Shareholders' Rights & Shareholder Activism 2023 Comparisons

The following companies may be formed in Hungary.

• An unlimited partnership (közkereseti társaság – Kkt) is a company consisting of at least two members, whose liability is unlimited for the debts of the company. There is no minimum registered capital requirement.
• A limited partnership (betéti társaság – Bt) is a company consisting of at least two members. At least one member’s liability is unlimited for the debts of the company, while at least one other member’s liability is limited to the amount of that member’s capital contribution. A Bt has no minimum registered capital requirement.
• A limited liability company (korlátolt felelősségű társaság – Kft) is a company consisting of one or more members, whose interests in the Kft are represented in the form of business quotas (shares) corresponding to their capital contribution to the company’s registered capital, and expressed as a percentage of the registered capital. The liability of the members is limited to their capital contributions. The minimum registered capital required in respect of a Kft is HUF3 million.
• A private company limited by shares (zártkörűen működő részvénytársaság – Zrt) is a company with one or more shareholders, who subscribed to the shares issued in a pre-determined number and nominal value. The members’ participation interests take the form of shares; the liability of the shareholders is limited to the provision of their capital contribution (the issue value of their shares). The shares of a Zrt cannot be offered to the public. The minimum registered capital requirement of a Zrt is HUF5 million.
• A public company limited by shares (nyilvánosan működő részvénytársaság – Nyrt) is a company in which shares representing the company’s registered capital are offered and traded publicly. The minimum registered capital requirement of a Nyrt is HUF20 million.

Most companies are founded in the form of Kfts and Zrts. This chapter will focus on the regulation of Kfts, Zrts and Nyrts, due to the fact that unlimited and limited partnerships are economically less significant.

Both natural and legal persons, either Hungarian or foreign, may be members of companies.

However, a natural person can be a member with unlimited liability in only one company at a time (meaning, in practice, membership in a Kkt or a Bt). A person under 18 years of age may not be a member with unlimited liability, and a Kkt or a Bt may not have members with unlimited liability in another Kkt or Bt. A person may also be restricted from being a member of a company (except for holding shares in a Nyrt) by the court, due to a criminal punishment.

A person becomes a shareholder by acquiring shares in a company by way of establishing a new company, or by acquiring shares or subscribing to new shares in an existing company. Membership of a company is constituted by the acquisition of shares in the company. In Kfts, shareholders’ rights can be exercised after the company has been notified of such an acquisition; the registration by the director in the members’ list is not necessary for this purpose. However, in the case of Nyrts and Zrts, registry in the book of shares is necessary in order to exercise shareholders’ rights.

Most companies that foreign investors take part in operate in the form of a Kft or a Zrt. Unlimited and limited partnerships are, in general, economically less significant.

Screening of Foreign Investors

Measures for screening foreign investments were introduced in Hungary in January 2019. Under the relevant act, ministerial approval is necessary if:

• the investor qualifies as a foreign investor;
• the relevant transaction relates to certain specific strategic sectors defined by the law; or
• the relevant transaction qualifies as a triggering event.

These rules are relevant for natural or legal persons acting as direct or indirect investors holding a majority control in the investing company, who are registered or are resident outside the European Economic Area or Switzerland.

The law is only applicable if the current or planned activities of the Hungarian target company relate to certain strategic sectors as listed by the law. These include activities typically relevant to national security (eg, defence, dual-use products, cryptography and wire-tapping products) or government IT services, as well as key services in the financial, energy and telecoms sectors.

The law is applicable if any of the following triggering events occur.

• If in an existing Hungarian company:
1. a foreign investor acquires a direct or indirect participation interest exceeding 25% (10% in the case of Nyrts), either solely or together with other foreign investors;
2. a foreign investor acquires a dominant influence as defined by the Hungarian civil law, either solely or together with other foreign investors; or
3. a foreign investor whose ownership share already exceeds 25% wishes to extend the scope of activities of the company to the listed strategic activities.
• If a foreign investor establishes a new Hungarian company, in which the participation interest of the foreign investor would exceed 25% (10% for Nyrts).
• If a foreign investor registers a branch office in Hungary for the purpose of carrying out the listed strategic activities.

The minister shall be notified before the implementation of such transactions, and is entitled to block such a transaction if it “harms Hungary’s security interests”. This blocking decision may not be challenged before the Hungarian courts on substantive grounds (ie, questioning whether the transaction indeed has “harming” effects); it can only be challenged on the grounds of a serious procedural breach.

Regulation of Kfts

In Kfts, members have business quotas, which usually correspond to their capital contribution. Generally, all members are entitled to the same rights and obligations, which are usually proportionate to their quotas. However, members may deviate from this general rule in the articles of association and are free to set out their rights and obligations as they see fit by mutual consent, with a few restrictions provided by the law. For further details, see Main Rights Common to all Shareholders, below.

Regulation of Zrts

In Zrts, various types of shares may be issued, as follows:

• ordinary shares to which all main shareholders’ rights pertain;
• preference shares that give certain advantages over other shares and may include different classes according to the shareholders’ rights to which the preference pertains; this preference may exist relating to one or more of the following:
1. dividends;
2. participation in assets remaining after liquidation;
3. voting rights;
4. the appointment of board or supervisory board members; or
5. pre-emption rights in relation to the transfer of shares;
• employee shares issued to employees of the company without or for discounted consideration;
• interest-bearing shares, the holders of which are entitled to an interest calculated from the untied retained earnings supplemented by the previous financial year’s after-tax profit;
• redeemable shares that grant:
1. the company the right to purchase the shares;
2. the shareholders the right to sell the shares; or
3. the right to purchase for the company, and the right to sell for the shareholder; and
• other types of shares not listed here, which may be specified and set out in detail in the articles of association.

There are also certain legal restrictions on how high a percentage of the company’s share capital a certain type of share can constitute.

Shares may be printed or issued in dematerialised forms.

