If we are entrepreneurial, it is advisable to turn our ideas into reality in the form of an appropriate business company, or if our goal is simply to invest and we do not necessarily want to be actively involved in the life of the company, investing in a well-structured company can be a great way to do this.
In this article, we deal with investing in a private limited company and thereby acquiring shareholder rights, the legal background for which is the increase in share capital through the issue of new shares. Let’s see what we need to know step by step.
The content of this article is based on the relevant provisions of the Civil Code and the Civil Code, but each case is different, so please note that the following provisions are general and not necessarily applicable to specific, individual situations.
Let’s clarify the most important basic concepts first!
1. WHAT IS SHARE CAPITAL?
For public limited companies, share capital is the specific legal equivalent of subscribed capital, which is the sum of the nominal value of all shares. In the case of joint-stock companies – and it should be noted here that a joint-stock company (abbreviated to „rt.”) can be formed primarily in the form of a private limited company – the minimum amount of share capital is HUF 5 million.
2. WHAT IS A SHARE?
A share is a security issued by the company, the most important characteristics of which are that it represents membership rights, is registered, has a nominal value and is negotiable.
Shares can be produced either by printing or electronically in dematerialised form. In the latter case, the key details of the share are contained in a separate securities account. The only central securities depository in Hungary, KELER Zrt., is responsible for the creation of shares by electronic means.
3. WHO IS THE SHAREHOLDER?
A member, i.e. an owner, of a limited liability company, who is entitled to a certain number of shares of the company’s issued stock. Hence the name shareholder, which is a term used only for a limited liability company and is often wrongly applied to a limited liability company. Depending on whether the shares constituting the share capital of the limited liability company are held by one or more persons, it may be a single or a multiple company.
4. HOW CAN WE BECOME SHAREHOLDERS?
In short, we either set up a limited company ourselves or join an existing one.
In this article we look at what legal steps are required to become a shareholder of the limited liability company, even if you are only an investor. Here is the timetable we have developed in our own practice:
Let’s look into the company you want to join, and you will need to obtain the following documents from the company:
the articles of association in force (in the case of a limited liability company, this is called the articles of association) – you can get them here using the online company overview
last published report – here you can find published reports
Why do we even need these? Isn’t it enough to know that the company has a good turnover, a lot of customers, surely it’s worth investing in?
Of course, this is a good thing, but it is important to be aware of what is on the books of the company you want to join with a lot of money and what the legal basis of their whole operation is. This step zero is nothing less than a legal due diligence with the simultaneous involvement of an accountant and/or a tax adviser, so that the prospective shareholder does not find out something unexpectedly „turpisslichkeit”.
In addition to this, it is also a good idea to request a current company statement, which will tell you whether your favourite company has been seized by a body or authority, had its tax number cancelled, is in liquidation or has been the subject of other proceedings that are not favourable to your investment. If everything is clean and in order, the first step is to take the next step.
After successful negotiations with the shareholders of the limited liability company, we should set out the amount of the financial contribution we wish to make to the company. After that, the legal steps should be taken.
If a new shareholder wishes to join the company, the general meeting of the company’s highest decision-making body must decide on the increase of the company’s share capital. Although there are several ways of increasing the share capital, and each of them can even be carried out simultaneously, let us see what rules apply if the increase is carried out by placing new shares.
Precondition: the share capital of a public limited liability company may be increased by the issue of new shares only if the nominal value or the issue value of all its previously issued shares has been paid up and the non-cash contribution has been fully paid up to the company.
The increase of the share capital by the issue of new shares must be decided by a general meeting of shareholders, which must include:
the way the share capital is raised;
the amount of the increase in share capital or the minimum planned amount;
the draft amendment to the articles of association relating to the increase in the share capital, including the number and series of new shares to be issued, the rights attaching to the type, class or series of shares, the method of creation, nominal value or issue value of the shares and the conditions for payment of the nominal value or issue value of the shares;
the subject matter, value, number and other characteristics of the non-cash contribution, the name (company), domicile and registered office of the contributor and the name, domicile (registered office) of the auditor who performed the preliminary valuation, the date of the contribution;
the period or subscription deadline for making a declaration of acceptance of the shares.
