Hungary: Digitalization in corporate law

The Hungarian Parliament has recently put on its agenda a new bill, No. T/17280 (the “Bill”) that aims to implement two amendments to the “Consolidated Company Law Directive” of the European Union (Directive (EU) 2017/1132). One of them is the so-called “Digitalization Directive” (Directive (EU) 2019/1151 of the European Parliament and of the Council of 20 June 2019 amending Directive (EU) 2017/1132 as regards the use of digital tools and processes in company law).

A key objective of the Digitalization Directive is to make it possible to establish companies – at least limited liability companies (e.g. GmbH in Germany and in Austria, BV in the Netherlands, kft. in Hungary, etc.) – online in the EU. The new provisions introduced by the Bill are expected to enter into force on 1 August 2022. However, due to the Covid-19 pandemic, Hungary has already made it easier to set up companies online prior to the implementation of the Digitalization Directive.

Online formation of companies

The Bill introduces the definition of an “online incorporated company” (online alapított cég) in accordance with the online formation rules of the Digitalization Directive. The online formation rules will apply to limited liability companies (korlátolt felelősségű társaság; kft.) founded by a citizen of a Member State of the EU or a legal person or entity registered in a Member State of the EU, and to the Hungarian branch offices of EU-registered companies.

Online formation basically means that both the pre-registration and registration stages of the incorporation of a company are carried out electronically, without the need of personal presence. The online formation would be different from the currently existing practice of incorporation with an online identification, as the Bill requires electronic signatures on the documents and also provides that the company's share capital can consist exclusively of cash contributions.

The registration procedure of a company incorporated online will be subject to different regulations, which will essentially accelerate the process of the incorporation of such companies, as the administrative time limit will be ten working days. If the documents attached to the application do not meet the requirements for the documents of a company incorporated online, the court will not reject the application, but will consider it according to the general rules.

Simplification of data transmission through the BRIS

Another key benefit of the Digitalization Directive is fostering information flow between the Member States’ company registers via the Business Registers Interconnection System (BRIS).

In the future, company courts will obtain the data of companies registered in the European Union electronically. The Digitalization Directive explicitly states that the exchange of information is free of charge for company registers in the Member States. The practical relevance will be that an EU company's certificate of incorporation and its certified Hungarian translation will no longer need to be attached to the applications for registration.

The transfer of data between the company courts of the Member States will also be extended to Hungarian branch offices (fióktelep) of EU companies. Not only the registration and deletion of the branch offices and changes in the foreign company's registration data but also the EU company's annual financial statements will be automatically transferred between the company courts, in line with Article 1 no. 16 Digitalization Directive (Article 30a of the Consolidated Company Law Directive).