The entry of the new Civil Code1 has changed the mandatory minimum of the subscribed (share) capital, so accordingly should be examined the equity/ subscribed capital ratio.
The mandatory minimum of the subscribed capital for the different enterprises is, as follows:
- For limited liability companies (Kft.): HUF 3 million 2
- For private limited companies (Zrt.) HUF 5 million 3
- For public limited companies (Nyrt.) HUF 20 million 4
For limited partnerships and general partnerships (Bt. and Kkt.) there is no mandatory minimum of the subscribed capital.
The final deadline of the subscribed capital increase was 15.03.2017, which deadline referred to the resolution about the decision of the capital increase, while the amendment petition should have been submitted to the Court of Registry on 14.04.2017 at latest considering the 30 days reporting deadline.
Please kindly note that the court of registry can initiate proceedings against the companies where the minimum capital was not increased. The proceeding may mean penalty for the company or the court of registry can even start a releasing process from the trade register. It is important to know that the capital increase does not involve an immediate cash injection. Provision of the necessary amount can happen in the future, or it can even be an apport (eg. a physical asset). The most important thing is to take the necessary legal steps as soon as possible.
What to do if based on the latest approved annual report, equity capital has dropped to half of the subscribed capital and the form of the company is LLC?
The managing director shall without delay convene the members’ meeting, or initiate its decision-making process without having to hold a meeting in order to provide for the necessary measures whenever it comes to his attention that:
a) the company’s equity dropped to half of the initial capital due to losses;
b) the company’s equity dropped below the amount limit defined by law;
c) the company is on the brink of insolvency or has stopped making payments; or
d) the company’s assets do not cover its debts.
In the cases the members 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, 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.5
What to do if, according to the annual report, if the company form is LLC and it does not have sufficient own funds to cover the subscribed capital prescribed for its form of business association over two consecutive financial years:
If, according to the annual report prepared pursuant to the Accounting Act, a business association does not have sufficient own funds to cover the subscribed capital prescribed for its form of business association over two consecutive financial years, and the members (shareholders) of the business association fail to provide for the necessary own funds within a period of three months after approval of the annual report prepared pursuant to the Accounting Act for the second year, the business association shall be required to adopt a decision within sixty days of this deadline for transformation into a different business association, or for its termination without succession.
In the course of transformation, a form of business association shall be chosen for which no minimum requirement of subscribed capital is prescribed by law, or for which the subscribed capital can be satisfied by the business association upon transformation.6
According to Act IV (2006) on Business Associations a company is exempted from above mentioned obligations, if, within three month counted from the approval of the annual report, the company can prove with an intermediate balance sheet issued by a balance sheet date not older than three months that the circumstance requiring action no longer exists. The new Civil Code does not specifically regulate exemption by intermediate balance sheet, but the company is entitled to produce an intermediate balance sheet any time, based on which it can determine whether a situation requiring a decision exists.
Please note that if your company shall undergo auditing as per Section 155 of Act C (2000) on accounting, the auditing requirement also applies to the intermediate balance sheet as per Section 21 (5) of the same act.