Hungary: 6 Highly Effective Tools For Minority Shareholders In Hungarian Limited Liability Companies

Last Updated: 22 April 2019
Article by Richard Schmidt
Most Read Contributor in Hungary, July 2019

A minority shareholder often finds it hard to protect his interest without real decision-making power in the shareholders' meeting it is. At the same time Hungarian company law offers a wide range of protective measures that every minority shareholder should know inside and out, in order to effectively safeguard its investment. We summarise these legal tools in this article.

1. Approval of shareholder's meeting

Under Hungarian company law the managing directors have very wide competence. They can make decision in any operational questions not listed expressly in the articles of association as issues belonging to the shareholders' meeting's competence.

In order to exercise more control over the management, shareholders' can make a list of subjects in the articles of association, in which the managing director shall obtain the shareholder's meeting approval before decision (e.g. signing a contract above x thousand Euros, etc.).

Even if the infringement of such an internal limitation cannot produce third-party effects (ie. the contract concluded above the budgetary limit will be valid), it can serve as a basis of the managing director's management liability.

2. Decisions by unanimity

The vast majority of company decisions are made by simple majority in the shareholders' meeting. The Civil Code sets forth unanimity for only those cases, where the decision would impair the rights of individual shareholders, or would make their situation more burdensome.

Given that the above clause is too vague and scarcely enforceable, if you are in the company formation phase, it is worth to make a list of exact topics in the articles of association, where unanimity is required.

By creating such a unanimity clause, the minority shareholder(s) can become a "blocking minority", without which the decision cannot be passed.

3. Convening the shareholders' meeting

While the two foregoing technics need the introduction of special clauses in the articles of association, the right to convene the shareholders' meeting is given to minority shareholders by the law itself.

Those shareholders who have at least 5 % of the voting rights of the company may initiate to convene the shareholders' meeting. The initiative needs to contain the reason and the objective of the shareholders' meeting and shall be sent to the CEO of the company.

If the CEO fails to comply with the request of the minority shareholders within eight days as of the receipt of the notice and fails to convene the shareholders' meeting, the minority shareholders can refer to the court of registry, which may convenes the shareholders' meeting on his own or empowers the minority shareholders to convene the shareholders' meeting.

4. Making additions to the agenda

The shareholder's meeting can discuss only those questions that are on the agenda of the meeting, except the case when all shareholders agree otherwise.

If the shareholder's meeting was convened by the management, and certain important issues are not on the agenda, the minority shareholder can suggest these issues to be discussed during the meeting. It is important that the additions to the agenda shall be received by the other shareholders and the management at least 3 days before the shareholder's meeting.

5. Enforcement of claims

It can happen that the CEO or the auditor cause damage to the company and thus the company has claims against these persons. However it might be the case that the majority shareholders do not want to enforce these claims: for various reasons.

If the shareholders' meeting has refused or has not presented for decision the initiative to enforce a claim against the shareholder, the CEO, the supervisory board member or the auditor of the company, the shareholders who have at least 5 % of the votes may enforce such claim themselves on behalf and for the benefit of the company within 30 days.

6. Special audit

When adopting the yearly financial report by the shareholders' meeting it may happen that the minority shareholders find suspicious business transactions or financial indicators in the report.

In this case those shareholders who have at least 5 % of the votes may propose that the last financial report or any economic event which occurred in connection with the activity of the CEO during the last two years shall be examined by an independent auditor to be engaged specifically for this purpose.

If the shareholders' meeting has refused or has not presented for decision this proposal of the minority shareholders they can refer to the court of registry within 30 days as of the shareholders' meeting. Upon the request of the minority the court may order the examination and appoint an independent auditor at the company's expense.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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