Regulation of Nyrts

Unlike the Zrt, in a Nyrt it is not permissible to issue certain types of preference shares, and further restrictions apply to the preference shares that may be issued, including:

• voting rights attached to a preference share ensuring priority voting rights may not exceed the voting rights corresponding to the face value of the share by a factor of ten;
• no preference shares ensuring priority rights with regard to the appointment of members of the board of directors or supervisory board may be issued; and
• no preference shares providing pre-emption rights may be issued.

If any of these types of shares were issued in a Zrt that wishes to enter the stock market and thereby become a Nyrt, such shares must be converted to ordinary shares or to the types of preferential shares that may be issued by a Nyrt.

Shares may be issued only in dematerialised form.

Primary Sources of Law and Regulation

The primary sources of law and regulation relevant to shareholders’ rights are the Civil Code (the general source of corporate law), the Act on Public Company Information, the Company Registration and Winding-up Procedure Act (mainly prescribing the registration of companies and their voluntary dissolution), the Bankruptcy Act (setting out the rules on liquidation), the Accounting Act (determining the accounting rules) and the Act on Screening of Foreign Investments.

Main Rights Common to All Shareholders

The main rights common to all shareholders are:

• participation in the decision-making of the company relating to essential business and personal matters via the shareholders’ meeting (voting rights);
• the right to access information relating to the company;
• dividend rights; and
• a decision on enforcing a claim of damages vis-à-vis the director, the member of the supervisory board or the auditor.

Deviation From Main Rights Common to All Shareholders

It is possible to vary the shareholders’ rights, either in a shareholders' agreement or in the articles of association. However, variations included only in a shareholders’ agreement and not in the articles of association are not effective vis-à-vis third persons.

Hungarian regulation provides significant freedom to shareholders in respect of the alteration of shareholders’ rights (as well as in relation to variations in the structure of a company pre-set by the law) in the articles of association, insofar as all variations are allowed, unless:

• the law explicitly forbids it;

• the derogation from the law clearly violates the interests of the company’s creditors, employees or minority members; or

• it is likely to prevent the effective legal supervision over the company.

For example, an explicit prohibition by the law is that no shareholder may be fully excluded from participation in the profits or the burden of losses in a company.

Minority Rights

Minority shareholders holding at least 5% of the voting rights in a company’s shareholders’ meeting (or 1% of the votes in the case of Nyrts), separately or jointly, may exercise the following rights.

• They may request that the director calls a shareholders’ meeting by indicating their reason and aim. The director shall convene the shareholders’ meeting at the earliest possible date. If the director fails to comply with this request within eight days of its receipt, the shareholders in question may apply to the court, and the court may call the shareholders’ meeting or may authorise the requesting shareholders to call the meeting themselves.
• They may request that the court of registry appoints an auditor if the shareholders’ meeting does not approve the proposal or fails to adopt a resolution regarding the appointment of an auditor in order to examine the last financial report of the company, or any act of the director of the company taking place within the last two years.
• They may initiate a proceeding themselves in the name of the company, if the shareholders’ meeting does not approve the proposal or fails to adopt a resolution regarding the enforcement by the company of a claim against the director, the supervisory board members or the auditor of the company.
• They may propose new items to the agenda of the shareholders’ meeting, and the meeting shall discuss those agenda items.
• They may, within one year of a payment, request that the court appoints an auditor, who will examine the relevant payment made by the company from its equity to the shareholders.

Right to Propose the Formation of a Supervisory Board

If shareholders holding at least 5% of the votes so request, a supervisory board shall be formed in Zrts (supervisory boards are obligatory in Nyrts and optional in Kfts).

Obligation of Qualified Shareholders to Purchase Shares

If a shareholder of a Kft or Zrt – directly or indirectly – acquires more than three quarters of the votes, the court shall be given notice of the acquisition of this qualified majority. Within 60 days of the publication of that qualified majority by the court, any minority shareholder of the company may request the shareholder who has the qualified majority to purchase the minority shareholder’s participation interest in the company at market value; such value may not be lower than the value these shares represent in the company’s equity.

Takeover Bids in Nyrts

It is possible to make takeover bids in Nyrts on a voluntary or obligatory basis. An obligatory takeover bid shall be made by the acquirer prior to:

• acquiring a shareholding that will result in the acquirer holding at least a 25% influence – as defined by the law – in a Nyrt, if no other shareholder holds more than a 10% influence in the company; and
• acquiring a shareholding that will result in the acquirer holding an influence of more than 33% in the company.

Within the takeover bid, the acquiring shareholder shall make an offer to purchase the shares of all other shareholders. This offer shall be approved by the respective authority and sent to and then published by the board of directors.

The other shareholders are entitled to accept this purchase offer within the period set out by the offer (which must be at least 30 days and at most 65 days). The purchase price shall be determined according to the rules defined by the law.

The articles of association of a Nyrt may prescribe that, if the bid would result in the offeror holding at least 75% of the shares to which voting rights are attached, the offeror would be entitled to convene a shareholders’ meeting in order to amend the articles of association or to remove or appoint board members and supervisory board members.

For companies operating with unlimited liability for one or more members, such as the unlimited partnership (Kkt) and the limited partnership (Bt), no minimum share capital (registered capital) requirements apply.

For companies where the liability of members/shareholders is limited, the following minimum rules apply:

• the registered capital of a limited liability company (Kft) must not be less than HUF3 million;
• the registered capital of a private company limited by shares (Zrt) must be at least HUF5 million; and
• the registered capital of a public company limited by shares (Nyrt) must reach at least HUF20 million.

In general, companies must have two or more members. If a partnership remains with one member, the law allows a grace period for the company to introduce a new member or to transform into another company form; otherwise, the company must be terminated.

However, a limited liability company (Kft) or a private company limited by shares (Zrt) may be established or may, as a result of changes in the members/shareholders, continue to operate as a one-member company. In a one-member company special rules apply – eg, the single member/shareholder has the right to directly instruct the company’s management and, under certain circumstances, if the company terminates without a legal successor, the single member/shareholder will bear extended liability for the company’s uncovered debts.

