In this article you will learn about two special business organisations that are available in Hungary for foreing companies to carry out business activity. These business organisations differ from the common forms of companies, however may easily be suitable for several foreign enterprises.
1. Branch offices
Foreign entrepreneurs may conduct their business in Hungary by opening a branch office in the country. Such a branch office is a separate organisation unit of the foreign business association without legal personality registered by the Hungarian court of registration. Through their branch offices, foreign business associations are entitled to carry out business activities in Hungary and are represented towards the authorities and third parties by their branch offices. The branch office has full legal capacity, it acquires rights to the benefit of and assumes liabilities for the foreign enterprise under its own company name.
Each branch office shall be registered to the company registry. Branch offices may be represented by natural persons employed at or assigned to the branch office or with a permanent contract of employment and a domestic place of residence. Representatives of branch offices and their close relatives may only conclude transactions within the activities of the branch office if the deed of foundation of the branch office or the foreign business association approves it. The foreign company’s approval is needed if the person authorised to represent the branch office intends to acquire shares in another business association conducting the same business activities as the branch office, excluding the buying of shares in public limited companies.
The laws applicable to companies with domestic registered offices apply to the business activities and the domestic business behaviour of branch offices, and its books shall be kept in accordance with the Hungarian laws on accounting. Special rules apply to the branch offices of foreign businesses conducting financial activities. The employees of the branch office are in employment relationship with the foreign business association and employer rights are exercised by the foreign business association through its branch office.
The foreign business association shall continuously provide the assets necessary for the operation of the branch office and the settlement of its debts. No permit is required for a business association registered in an EEA member state to purchase real estate required for the business operations of its Hungarian branch office. In all other cases a permit is required unless otherwise specified by an international agreement or no such property may be purchased based on the principle of reciprocity.
The foreign company and the branch office bear joint and several liability for debts incurred during the activity of the branch office. When judicial enforcement to collect debts is initiated against the foreign company, all its assets in Hungary become subject to enforcement. Enforcement procedure may also be initiated directly against the branch office, and creditors can enforce their claims even in a liquidation procedure initiated against the foreign business.
The branch office is terminated by being deleted from the company register. Deleting a branch office does not in all cases require its being free from public debt, the publication of an announcement about the termination, or verification that there are no authority or court procedures in progress against the foreign company in Hungary with regards to its activities conducted through the branch office. If the country of registration of the foreign company and Hungary have signed an international agreement on the competences of courts, the enforcement of court rulings and the collection of public debts for civil and commercial cases, or in the event such issues are governed by EU community laws.
2. Commercial representative office
Commercial representative office is an organisational unit of a foreign company without a legal personality, which can operate from the time it is registered in the company register. The scope of activities of commercial representation offices are limited to mediating and preparing contracts and carrying out information, advertising and propaganda activities on behalf of the foreign company.
In their own names, commercial representative offices may not conduct business activities that yield profits or other proceeds; however, they can conclude contracts related to their operation in the name and for the benefit of the foreign company.
The same employment rules apply to commercial representative offices as to branch offices.