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Hungary: Introducing the managing director without representation rights

04 July 2018 | newsletters

Hungarian law has always permitted shareholders of a company to limit the power of the company's managing director(s). Thus, it has also been allowed to appoint a managing director without any right to represent the company.

However, so far, the limitation on the representation rights of a managing director could not be registered in the Companies Register (other than individual or joint signing authority), and therefore, it could not be regarded as publicly available information. Consequently, the limitation was not valid in respect of third parties.

Based on the most recent amendment to the relevant law, which became effective on 1 July 2018, a new section was added to the Companies Register for the registration of managing directors without representation rights. According to this change, three kinds of representation rights may appear in the Companies Register:

  • individual right of representation;
     
  • joint right of representation; and
     
  • [complete] lack of representation rights.

The change is positive since it enables the Companies Register to properly reflect what has already been the practice especially at large companies (e.g. private companies limited by shares and public limited companies), where the members of the board of directors have often been appointed without representation rights, and solely to serve management purposes during the internal decision-making process of the company.

In order to actually introduce a managing director without signing authority at a company, the shareholders must resolve on the respective amendment to the company's articles of association (or deed of foundation). The amendment must then be filed with and registered by the relevant company court. All these steps require the assistance of a Hungarian licenced attorney at law.

Read the Hungarian version here.

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