15 March it is. Or is it?
The provision on the entry into force in Book 8 of Act V of 2013 on the Civil Code (the new Civil Code) is phrased briefly as follows: "This Act shall enter into force on 15 March 2014."
However, the situation is not that simple, considering that the new legislation has such wide ranging effects throughout civil legal order (such as civil rights, regulations on legal entities, family law, inheritance, conditions of ownership, and privities) and the fact that its implementation will obviously not press the reset button on everyday life.
For this reason, the parliament has passed Act CVXXVII of 2013, a separate legislation on the interim provisions and authorizations relating to the new Civil Code. According to this legislation, the provisions of the new Civil Code shall apply to
- facts originated and
- legal statements made
after 15 March 2014.
Consequently, this general rule must be applied when deciding whether any particular situation is subject to the old or the new Civil Code, until such time that no other interim provisions are passed. However, interim provisions tend to abound...
The most important question so far: From what date are limited liability companies (kft.) required to increase their capital to 3 million HUF?
Recently, the greatest issue has been the re-introduction by the new Civil Code of the pre-2006 requirement for limited liability companies (kft.) to have a minimum of 3 million HUF registered capital, which requires many companies to significantly increase their capital.
Regarding the question of when this requirement must be met, it is best first to examine the details of the regulation to see clearly before finding the answer. The regulations are rather complex, but the conclusion is fairly easy to understand.
Detailed regulations on the entry into force in respect of legal entities
First of all, it's important to note that the rules set out in the interim provisions in respect of legal entities do not only apply to companies but also to cooperatives, societies, and foundations among others. Legal entities, and companies in particular, shall apply the provisions of the new Civil Code as follows:
- Legal entities registered (in the Register of Companies in the case of companies) prior to 15 March 2014, including legal entities whose registration or amendment procedure is underway on the effective date of the new Civil Code, shall comply with the provisions of the earlier legislations (Civil Code, Companies Act etc.).
- Subsequently, registered legal entities shall take appropriate steps to ensure conformity with the provisions of the new Civil Code at the time of amending their deed of association for the first time after the entry into force of the new Civil Code, and submit such amendments to the Court of Registration. In the case of a company, this means that if it is necessary to amend the company's deed of association due to any changes in its operations (e.g. moving its registered office to a new location),then the provisions of the new Civil Code shall be applied throughout such new deed of association, in other words the document may not contain any provisions that contradict the new legislation.
- In addition, the Act on the interim provisions also contains a final deadline which is 15 March 2015. If a company has not made any amendment to its deed of association and has not implemented the provisions of the new legislation by this date and no exceptional rules apply, then it shall adopt a resolution to implement the provisions of the new Civil Code by this date at the latest.
Differences in the final deadline and other exceptions
The interim provisions contain a list of exceptions from the above general rules.
If a legal entity has no need to amend its deed of association, then the following final deadlines shall apply to specific types of legal entities:
- Societies and foundations may only continue operation after 15 March 2016 if their deed of association is in conformity with the new Civil Code.
However, it is not required to amend the deed of association if the founders are not listed in it, or if such amendment would only be necessary in order to replace references, allusions and terms that are not in harmony with the new Civil Code and other legislations amended because of the new legislation. All other amendments in the deed of association shall be made. - General partnerships (kkt.) and limited partnerships (bt.) shall adopt the provisions of the new legislation by 15 March 2015, while limited liability companies (kft.),public limited companies (zrt. or nyrt.) and groupings shall ensure conformity by 15 March 2016, after which date their deed of association shall fully comply with the provisions of the new Civil Code.
Nonetheless, it is not necessary to amend the deed of association in respect of the new Civil Code if the only changes are the references to the provisions of the former Companies Act. The new Civil Code also allows limited liability companies with registered capital below 3 million HUF to make the necessary changes in their deed of association even if they do not decide during the interim period to continue operating in accordance with the provisions of the new civil code and do not increase their registered capital to 3 million HUF.
If an amendment is made exclusively in order to ensure compliance with the provisions of or to adopt a derogation permitted by the new Civil Code, then the company registration and publication services are provided free of charge.
Back to the main question: From what date are limited companies (Kft) required to increase their capital to 3 million HUF?
The regulations outlined above clarify the issue: at the time of the first amendment of the deed of association following the effective date of the new legislation, or, if no changes occur within a company that require the amendment of the deed of association by 15 March 2016 or the limited liability company does not wish to adopt the stipulations of the new Civil Code, then the relevant decision shall be made by 15 March 2016. Until such decision is made, companies may continue to operate in accordance with the provisions of the Companies Act effective on 14 March 2014 stipulating a minimum registered capital of 500 000 HUF.
However, the interim period will be over on 15 March 2016, unless additional changes are made in the legislation by then, and companies will then be required to increase their registered capital to 3 million HUF or reorganize the company into a limited partnership (bt.).
Extra punchline
Does this mean that the shareholders of all kft.'s with registered capital below 3 million HUF will have to reach down in their pocket and invest millions in the company by 15 March 2016? Not exactly, because the new rules of capital increase will be much less strict than the provisions of the Companies Act, allowing for a delay in the actual downpayment of the capital.
According to the provisions of the Companies Act, at least half of the financial contribution had to be paid in the case of a capital increase before submission to company registration, and the other half of such contribution had to be paid to the company within one year of the date of the resolution on the capital increase. In contrast, the new Civil Code allows the members to pay their capital contributions to the company according to rules different from the above stipulations. It may be stipulated in the deed of association that members are required to pay less than half of their contribution before submission to company registration, and allow members a period of more than a year to pay their capital contribution in full to the company. In an effort to protect the company's creditors, it is stipulated in the Civil Code that members shall be liable for the company's debts to the extent of their respective unpaid capital contributions.
In addition, companies that take advantage of the option to extend the deadline for the payment of the company's registered capital are subject to an additional limitation, namely that they are not allowed to pay dividends until such time that the total of the amount of profits due on members' shares plus the amount of the members' paid up capital contributions equals the company's share capital.
In summary, legislators have allowed for two years for the adoption of the new Civil Code, which is a reasonably long period. In addition, the new legislation allows for a delay in the actual payment of the of members' contributions upon a capital increase, on condition that such members shall be liable for the company's debts. In the light of these facts, the new provisions are not as menacing as they may have seemed at first, and they do not seem to pose an immediate threat to the existence of small businesses.