Members or shareholders may be resident in Hungary or other jurisdictions. Residents of foreign jurisdictions shall mandate and register a Hungarian resident private person or entity to serve as a delivery agent, for receiving and forwarding to the foreign resident shareholder the official deliveries sent to it by the commercial court or other authorities in matters concerning the company’s operation.

For further regulations with respect to foreign shareholders, see 1.2 Types of Company Used by Foreign Investors.

It is common in Hungary to enter into shareholders’ agreements or joint venture agreements for private companies, especially where the shareholders have special drivers regarding the company, or where the shareholders want to set forth special rights or procedures regarding the operation of the company, which they do not necessarily want to disclose to the public.

Shareholders’ agreements/joint venture agreements usually regulate the entire scope of the company’s organisation and operation, and the exercising of rights in and with respect to the company. They are enforceable in Hungary with the limitations set out below.

A shareholders’ agreement is not disclosed to the public and is binding only between its participants. Any breach of the agreement may result in consequences set out therein (eg, payment of a penalty) or in a legal dispute between the parties; however, the breaching act still remains valid vis-à-vis third parties.

In order to render the rules of the shareholders’ agreement binding in relation to third persons, the contracting parties must include it in the company’s articles of association, which also renders such rules public knowledge. Therefore, the shareholders usually conclude a shareholders’ agreement and (to ensure the enforcement of such rules vis-à-vis third persons) incorporate its rules into the articles of association, which they deem absolutely necessary and are willing to make public.

Public Company Limited by Shares (Nyrt)

In a Nyrt, matters that fall within the competence of the shareholders’ meeting must be resolved at a meeting. Therefore, the company must hold an annual general meeting (AGM).

Usually, decisions are made at the AGM on the following matters:

• approval of the company’s annual report (financial statement) for the previous business year;
• distribution of profits and payment of dividends;
• decision on the remuneration policy;
• approval of the reports submitted by the company’s bodies; and
• any further relevant matters that need to be decided and that are the competence of the shareholders’ meeting – eg, modification of the company's articles of association, increasing or decreasing the registered capital, or removing or appointing officers of the company.

The AGM must be called by publishing an invitation on the company’s website at least 30 days before the start date of the AGM. This notice period may not be shortened.

Private Company Limited by Shares (Zrt) and Limited Liability Company (Kft)

Private companies usually also hold an AGM where the decision on the distribution of the previous year’s profit is made, and other matters falling within the competence of the shareholders’ meeting may also be decided. However, for private companies the AGM may not necessarily be held in the form of a meeting, but the relevant decisions may be made by the shareholders – eg, in writing (unless the articles of association provides otherwise).

The meeting must be called by sending an invitation to the shareholders at least 15 days before the meeting (or a period set forth in the articles of association but, in the case of a Kft, no less than three days and no more than 15 days). The notice period must not be shortened. However, if the notice period was not respected but all shareholders are present and all of them consent to holding the meeting, the meeting can be held and resolutions may be made.

The notice to be given for general meetings other than AGMs is the same as for AGMs (see 2.1 Types of Meetings, Notice and Calling a Meeting).

However, for a public company limited by shares (Nyrt), unlike the AGM, the notice period may be shortened if a shareholders’ meeting is called in relation to special matters, such as a public bid regarding the company’s shares, or in the case of a successful public bid.

The notice period may be shortened for a private company limited by shares (Zrt) or a limited liability company (Kft), as described in 2.1 Types of Meetings, Notice and Calling a Meeting.

Person Responsible for Calling a Meeting

Generally, the directors are responsible for calling a shareholders’ meeting.

Shareholders may require the management to call a shareholders’ meeting, provided that those shareholders hold a certain percentage of the votes in the company’s shareholders’ meeting (5% in private companies and 1% in public companies). The shareholders need to indicate the reason and objective for the meeting in their request. If the management fails to call the meeting within eight days, upon request of the relevant shareholders the commercial court will call the meeting or authorise the relevant shareholders to call the meeting. The costs of the meeting must be paid by the requesting shareholders in advance. It will then be decided during the meeting itself whether the company or the requesting shareholders will bear the costs.

Invitation and Agenda

The director shall call the meeting by sending out an invitation, including the date and place of the meeting, as well as its agenda. The agenda shall include sufficient detail to enable the shareholders to formulate an opinion on the subjects to be discussed.

In addition, in Nyrts the wording of the proposed resolutions and the original and whole documents to be disclosed to the shareholders’ meeting, as well as the reports of the supervisory board on the respective matters and documents underlying the agenda items, shall be accessible to the shareholders. Simultaneous to the publishing of these, the documents related to the meeting must be sent electronically to those shareholders who had requested them.

In Kfts and Zrts, this invitation shall be sent at least 15 days in advance (or as set forth in the articles of association, but in a Kft not less than 30 days and not more than 15 days in advance), and in Nyrts it shall be published on the company’s website at least 30 days in advance.

Proposing New Agenda Items

Shareholders may propose new items to the agenda, provided that such proposals include sufficient detail to enable the other shareholders to formulate an opinion on the matter.

In Kfts, any shareholder may propose a new agenda item by sending this proposal to the other shareholders and the directors at least three days in advance of the meeting.

In Zrts, shareholders holding jointly at least 5% of the votes are entitled to propose new agenda items by sending the proposal to the board and the other shareholders within eight days of receiving the invitation.

In Nyrts, shareholders holding jointly at least 1% of the votes may also exercise this right by sending the proposal to the board within eight days of the invitation being published. In this case, the invitation shall be republished by the company with the new agenda item included.

In general, all shareholders are entitled to receive notice of a general meeting; the method for communicating such notice and the related information may vary depending on the form of company; see 2.1 Types of Meetings, Notice and Calling a Meeting and 2.2 Notice of Shareholders’ Meetings.

In addition to the information communicated to them in the notice/invitation for the meeting, shareholders of a company limited by shares may request further information from the management on the agenda items before the shareholders’ meeting, which the management shall provide.

Shareholders have further rights to obtain information from and regarding the company, including by inspecting the company registers.

General Rules

Companies shall publish their annual financial reports to the public.

