1.Preparing the resolution approving the annual report
It must be ensured that the resolutions approving the annual report are prepared in a timely manner and comply with the legal requirements.
To this end, it is essential that the meetings of the company's supreme body (general meeting) are duly convened and held in order to ensure that decision-making processes comply with the Hungarian and, where necessary, relevant foreign legislation. In the case of foreign owners, particular attention should be paid to the form and content of the resolutions.
Did you know? Failure to deposit the annual report can result in a default fine, the cancellation of the tax number, the entity’s striking off, the disqualification of the managing director or, in very extreme cases, criminal proceedings. Find out how these serious legal ramifications may be avoided.
2.Certificate of release for the managing director
The managing director is liable for damages caused to the company resulting from his management activities in accordance with the provisions on liability applicable for breach of contract, i.e. for damages caused by non-performance of a contractual obligation. However, at the request of the managing director, the company's supreme body may, at the same time as approving the annual report, grant a certificate of release attesting to the adequacy of the management activity performed during the preceding financial year.
If the managing director is granted such a certificate, the company may no longer pursue a claim for damages against them based on a breach of their management duties, unless the facts or information based on which the certificate was granted were untrue or incomplete.
It is therefore in the interests of the responsible management to settle this issue at the time of the approval of the annual report. (It is, of course, also advisable to raise the issue of the certificate of release at the time of termination of the executive status).
3.Documenting the business activity
The verification and preparation of certain documents, mainly accounting documents, related to economic activities and important decisions are closely linked to the approval of the annual report. This includes, among others, the written recording of loan agreements or intra-group agreements, also focusing on transfer pricing and liability issues.
4.Renewing the appointment of the auditor
In relation to the financial statements, it is important to monitor the expiry of audit engagements and renew them as necessary to ensure that the audit of the financial statements meets the professional and legal requirements. In many cases, this is not registered with the registry of companies, which can also cause problems.
5.Compulsory settlement of capital
If the equity is not adequate, the legislation obliges businesses to settle the capital position. The law offers a number of options for capital settlement, which may include debt relief, supplementary payments,, or capital increase (for branches the declaration of funds provided by the foreign company) to ensure that the company's capital position meets the legal requirements. The options available or worth pursuing will vary from company to company; therefore, this issue should be considered at the latest upon the approval of the annual report, as the rules on capital loss impose obligations on management and the supreme body with a short deadline.
6.Declaration of dividends different from the provisions of the memorandum and articles of association
If the company is planning to pay dividends in proportions different from the provisions of the memorandum and articles of association, the specific resolution of the general meeting and possibly the amendment of the constitutional document may be needed.
In certain cases, it is advisable that members lay down the special rules of dividend policy in a syndicate shareholders’ agreement between them. When drawing up a syndicatesuch an agreement, the members should also consider the settlement of further issues.
7.Update and amendment of the constitutional document
Care must be taken to ensure that the company's memorandum and articles of association always reflect the company's current details and operational framework, comply with the effective legal requirements and are in line with the company register. Thus, in particular in the event of capital increase or dividend declaration different from the provisions of the memorandum and articles of association, these may need to be amended upon the approval of the annual report.
8.Preparation for transformation, company structuring
If you are planning to change the company structure, you should also prepare the annual financial statements to reflect a potential transformation (change of legal form, demerger, merger).
It is worth considering whether the current company structure is optimal, whether the creation of a different structure - e.g. a holding or trust – might be justified from a tax and asset protection perspective, and whether the intention to sell the company might give rise to the need to outsource certain business lines.
RSM Legal's team of expert lawyers is ready to assist you with legal obligations related to the year-end closing, as well as general legal tasks related to corporate operations:
