, Hungary serves as an ideal gateway to access the vast and potential market of the European Union (EU). Besides the advantage of location, the business environment in Hungary is also highly appreciated for its friendliness and openness to foreign investors. Moreover, the Hungarian government also pays special attention to attracting investment by issuing many attractive tax incentives and diversified investment support programs, creating maximum favorable conditions for the sustainable development of businesses. What types of companies can investors choose when establishing a company here? Viet An Law would like to provide some information through the article below.
Limited liability: This is the core factor, protecting the personal assets of capital contributors. Their liability for the company’s debts is limited to the extent of the capital they have contributed.
Charter capital: Hungarian law stipulates that the minimum charter capital for Kft. is 3 million HUF (equivalent to about 8,000 EUR).
Membership: Kft. can be formed by one or more members, with a maximum limit of 50 members. Members can be individuals or legal entities.
Management: The management of the company is carried out by one or more managers (often called executives), who are elected by the members.
Transfer of contributed capital: The process of transferring contributed capital is usually specified in the company’s charter and may require the consent of other members.
Outstanding advantages:
Protection of personal assets: Limited liability helps minimize financial risk for members.
Relatively low charter capital requirements: The minimum capital level creates favorable conditions for many investors.
Simple incorporation procedure: Compared to more complex types of companies, the Kft. formation process is usually quick and less complicated.
Flexibility in management and operations: This model allows members to have flexibility in making decisions and managing business operations.
Some limitations:
Number of Members Limit: The maximum number of members is 50.
Regulations on the transfer of contributed capital: The transfer may be bound by the provisions of the company’s charter.
Private Joint Stock Company
A Private Joint Stock Company (Zrt.) in Hungary is a legal form of enterprise that is preferred by business units that are larger in size or do not have the goal of listing shares on the public stock market.
Main legal features:
Shareholding structure: Zrt. operates as a legal entity with charter capital divided into shareholdings. Shareholders who hold shares will have rights and obligations corresponding to the number of shares they own.
No public trading: The most important difference from a Public Joint Stock Company (Nyrt.) is that Zrt. shares are not allowed to be widely traded on the stock market. The transfer of shares usually takes place through internal transactions between existing shareholders or under private agreements.
Charter capital: Hungarian law stipulates that the minimum charter capital for Zrt. is HUF 5 million (equivalent to about EUR 13,000), which is higher than the requirement for Kft.
Shareholders: Zrt. can have an unlimited number of shareholders, including individuals and legal entities.
Management structure: The management of Zrt. is usually carried out by a board of directors, and there may be a chief executive officer (CEO) who is responsible for running the day-to-day operations. The management structure is usually more complex and professional than Kft.
Variety of share types: Zrt. shares can be issued in a variety of forms, such as preferred shares or common shares, with different benefits available to each type of share.
Outstanding advantages:
Ability to raise large capital: With a higher charter capital, Zrt. is able to attract a larger amount of investment capital to serve development and expansion projects.
Professional management structure: The joint-stock company model usually comes with a more methodical and professional management structure, suitable for large-scale and complex businesses.
Flexibility in attracting private capital: Zrt. can issue shares to attract capital from private investors, investment funds, or strategic partners in a flexible manner.
Premise for future listing (if any): The establishment of Zrt. can be considered an important preparation step for businesses with a vision of listing shares on the stock exchange (becoming Nyrt.) in the future, when all necessary conditions are met.
Some limitations:
More complex incorporation and management procedures: Compared to Kft., the process of establishing and managing Zrt. often requires compliance with legal regulations and more complex administrative processes.
Higher charter capital requirements: A higher minimum charter capital level can be a factor to consider for businesses with limited capital.
Limited share liquidity: Due to not being publicly traded, the transfer of shares may face certain difficulties compared to listed companies.
Public Joint Stock Company
The Public Joint Stock Company (Nyrt.) represents the most advanced corporate legal form in Hungary, for businesses with a strategic vision and desire to raise large capital from the public through the issuance and trading of shares on the stock market.
Main legal features:
Public Listing and Trading: The core of Nyrt. is that the company’s shares are allowed to be listed and traded on the Budapest Stock Exchange (BSE), facilitating access to capital from the broad investment community.
Minimum charter capital: Hungarian law stipulates that the minimum charter capital for Nyrt. is HUF 20 million (equivalent to about EUR 52,000), which is the highest level of capital among popular types of companies.
Unlimited Shareholders: Nyrt. can attract the participation of a large number of shareholders, including individual investors and financial institutions.
Professional governance structure: With its public nature and large scale, Nyrt. usually has a complex and professional governance structure, including a board of directors and specialized committees, which strictly comply with corporate governance regulations.
Mandatory information transparency: Nyrt. companies must comply with strict regulations on periodic financial reporting and public disclosure, ensuring high transparency and protecting the interests of investors.
High liquidity: Due to being traded on the stock exchange, Nyrt.’s shares are highly liquid, facilitating trading.
Outstanding advantages:
Large-scale capital mobilization: Listing on the stock exchange opens up opportunities to access significant capital from the public, strongly supporting the expansion and development plans of businesses.
Enhance brand reputation and value: Becoming a public company is often accompanied by an increase in brand reputation and value, strengthening the trust of customers, partners, and investors.
Expand market reach: Listing can help strengthen brand recognition and facilitate more entry into new markets.
Facilitate M&A transactions: The company’s shares can be used as a tool in mergers and acquisitions.
Promotes work motivation: Stocks can be used as a reward or incentive for employees, contributing to motivation and engagement.
Some limitations:
High charter capital requirements: Significant minimum charter capital levels can be a barrier for some businesses.
Complex incorporation and management process: Complying with the legal and governance regulations of a public company requires significant complexity and cost.
High Compliance Costs: Nyrt. companies face significant costs associated with financial reporting, information disclosure, and compliance with stock market regulations.
Pressure from the market: Public companies face close scrutiny from the market for their performance and stock price movements.
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