Beyond that, if required by any shareholder, regardless of the amount of their participation interest, the director shall provide the shareholder with information regarding the operations of the company and allow access to the books and documents of the company. The director may request a written non-disclosure agreement before giving this information or providing access, and may refuse to provide information and/or access if:

• it would violate the company’s trade secrets;
• the requesting shareholder exercises its information right in an abusive manner; or
• the shareholder refuses to sign a non-disclosure agreement despite the director’s request.

Further Disclosure Requirements in Respect of Nyrts

Generally, public companies limited by shares (Nyrts) shall disclose essential details to the public on a regular basis regarding their financial position and the general course of their business, via publishing a half-yearly report and an annual report.

Nyrts shall also provide extraordinary disclosure of information to the public without delay or within the following business day regarding any information that concerns the value or yield of their securities issue, directly or indirectly, and which may have any bearing on the reputation of the issuer. Nyrts shall also notify the public according to the above, if they receive notice from any shareholder on their acquisition of a certain participation interest (see 3.4 Disclosure of Interests).

Shareholders’ Meeting

The shareholders’ meeting often makes its resolutions at a session – ie, a physical meeting of the shareholders. However, it is also possible to resolve on issues in writing, or to hold a virtual meeting (see below); this option was frequently used during the COVID-19 pandemic. Generally, both options are allowed if they are included in the articles of association.

Resolution in Writing

A resolution in writing may be initiated by the directors by sending the draft of the resolution to the shareholders. They shall be given at least eight days from the time of receipt to send their vote to the management, either via post, mail or electronically (for the latter, see details below). The general rules of quorum and voting majorities apply. The directors determine the outcome of the voting within three days of receiving all votes (or after the deadline for casting votes has expired) and shall convey the results in writing to the shareholders within an additional three days.

Resolutions may not be rendered in writing in Nyrts.

Virtual Meetings

Shareholders can also hold a virtual shareholders’ meeting by means of electronic communication instead of attending in person, if the articles of association define the electronic communications equipment that allows the identification of the shareholder, as well as the mutual and unrestricted communication between them. During the pandemic (at least until 31 December 2020), this was also possible without the above being included in the articles, unless the articles specifically excluded this way of making resolutions. The virtual meeting and the resolutions rendered therein shall be recorded in a way that may be inspected later, and the directors shall prepare the minutes thereof.

The rules of a virtual meeting are set out in detail by the law on Zrts and Nyrts. The rules include that the shareholders may decide whether they wish to participate in person or virtually, and that they shall indicate their decision to the management five days in advance. No virtual meeting may be held if shareholders holding at least 5% of the voting rights object.

Electronic Communication

Shareholders may communicate with the company and the company may communicate with the shareholders via e-mail if such is incorporated into the articles of association.

Quorum

Generally, a quorum is present when more than one half of the total votes are present or represented. All members and shareholders are entitled to vote, with some exceptions as defined in the Civil Code; for example, the company is not allowed to vote in respect of its own shares, nor are shareholders who are affected by the given resolution, and those shall not be calculated when establishing the quorum for the relevant decision. In Zrts and Nyrts, voting rights may not be attached to certain types or classes of shares. Naturally, in the articles of association, the shareholders may specify stricter rules for a shareholders’ meeting to have a quorum for certain matters. Quorum requirements may also include the presence of a certain shareholder.

If no quorum exists, a new shareholders’ meeting shall be called, which shall have quorum with regard to the original agenda items (unless otherwise regulated in the articles of association), regardless of the number of votes present. This new shareholders’ meeting shall be held within three to 15 days in the case of Kfts, within three to 21 days in the case of Zrts and within ten to 21 days in the case of Nyrts.

Majority Requirements

As a general rule, decisions pertaining to the company require a simple majority of the shareholders (50% of the votes + one vote). According to the law, significant decisions (eg, changing the company form, termination of the company, capital increase of the company, modification of the company’s articles of association) require a qualified majority of three quarters of the shareholders present. Nevertheless, the company’s articles of association may specify other matters that require a qualified majority of three quarters of the votes.

Shareholders’ Proposals

Shareholders have the right to require that a specific issue be considered or a specific proposal for resolution be put forward at a shareholders’ meeting. Shareholders may propose items to the agenda.

In terms of majority, the shareholders’ meeting can adopt different types of resolutions. Most decisions may be made with a simple majority, but certain crucial matters may be decided only with a qualified majority of the votes, as provided by the law or the articles of association. The articles of association may also specify other various thresholds, but such thresholds may not be lower than those set forth by the law on the relevant matter.

Se 2.6 Quorum, Voting Requirements and Proposal of Resolutions for more detail.

Decision-Making Levels

Decisions relating to the company are resolved at two levels. The shareholders decide essential strategic, business and personal matters via the shareholders’ meeting. The management (composed of one or more managing directors in the case of a Kft or of a board of directors/a sole director in the case of a Zrt or Nyrt) decides on all matters not specifically referred to the competence of the shareholders by the law or the articles of association. The latter generally includes operative issues.

Further corporate positions or bodies may also be created at a company, to which certain powers of the shareholders’ meeting and/or of the management may be delegated.

The shareholders are not entitled to instruct the management nor to limit the management’s competence on an ad hoc basis: the management’s competence may only be limited by setting out any such limitation in the articles of association. This rule does not apply if the company is owned by a sole shareholder, who is entitled to instruct the management on any matter.

Matters Requiring Approval

Besides the list set out in 1.3 Types or Classes of Shares and General Shareholders’ Rights, the following matters also require shareholders’ approval:

• merger and demerger;
• termination;
• increase or decrease of registered capital;
• modifying the company’s articles of association;
• approval of acquisition of shares in the company by a third person (if applicable), purchasing the shares in the company to be offered to a third person or designating another third person to purchase (if applicable); and
• appointment and dismissal of the management, the auditor and the members of the supervisory board (if applicable).

