Supreme Court Rules on Transfer of Limited Liability Company Quotas

Author: Katalin Füredi - István Gárdos

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Supreme Court Rules on Transfer of Limited Liability Company Quotas

Contributed by Gárdos, Füredi, Mosonyi, Tomori

June 08 2005

In a recent case (Gfv.II.30.260/2004) the Supreme Court established that:

  • a change in company ownership is effective as of the date of the new owner submitting its statement to that effect, in line with the relevant law;
  • the new owner can exercise its rights towards the company as of that date; and
  • this right is temporary where the court refuses registration by the new owner.

In Hungary, the most common form of business entity is the limited liability company, which must have a minimum registered capital of Ft3 million (approximately €5,000). Such companies issue quotas rather than shares to their members. A quota does not qualify as a negotiable instrument. In a limited liability company, each member has one quota, the value of which is defined on the basis of his or her contribution to the company. An individual can transfer his or her company interest by transferring his or her quota.

According to the Company Act 1997, the transfer of a quota must be reported to the company in a properly executed written statement and in that statement the transferee must accept the deed of foundation. On receiving this statement, the company manager must issue a new member list and inform the registration court of the change in ownership for it to be registered. In practice, the question of what rights (if any) are enjoyed by the new member prior to registration has proved thorny. In the case in question, the Supreme Court ruled that while a transfer agreement takes effect towards the parties upon execution (unless it expressly states otherwise), it takes effect towards the company only upon notification of the transfer to it. Moreover, it takes effect towards third parties only when the new owner is registered in the Corporate

Register. Consequently, the new owner can participate in members' meetings once the company has been notified of its acquisition of some ownership interest. Unfortunately, the case does not address whether the adoption of a decision with the approval of the new member where his or her registration is refused by the court remains effective or becomes invalid, and if it becomes invalid, whether it does so retroactively or as of the refusal.

For further information on this topic please contact Dr Katalin Füredi or Dr István Gárdos at Gárdos, Füredi, Mosonyi, Tomori by telephone (+36 1 327 7560) or by fax (+36 1 327 7561) or by email (furedikatalin@gfmt.hu or gardos@gfmt.hu).

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