Why is it worth setting up an Ltd.?

Today, more and more people are thinking about starting their own business. For them, there are several different types of company. In Hungary, the most popular and widespread type of company is the limited liability company, which is primarily suitable for businesses that require a larger initial investment and promise higher returns.

The advantage of a limited liability company is that it can be set up by several people or even by a single individual, a business company. A fixed amount of share capital is required to set up the company. The share capital is the sum of the share capital contributions of each member, which together must amount to HUF 3,000,000, the minimum amount for which the company can be registered. The existence of share capital demonstrates to other market participants that the company is a reliable enterprise, and therefore the limited liability company is perceived more favourably by the market than a sole proprietorship or a limited partnership. The amount of the share capital does not have to be paid up in full at the time of incorporation, but in this case the articles of association must provide for the amount and the time limit for the payment of the capital. The actual subsequent payment must be notified to the Commercial Court. The company may make payments to members out of its own capital only in the form of dividends and advances on dividends, in accordance with the provisions of the Accounting Act. However, no dividend may be paid until the share capital has been fully paid up. Dividend advances may only be paid if the articles of association so provide or if the members undertake to repay the advance.

As the name suggests, the members of the Ltd. have limited liability towards the company, up to the amount of the contribution of assets provided by the members. However, the managing director of the company is an exception, being liable with all his assets for the debts of the company and for any damage caused intentionally. The law does not specify the number of members, but it does stipulate that the capital contributed by each member must amount to HUF 100 000. The members of the company have equal rights, but the proportions of voting rights and the share in the profits may differ from the proportion of the share capital. Members’ contributions may be in cash or in kind. Non-monetary contributions, also known as contributions in kind, may consist of any marketable asset, intellectual property or right of pecuniary value. The most common are assignment of a recognised claim, real estate or even machinery and equipment related to the company’s activities. A limited liability company can also be set up solely by making a contribution in kind.

The speed of company formation is also an advantage, as the company can be registered in a simplified company procedure in 1-3 working days, and the formation is also free of duty. The name, registered office, activities, members, share capital and the appointment of a managing director are essential requirements for company formation. A company may not be formed without a managing director, who may perform his duties on an agency or employment basis and may be a member of the company or a person outside it. The name of the company must be chosen from among those not already included so as not to be confusingly similar to the name of an existing company, and the name of the limited liability company must always be indicated. The main activity of the company must be set out in the articles of association, the number of additional activities is not limited by law, but must be categorised according to the TEÁOR structure and registered with the Companies Registry.

The supreme body of a limited liability company is the general meeting of members, which must be convened at least once a year, and a resolution passed by at least three-quarters of the members is required to dissolve the company.

If you have any questions about the establishment of a company, please contact us!