The company’s articles of association in Kfts or Zrts may set out that the shares of the company can be transferred to a third person only with the company’s consent, or that the company is entitled to a pre-emption right, which is to be exercised by the company itself or by a designated third person (for further details see 3.3 Security Over Shares).

The articles of association may also determine further issues, for which the pre-approval of the shareholders’ meeting is necessary.

Special Matters in Certain Company Forms

In addition to the foregoing, in Kfts the shareholders’ meeting shall approve contracts concluded by the company and one of its shareholders, its director, a supervisory board member, an auditor or their close relatives.

Also, if in a Kft a shareholder wishes to transfer its share to two or more separate persons or if it wishes to retain a part of its share, that share needs to be divided (for further details, see 3.2 Share Transfers).

In Nyrts, the shareholders’ meeting shall put the remuneration policy and the remuneration report of the directors to an advisory vote.

In Nyrts and Zrts, rights attached to a certain series of shares may be detrimentally altered only if the shareholders who hold shares in the given series specifically consent to the change. This approval is also necessary if a capital increase in the company would affect the rights attached to certain shares.

In Nyrts, the prior consent of the shareholders’ meeting is required for the transfer of assets to be concluded within two years from the company’s registration between the company and its shareholders, if the value of the consideration to be provided by the company reaches one tenth of its share capital.

Further Requirements Set Out by the Shareholders’ Agreement

A shareholders' agreement may also set out that a certain majority is necessary for rendering a decision, or an investor might veto a certain decision without incorporating that requirement into the articles. In this case, the contracting parties shall comply with any such requirements under the contract, and failure to do so will be a breach of contract. However, unless those requirements are incorporated in the company’s articles of association, these breaching decisions are still valid under corporate law.

Acting Personally or Via a Representative/Proxy

Shareholders may exercise their voting rights if their shareholder capacity is certified as specifically provided for regarding the relevant company form – eg, in companies limited by shares, shareholders may vote at the shareholders’ meeting once they have been entered into the book of shareholders or they possess the relevant certificates of shares.

Shareholders may vote personally, provided that they certify their identity, or through an authorised representative. A representative may be authorised in writing with the statutory formalities to act on behalf of the shareholder. Members of the supervisory board, directors and the auditor of the company may not act as representatives.

In companies limited by shares, a proxy may also be registered in the book of shareholders, and may then exercise shareholders’ rights (including voting rights) in its own name but for the benefit of the shareholder.

Methods for Casting Votes

Voting may be conducted by a show of hands, verbally, polls, e-mail, etc. If voting is made in writing, votes may also be cast via postal mail, courier or e-mail. However, voting is always conducted in accordance with the type of meeting or voting, and as allowed by the articles of association. For further details, see 2.5 Format of Meeting.

In general, the number of a shareholder’s votes are proportionate to the shareholder’s shareholding (ie, its participation in the company’s registered capital). However, the articles of association may provide that certain shareholders (or shares) have more votes than would be justified by their shareholding, either generally or with respect to certain matters. Shareholders may even have veto rights on certain issues or may be vested with the number of votes that grants the right to decide certain matters alone. Weighted voting rights are restricted in a public company limited by shares, as explained in 1.3 Types or Classes of Shares and General Shareholders’ Rights.

Shareholders have the right to require that a specific issue be considered at a shareholders’ meeting. They may request that a certain item be added to the agenda of the meeting called to decide other matters, and may even request that a meeting be called to decide a given matter, as explained in detail in 2.3 Procedure and Criteria for Calling a General Meeting.

In addition, in order to protect minority shareholders’ rights, in certain statutory cases (eg, enforcing claims against a shareholder or officer of the company on behalf of the company, or having an auditor mandated to examine certain transactions of the company) and if the proposal made by the shareholders representing a given stake in the company (in private companies at least 5%, and in public companies at least 1% of the votes) was not admitted to the agenda or the proposal was admitted but rejected by the meeting, the proposing shareholders may act themselves or may have the commercial court act accordingly, as applicable.

All shareholders may challenge the validity of a resolution of the shareholders’ meeting before court, if the resolution violates the law or the articles of association (provided that the challenging shareholder did not approve the given resolution with its vote). This type of action may be initiated within 30 days of the shareholder becoming aware of the resolution, but no later than one year following the day the resolution was rendered.

Contesting a resolution before court will not automatically suspend enforcement/implementation of the resolution, but the court may suspend the implementation of the contested resolution if the contesting shareholder so requests.

If the court finds that the resolution indeed violates the law or the articles of association, it will declare the resolution null and void as of the date the resolution was made.

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Except in a public company limited by shares (Nyrt), the shareholders of a company may pass a written resolution without holding a meeting, provided that the articles of association allow written resolutions.

The quorum and thresholds for passing a resolution are the same as for passing resolutions at a meeting. A quorum is deemed to be reached if at least the same number of shareholders send their votes to the company as the number of shareholders required to be present for a quorum in case of a meeting.

Written resolutions are proposed by the management, and the proposal is sent to the shareholders with a warning to cast their votes in writing within the relevant deadline (the deadline is set forth in the articles of association but it should be at least eight days from receipt of the proposals). Shareholders may cast their votes in writing, including electronic mail if the articles of association so provides. Resolutions are deemed to be passed on the last day of the period open for casting the votes, or on the day when the last vote was received by the company (if this is earlier). The management shall then establish the results and announce them to the shareholders.

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Regulation of the transfer of shareholdings differs between Kfts and Zrts/Nyrts.

Regulation of Kfts

The transfer of shareholdings (called business quotas) is usually restricted if they are sold to third persons. In this case, the other shareholders, the company and a third person designated by the company – in this order – have a pre-emption right regarding the quota to be sold. The other shareholders are entitled to exercise their pre-emption right in proportion to their existing participation interest in the company. If the shareholders do not exercise their pre-emption rights, the shareholders’ meeting decides on whether the company shall exercise the pre-emption right or designate a third person. The selling shareholder is not entitled to participate in this vote.

The articles of association may also prescribe that the transfer of shares to a third person must first be approved by the company via the shareholders’ meeting – again, without the vote of the selling shareholder.

