New regulation on contribution in kind in Hungary

 New legal rules will come into force in Hungary on 1 January 2004 regarding the contribution in kind at private and public limited companies, which results in relatively broad liberalization in this field.

1. Object and proportion of the contribution in kind

According to the new regulation contribution in kind may be any object of pecuniary value, intellectual property, right representing pecuniary value or any receivable acknowledged by the debtor or based on a final court decision. Essential novelty of this regulation is that undisputed or undisputable receivables are accepted as object of contribution in kind.
There were two reasons why the scope of contribution in kind had to be extended to receivables. First that in comparison to the regulation in Europe the effective Hungarian Company Act excludes receivables from the scope of contribution in kind, which restriction results in serious and unjustified disadvantage for competition purpose at Hungarian companies. Second the Company Act shall fully be harmonized with Second Council Directive 77/91/EEC.
Rendering of any service including performance of work or personal assistance by shareholders shall not constitute contribution in kind as this is prohibited by Second Council Directive. This is to add, however, that this categorical prohibition is under revision in the EU.

It is not required in the future that the objects of contribution in kind shall be marketable, executable and transferable without the permission of third parties. Thus, these aspects shall be taken into consideration with the evaluation of the contribution in kind only. This is explained by the fact that even the Company Act in force allows that a company may acquire during its operation such other objects instead of the object of contribution in kind, which are not in conformity with the current requirements of contribution in kind (marketability etc.). Therefore, the aim of this provision (protection of creditors) shall be deemed in several cases as fiction only and the maintenance of these restrictions was unnecessary.

The mandatory proportion of cash and contribution in kind will also be deleted at private and public limited companies, since it is obvious that the solvency of the company and the protection of creditors are hardly depending on this factor. It indicates, however, the caution of Hungarian legislation that this rule shall come into force 1 year later than the other changes i.e. on 1 January 2005.

2. Deadline for the performance of contribution in kind

Due to current rules the contribution in kind shall be made available to the company before the submission of the application for registration. As of 1 January 2004 the deed of foundation of the limited company may allow that the contribution in kind could be put at the company's disposal until the end of the 5. year counted from the registration provided that the proportion of contribution in kind in the subscribed capital is less than 25%. Although Second Council Directive allows to make the contribution in kind within 5 years available irregardless of the proportion of the contribution in kind in the subscribed capital, the recent Hungarian modification did not go so far presumably in order to avoid any "shock".

3. Evaluation of the contribution in kind

The mandatory audit of the contribution in kind cannot be performed as of 1 January 2004 by the appointed auditor of the company. Furthermore, the auditor's report shall also be published in the official Firm Bulletin in conformity with 77/91/EEC.
It will be still prohibited to evaluate the contribution in kind over the value assessed by the auditor's report although it is not provided for in the Second Council Directive. In our opinion this shall remain unchanged in the future as well.

Basically the above provisions are applicable for both establishment and capital increase. Should, however, the issuance value and the nominal value of the shares differ from each other at capital increase, the full difference shall be made available for the company simultaneously with subsription.


The above changes will apply to limited companies only but an extension to other company forms (limited liability company, limited partnership etc.) is expected in 2005 in the frame of the complex revision of the Company Act. The recent modification can be deemed as a further step for liberalization and harmonization of the Hungarian Company Act with EU legislation.
Dr. Gyula Gábriel
Attorney at Law

Bogsch & Partners