Amendment of the Statutes to reflect the increase in share capital
WHAT IS A RIGHT OF PRIORITY, WHAT SHOULD WE LOOK OUT FOR?
In the case of a capital increase against a contribution in kind, it is not only the investor who will be entitled to increase the company’s share capital, but also the existing shareholders who may participate or decide not to exercise their pre-emptive right to increase the share capital. Whatever the decision, the general meeting must record it in writing in an appropriate manner. Ultimately, this may result in a situation where only the investor will increase the company’s share capital to the extent provided for in the resolution of the general meeting.
WHAT IS A SHARE REGISTER? WHY IS IT IMPORTANT THAT THE SHAREHOLDER IS LISTED?
In the case of limited companies, it should be noted that the register of companies does not necessarily reveal who the current shareholders of the company are, as the register of companies only contains information on shareholders in the following cases:
- if the shareholder’s voting rights are 100%🡪 sole shareholder
- if the shareholder has more than 50% of the voting rights🡪 majority shareholder
- if the shareholder has 75% or more of the voting rights🡪 qualified majority shareholder
By contrast, the share register, which is essentially the register of members of a limited liability company, contains the details of the shareholders and the number of shares they are entitled to and the extent of their shareholding. The share register is kept by the board of directors of the company limited by shares. It is of particular importance that the data deleted from the share register must remain ascertainable, which means that all shareholders must be removed from the share register from the date of the company’s incorporation, even if some of them have ceased to be shareholders in the company in the meantime.
A shareholder must also be entered in the share register because he or she can exercise shareholder rights vis-à-vis the company only if he or she is entered in the share register (e.g. he or she is entitled to dividends or to vote at general meetings only if he or she is entered in the share register). Failure to enter a shareholder in the share register does not affect the shareholder’s ownership of the share.
In the case of an increase in share capital, if a new shareholder joins the company, he or she must apply to the company’s chief executive officer for registration in the share register.
In the case of a share capital increase, the articles of association of the company must also be amended and submitted to the competent court of the company’s domicile, where legal representation is mandatory, so active legal assistance is also essential in the preparation of the documents required for the transfer.
IS THERE A SEPARATE PROCEDURAL FEE FOR THE INCREASE OF SHARE CAPITAL?
Yes. According to the applicable legislation, whichever form of share capital increase is chosen, a HUF 50,000 court fee and a HUF 3,000 publication fee must be paid.
After a successful transfer to the court, i.e. after obtaining a registration order, if dematerialised shares need to be created, KELER must be contacted for the creation and transfer to the securities account.
HOW CAN WE MAKE THE WHOLE PROCESS SMOOTHER AND FASTER?
keep in mind the steps we suggest, especially step 0
the possibility to sign electronically the documents required for the capital increase via the OHIM
the use of a lawyer with the right expertise in company law to manage and coordinate the whole process from the start
SUMMARISE THE ABOVE WITH AN EXAMPLE:
If I want to join a company with a share capital of HUF 5 million and I invest HUF 1 million, I will become a shareholder of the company by following the above steps, while increasing the share capital of the company to HUF 6 million.
ISN’T IT SO MUCH EASIER THIS WAY!? TAKE A LOOK AT THE BONYULENT LEGAL PROCEDURE and contact our office. We can assist you with the complete legal transactions concerning your company and even help you with the administration of your shares before KELER.
dr. Szoboszlai Márta
dr. Bajcsay Gergely
Please note that the general information provided in this article is for informational purposes only and does not constitute legal advice. We cannot be held liable for any misinterpretation of the above information or for any changes in the law that may have occurred in the meantime. If you have a specific question or legal problem, we are able to provide individual advice after consultation with our office and after a full investigation of the case.