Furthermore, if a shareholder wishes to transfer its share to two or more separate persons, or if it wishes to retain a part of its share and transfer another part, that share needs to be divided. This division is approved by the shareholders’ meeting, where the dividing shareholder cannot vote. Therefore, the other (non-transferring and non-dividing) shareholders actually allow or reject the transfer to third persons and the division of business quotas.

Although transfers among shareholders are not restricted by law, in the articles of association a pre-emption right may also be established for this case.

Further restrictions on the transfer of shares may also be agreed in the articles of association. and indicated in the list of shareholders in order to be enforceable vis-à-vis the company and third parties. If the shareholders’ agreement includes such restrictions or securities but the shareholders do not wish to make such information public by including it in the articles of association, they may set out contractual obligations for the shareholders, prescribing them to vote in a certain way in the shareholders’ meeting, should such an occasion arise.

Shareholders are also entitled to grant security interests over their shares by a separate agreement, but the aforementioned restrictions shall be taken into account.

Regulation of Zrts and Nyrts

Shares in Zrts are not publicly offered, while in Nyrts they are sold over the stock market.

If the transfer of shares is limited or subject to the company’s approval according to the articles of association, these restrictions shall apply in dealings with third parties if the restriction, including the details, is clearly indicated in the printed share, or in the securities account in the case of dematerialised shares. The articles shall specify the circumstances under which such approval may be refused. Approval must be given by the board of directors. If the board fails to respond within 30 days, consent shall be considered to have been granted. Such a limitation is allowed by law for both Nyrts and Zrts, although in the case of Nyrts this is usually prohibited by the rules of the given stock market.

Shareholders may grant securities over their shareholdings in the articles of association or under a separate agreement. Securities granted in the articles of association are public, while securities established in a separate agreement are not necessarily made public.

In limited liability companies (Kft), a pledge over a shareholding is usually registered in the trade register and is thus public information. In addition, securities granted over shareholdings may be registered in the company’s members’ list, and for certain types of securities in the securities register (both publicly available). However, the parties may also choose that securities not be registered and made public. If a security is made public, it is usually deemed valid vis-á-vis third persons.

For companies limited by shares (Zrt or Nyrt), securities (eg, pre-emption rights, redemption rights or purchase options) are only valid vis-à-vis the company or third parties if they are clearly indicated in the printed share, or in the securities account in the case of dematerialised shares.

The form of the company determines whether and at what ownership level the shareholders’ interest shall be disclosed.

Rules on Kfts

In Kfts, the online and publicly accessible company register indicates all shareholders, regardless of their ownership level. The change of ownership shall be registered and publicly disclosed. The percentage of ownership is indicated in the members’ list and may be indicated in the articles, which are also publicly available electronically.

Rules on Zrts and Nyrts

In Zrts and Nyrts, shareholders are generally not disclosed in the company register. Nevertheless, shareholders holding more than 50% or at least 75% of the votes are publicly disclosed and registered as having a voting right in the company after acquiring this portion of interest.

Also, the book of shares includes all shareholders exercising shareholders’ rights in the company. This, in turn, is publicly accessible and may be inspected by any third person at the registered seat of the company.

Moreover, the court of registration requested in a recent case that the Zrt’s shareholders – regardless of the level of their shareholding – are to be indicated and updated in the articles of association upon the amendment of this document. This would result in revealing the identity of the shareholders, since the articles of association submitted to the court of registration are available to the public by electronic means.

In Nyrts, special disclosure obligations apply: shareholders of a Nyrt shall notify the company, as well as the Hungarian National Bank acting as supervisory authority, if their voting rights – directly or indirectly – reach, exceed or fall below 5%, 10%, 15%, 20%, 25%, 30%, 35%, 40%, 45%, 50%, 75%, 80%, 85%, 90%, 91%, 92%, 93%, 94%, 95%, 96%, 97%, 98% or 99%. Moreover, the company shall notify the Hungarian National Bank if it receives any such shareholder’s notice, and shall also publish that notice. Specific requirements regarding disclosure are applicable to the process of acquiring participation via a public takeover bid.

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Dividends may be paid to the members from the untied retained earnings and the after-tax profit of the previous financial year upon the resolution of the shareholders’ meeting, provided that the relevant accounting requirements are met (including that the company’s equity will still reach its registered capital and the company’s solvency is not at risk). A resolution on dividends may be passed upon the approval of the company’s financial statement for the previous financial year.

Dividends may be paid to shareholders in proportion to the capital contribution they have already provided to the company.

Dividends are usually distributed between the shareholders pro rata of their shareholdings – ie, pro rata of their quota in a limited liability company (Kft) and pro rata of the face value of their shares in companies limited by shares (Zrt or Nyrt). However, based on the provisions of the articles of association and/or the relevant priority shares in companies limited by shares (Zrt and Nyrt), dividends payable to certain shareholders or for certain quotas/shares may come ahead of others and/or may exceed the proportion of the relevant shareholding.

Appointment of Directors

The directors (managing directors in Kfts, or members of the board of directors or the CEO in Zrts) are elected and removed by the resolution of the shareholders’ meeting.

Although this decision generally requires a simple majority of the votes, the articles of association may require a greater majority. In Zrts, priority rights with regard to appointing and removing members of the board of directors may pertain to preferential shares issued by the company. This is prohibited in Nyrts.

When a board of directors is appointed, this operates as set out in the company's by-laws, which are usually determined by the shareholders’ meeting. Its members elect one of them as the chair of the board.

Directors can be elected either for a definite term or for an indefinite term (as set out in the articles of association of the company).

Removal of Directors

Directors may be removed at any time without any reasoning via a resolution rendered by the shareholders’ meeting. The voting threshold for the resolution is the same as for the appointment of directors.

Directors shall manage the company in accordance with the law, the articles of association and resolutions of the shareholders’ meeting, in accordance with the statutory requirements of prioritising the interests of the company. Generally, the directors may not be instructed by the shareholders (with the exception of one-member companies).

