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Rule your own company!

Rule your own company!

On 15th March 2014 the new Civil Code of Hungary entered into force and it replaced the former Companies’ Act. The new Civil Code posed great challenges for the legal practitioners with its radical amendments a great amount of which affect the operation of companies.

To begin with the most fundamental innovation of the Code the statutory regulatory character of the Companies’ Act was reversed by a permissive, dispositive system.

The general dispositive clause of the Code states that any person may be free to establish a legal person – including any regulated form of business associations – and may be free to lay down the rules of organization and operation of the legal person in its charter document.

The Code also opens the right of derogation from its provisions regulating the relationship of the legal person towards its members or the organization and the rules of operation of the legal person.

This new system gives plenty of room to the members to form the operation of their companies although such freedom may have side effects that shall be prevented by law. For this reason the Code itself enacts the prohibition of derogation where necessary and also establishes a principle of interpretation that shall be used at the formation or amendment of the charter document.

This principle states that derogation from the provisions of the Code is prohibited if such derogation manifestly violates the rights of creditors, employees or the minority of the members of the legal person or obstructs the enforcement of supervision over the legitimate operation of the legal person.

Existing companies shall place their operation under the rules of the new Civil Code until 15th March 2016 or simultaneously which the next amendment of their charter document.

Since the entry into force of the new Civil Code practice shows that no significant changes are required to adapt the charter documents to the new requirements although there are several small but important provisions that shall be considered during the revision of the charter documents.

At the moment the above principle brings a slight uncertainty into our ingrained corporate system as several provisions of the Civil Code are interpreted differently and the relevant practice of courts is not yet available.

On the other hand the obligatory audit of charter documents gives an opportunity for members and general managers to reconsider the rules of legal operation of their companies with more freedom than they had before.

By Ágnes Balassa

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