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Company Formation in Hungary

So you've decided to start a business in Hungary and researched your market. Now it's time to decide how you will register and set up a business in Hungary. What is the best, most viable option for your company, your products, and yourself? Which is the path of least resistance?

Here are your typical options when starting a business into Hungary:

Company limited by shares

This type of company can be set up in Hungary by one or more people and they are not personally liable for any debts that may occur on the business. Depending on how the business is established, the company can either be private or public.

This company has a number of groups within them:

• Board of directors, at least three members.
• Supervisory Board,generally made up of three members, and if the company has more then 200 full time employees, one third of the board must be made up of employees.

The minimum share capital is HUF 20 million, which may consist of both cash contributions and contributions in kind.

Limited liability company

This type of business can be started in Hungary up by one or more people, and are suitable for small to medium sized businesses and where all members intend to participate in the running of the company to some degree. The shareholders have limited liability.

There must be;

• One or more managing director
• A supervisory board is optional.

The registered capital in Hungary may not be less than HUF 3 million and it may consist of both cash contributions and contributions in kind.

Partnerships

There are two types of partnerships when setting up a business in Hungary. These are general partnerships and limited partnerships. This type of company can be set up by two or more people.

General partnerships are unlike the public limited company and the limited liability company as it has unlimited liability. This means that every partner is legally obliged to participate actively in operating the business unless the articles of partnership otherwise provides.
Limited partnerships set up in Hungary provides limited liability on behalf of some of the partners. There are two types of partners:

• The general partner who has unlimited liability
• The limited partner whose liability extends only to the amount their have invested in the company.

Branches and representative offices

This type of company means that a parent company can set up a sister branch in Hungary.
A branch may conduct the full range of business activities, such as trading, manufacturing or the rendering of services.

Foreign companies are also allowed to establish representative offices that do not carry out business activities and are engaged only in activities of an auxiliary or supplementary nature, such as the mediation and preparation of contracts.
Both branches and representative offices must be entered into a Hungarian company register.

Exporting

Licensing

Licensing is the permission for someone else to use your intellectual property rights: either a patent, trademark, trade secret, or copyright. Different types of license include:

Non-Exclusive License - A non-exclusive license implies that your intellectual property rights can be awarded to more than one licensee.

Exclusive License - A little more complex because, although the license may not be exclusive to one licensee, it may be exclusive to a geographic location, a certain product, or limited area of use. For instance, you may grant a licensee exclusive use of the rights in France, yet grant another licensee its use in Germany.

Patent License - The allowance of another party to use your patented product, design or process.

Trademark License - Trademark licensing means permission is awarded to a licensee to sell a product or service. However, the licensor retains more control in order to ensure that quality is maintained. Quality control is in place to uphold the image of the brand / product / service / licensor, and therefore sustain customer confidence and satisfaction.

Franchising In Hungary

Franchising is the licensing out of a business name, product, technique, philosophy, trademark, etc, for a percentage of the income. Instead of setting up new outlets as part of your expansion, you license your existing business blueprint out to franchisees who then set up and manage it for you.

The benefits of franchising your business in Hungary include: more freedom, as the franchisee takes on major responsibilities; minimal expense; lower cost and higher profits; potential for fast growth; brand building.
Disadvantages of franchising a business in Hungary: although few, rely predominantly on your franchisees. They include: poor quality franchisees; franchisees not declaring all income; poor performance.

Founded in 1991 Hungary has the Hungarian Franchise Association which is a member of the European Franchise Federation. This makes it reasonably easy to set up a franchise in Hungary.

Content updates by Szarvas Law Firm

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