A shareholder may challenge a resolution of the director by requesting the court to annul the decision, if the shareholder believes the decision breaches the law or the articles of association. This action may be brought against the company for the annulment of the resolution within 30 days after the time when the shareholders had become aware of the decision, or could be expected to have become aware. No action may be brought after a preclusive period of one year from the date of the resolution. No action may be brought by a shareholder who contributed to the adoption of the resolution with its vote, unless the shareholder voted this way due to a mistake, misrepresentation or duress. This action does not automatically suspend the enforcement of the challenged resolution; suspension of enforcement must be requested separately.

Directors are liable towards the company for the breach of their legal obligations as a director. Generally, the shareholders’ meeting decides on the enforcement of such claims, but it may also be initiated by the minority of the shareholders (for detailed rules, see 1.4 Variation of Shareholders’ Rights).

The shareholders’ meeting has the authority to appoint and remove the auditor.

An auditor can be appointed for a definite term of up to five years. An auditor may be appointed for the minimum term of a period commencing with the appointment and lasting until the date of the meeting of the shareholders’ meeting approving the next annual report.

In addition to appointing and removing the ordinary auditor, minority rights also pertain to requesting the appointment by the court of a special auditor to examine a certain event or period in the life of the company (for detailed rules, see 1.4 Variation of Shareholders’ Rights).

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The directors are obliged to call a shareholders’ meeting if the company is threatened by imminent insolvency (ie, if it becomes apparent to the director that the company’s financial obligations cannot be satisfied on time) or has stopped making its payments. In this case, the shareholders’ meeting shall decide on how to solve the financial problem (eg, by providing further capital contributions), or may decide on the merger or dissolution of the company.

Moreover, in a threatening insolvency situation, the director’s general obligation to focus on the interests of the company is supplemented with the obligation to take into consideration the interests of the company’s creditors (ie, preserving as many liquidation assets as possible, collecting receivables and cutting costs). A director's failure to comply with this obligation results in so-called wrongful trading, and the director may be held personally liable to the company's creditors.

Possible Scenarios

If a company is solvent, it may be terminated by way of a voluntary dissolution resolved by the shareholders’ meeting.

If a company is insolvent, the shareholders’ meeting may decide on the commencement of the liquidation procedure, resulting in the termination of the company and the satisfaction of the creditors. If the shareholders’ meeting does not approve this decision, a single shareholder – if it is also a creditor to the company – may also initiate this proceeding in its role as creditor.

It is also possible for the company to initiate a bankruptcy proceeding, in which the company is granted a payment moratorium in order to seek an arrangement with its creditors. This procedure is initiated by the directors but requires the pre-approval of the shareholders’ meeting.

Participation in Remaining Assets

During the course of the liquidation process, the liquidator satisfies creditors' claims in the statutory order:

• claims secured by pledge;
• liquidation costs;
• alimony and life annuity payments, compensation benefits and similar claims;
• claims of private individuals not originating from economic activities (eg, claims resulting from insufficient performance);
• claims of small and micro companies and small-scale agricultural producers;
• debts owed to social security funds;
• taxes;
• other claims;
• default interests and late charges, as well as penalties and similar debts; and
• claims other than wages under a certain limit, held by:
1. any shareholder with majority control;
2. any director or executive employee;
3. family members of the persons previously listed;
4. a company under the debtor’s majority control; or
5. a person benefiting from the debtor’s gratuitous commitments.

As is apparent from the above, the company’s debts vis-à-vis the shareholders that have majority control (eg, shareholder’s loan) are to be paid last.

The company’s assets remaining after the settlement of all debts, if any, shall be allocated to the shareholders in proportion to the capital contribution they provided. Persons holding preferential shares may have priority rights regarding the participation in the remaining assets.

Shareholders’ Liabilities

Generally, the shareholders of Kfts, Zrts and Nyrts shall be held liable up to their respective capital contribution represented by shares (or business quotas) for the debts of the dissolved company. Nevertheless, this corporate veil may be pierced in certain special cases.

However, if a shareholder abuses its limited liability, resulting in any outstanding creditors’ claim remaining unsatisfied following the liquidation, the shareholders in question shall be subject to unlimited liability for such debts. This liability shall apply, in particular, if that shareholder disposed of the assets of the company as if they were its own, or if the shareholder reduced the assets of the company for the benefit of others or the shareholder's own benefit in a way that it knew (or should have known with due care) would result in the company not being able to satisfy its obligations towards third parties.

Furthermore, a shareholder of a Kft or a Zrt who – directly or indirectly – controls at least three quarters of the votes is obliged to satisfy creditors’ claims that remain unsatisfied after the liquidation of the company. This only applies if the liquidation was due to poor business decisions made by the majority shareholder.

The foregoing liability of majority shareholders also applies if they transferred their shares within three years immediately preceding the commencement of a liquidation, and if the debts of the company under liquidation exceed 50% of its registered capital (which is easily reached as the registered capital requirements are quite low – see 1.1 Types of Company). This obligation may be avoided if the shareholder in question verifies that the company was still solvent at the time of the transfer, or even if it was insolvent, that the transferring shareholder proceeded in good faith, taking the creditors’ interests into consideration.

Challenging Decisions of the Company’s Bodies

All shareholders may challenge the validity of a resolution of the shareholders’ meeting, the management or the supervisory board of a company, if the resolution violates the law or the articles of association (provided that the challenging shareholder did not approve the given resolution with its vote). This type of action may be initiated in court within 30 days of becoming aware of the resolution, but no later than one year following the day the resolution was rendered.

Challenging Registration in the Companies Registry

If a change affecting the shareholder is registered in the companies registry based on unlawful documents, the affected shareholder may initiate a claim against the company for annulment of the change. This may be initiated within 30 days of the change being registered in the trade register.

Claim for Providing Information

If the director unlawfully prohibits a shareholder’s access to the company’s documents and related information (for further details, see 2.4 Information and Documents Relating to the Meeting), the shareholder may request that the court orders the company to provide such access.

