In this information letter we would like to draw your kind attention to the importance of handling equity situation.

Since the introduction of the Online Reporting System (called in Hungarian Online Beszámoló Rendszer) in 2016, the Court of Registry is almost immediately able to control the capital situation of the companies, and if the company does not solve it in time, it may even initiate involuntary de-registration procedure.

The consequences of involuntary de- registration procedure can already be very serious. Examples of serious disadvantageous consequences:

• The default penalty for any infringement have to be established by the tax authority to the executive officer (Act CL of 2017. Section 12.)
• The court of registry shall disqualify the company’s executive officer registered at the time of the initiation of the involuntary de-registration procedure or in the previous year, or a member with majority control in a business association whose members have limited liability. The disqualified person shall not be an executive officer or a member with majority control in other company for 1-5 years (Act V of 2006., section 9/C)

What to do in case of capital loss?

1. Sudden loss of capital

If due to losses

• the limited liability company’s equity dropped to half of the initial capital (in case of public limited company to two-third of the shared capital) or

• the equity dropped below the amount limit defined by law,

the managing director shall without delay convene the members’ meeting, or initiate its decision- making process without having to hold a meeting (the management board shall, with simultaneous notice to the supervisory board, call a general meeting within a period of eight days, or initiate a decision- making process without having to hold a meeting) and the members (the shareholders) are required to adopt decisions, in particular, concerning the subscription of supplementary capital contributions or on securing the initial capital in other ways, on any reduction of the initial capital (at public limited company share capital). Or in the absence of all these, on the company’s transformation, merger, division or dissolution without succession. The related resolutions of the members’ meeting shall be carried out within three months or the company’s equity (in case of public limited company share capital) must be reduced.

2. Slow capital loss

If a business association’s equity is not sufficient to cover the subscribed capital prescribed for its specific corporate form over two consecutive financial years, and the members fail to provide for the necessary equity within a period of three months after approval of the annual account for the second year, the business association shall be required to adopt a decision within sixty days of this deadline for its transformation. Instead of transformation the business association may opt dissolution without succession or for merger.

We inform You that as per Act V of 2013 on the Civil Code (the new Civil Code) the mandatory minimum of the subscribed capital for the various enterprises is as follows:

• For limited liability companies (Kft.): HUF 3 million
• For private limited companies (Zrt.) HUF 5 million
• For public limited companies (Nyrt.) HUF 20 million
• For limited partnerships and general partnerships (Bt. and Kkt.) there is no mandatory minimum

If the company does not comply with the requirements, the court of registry may initiate a judicial oversight proceeding within thirty days of gaining knowledge and if the company’s equity does not meet the requirements defined by law, the court of registry can even start a releasing process from the company register.

We suggest that the equity be reviewed for compliance with legal requirements and if necessary, the equity be settled as soon as possible.

In consideration of the emergency situation, if the publication deadline of the financial statement of the Company is between 22.04.2020 – 30.09.2020., then the three months term shall be deemed from the date of acceptance of the financial statement of the previous year.

This document can be downloaded in PDF format by clicking on this link: Capital situation