Claim for Dividends

The shareholder may also enforce its claim for dividends vis-à-vis the company, if it is legally entitled to such dividends, based on the shareholders’ resolution.

The directors and other officers, such as supervisory board members, may be held liable in certain cases vis-à-vis the shareholders or the company’s creditors, or even the company itself.

Liability vis-à-vis the Company

Firstly, the director may be held liable vis-à-vis the company for damages caused to the company through the breach of their managerial duties. The shareholders’ meeting decides whether to enforce this claim and whether to initiate a legal proceeding. The initiation is also available as a minority right (see 1.4 Variation of Shareholders’ Rights).

Liability vis-à-vis the Shareholders

Secondly, the director may be liable vis-à-vis the shareholders, who may initiate a claim for damages against the director after the termination of the company. This may be initiated within one year following the termination of the company by any shareholder who was a shareholder of the company at the time of the termination of the company, regardless of the shareholder's participation interest. The shareholder is entitled to this claim in proportion to its earlier capital contribution.

Liability vis-à-vis the Creditors of the Company

Thirdly, any creditor – or the liquidator in the company’s name – may initiate a proceeding during the liquidation process before the court to establish that the company’s former management failed to exercise its management functions in the interests of the creditors in the three years prior to the commencement of the liquidation proceedings following the onset of a situation carrying potential danger of insolvency. This liability applies if the company’s assets have diminished as a direct result of this misconduct, or if the creditors’ claims may not be fully satisfied due to other reasons.

The foregoing also applies to de facto directors, meaning any person who had significant power to influence the decisions of the company. Should the damage be caused by several persons together, their liability shall be joint and several.

If the liability of directors or de facto directors is established by the court, the creditors may claim the satisfaction of their unsatisfied claims up to the amount of the damages caused by the directors and established by the relevant court decision, following the termination of the liquidation proceedings.

Generally, the company itself, represented by its director(s), is entitled to initiate litigation in its own name.

However, as a minority right it is possible for shareholders holding a certain stake in the company to bring derivative actions on behalf of the company vis-à-vis another shareholder, the director(s), the members of the supervisory board or the auditor, if the shareholders’ meeting rejects the enforcement of claims against those persons.

The same law applies to shareholder activism as listed under 1.3 Types or Classes of Shares and General Shareholders’ Rights.

As a general rule – also applying to shareholder activism – the law states that rights may not be abusively exercised. This rule specifically appears in the regulation on requesting access to information (see 2.4 Information and Documents Relating to the Meeting).

If a shareholder takes an action that also includes passing a resolution that harms the company, the company may sue for damages. A shareholder (except for one shareholder of a total of two shareholders in the company, and a shareholder having a qualified majority in the company) may also be excluded from the company if its membership therein significantly jeopardises the objective of the company. Such exclusion from the company may be declared by the court in a lawsuit commenced by the company based on the decision of the shareholders’ meeting.

Also, shareholders affected by a certain decision may not vote while the shareholders’ meeting is rendering the decision, which might also decrease the chances of the activist. The following shareholders qualify as being affected:

• any person for whom the resolution contains an exemption from any obligation or responsibility, or for whom any advantage is to be provided by the company;
• any person with whom an agreement is to be concluded according to the resolution;
• any person against whom legal proceedings are to be initiated according to the resolution;
• any person whose family member – who is not a shareholder of the company – has a vested interest in the decision;
• any person who maintains any relationship on the basis of majority control with an organisation that has a vested interest in the decision; or
• any person who has a vested interest in the decision.

Shareholder activism does not have significant momentum in Hungary.

Nevertheless, there are cases where groups of minor shareholders of Nyrts intend to solicit information from the company to influence the decision-making process of the companies concerned, or to challenge certain decisions of the management board, supervisory board or general assembly.

As shareholder activism is relatively rare in Hungary, there are no strategies or agendas specific to this jurisdiction.

Theoretically, the agenda of activist shareholders may be divided into two categories: financial and non-financial. Financial agendas may, for example, aim to increase the value of shares through changes in corporate policy or in the company’s financial structure, or may aim to maximise profits by cutting costs. Non-financial agendas may, for example, aim to encourage domestic investments.

Among other tools and strategies, activist shareholders may:

• request information from the directors;
• make use of the minority rights listed under 1.4 Variation of Shareholders’ Rights;
• make proposals to be discussed by the shareholders’ meeting; and
• contact the board or other shareholders privately in order to establish a common agenda.

As shareholder activism is not common in Hungary, no target trends or targeted industries or sectors can be listed. Theoretically, the tools available to activist shareholders may be applied in companies of any size (although they may differ due to the form of the company in question).

Financial investors are more active than other types of shareholders and use the options provided by the law more consciously and effectively in order to reach their goals.

Most recently, during the pandemic, it has been difficult for activist shareholders to pursue other means, as the authorities of the management were temporarily extended, activities of the courts were suspended for a period, and a partial curfew applied, hindering meetings in person.

Consequently, shareholders’ demands could theoretically have been met less often than usual due to the pandemic.

However, if a company has been in need of additional financials, which may not be uncommon due to the economic effects of the pandemic, financing shareholders may be in a better position to discuss their agenda and/or meet activist targets.

Companies are expected to deal with shareholder activism on the basis of applicable laws and with due respect to the equality of shareholder rights. Nevertheless, business negotiations and the conciliation of interests may also be of relevance in this respect.

Generally, directors are obliged to focus on the interests of the company (or in certain cases the interests of the creditors – see 9.1 Rights of Shareholders If the Company Is Insolvent). However, the interests of the company do not necessarily mirror the interests of its shareholders. Also, directors may not be instructed by the shareholders nor have their competence interfered with by the shareholders, with certain exceptions (see 2.8 Shareholder Approval).

Therefore, the directors must consider the foregoing while responding to shareholder activism and may, as a result, comply or not comply with the activist shareholder's goals. If the directors decide not to comply, this may result in the shareholder seeking different remedies, including challenging the directors' decision or removing directors as set out in 10. Shareholders’ Remedies and 6. Shareholders’ Rights as Regards Directors and Auditors.