H U N G A R I A N

Act CXLIV of 1997

on Business Associations

Through the provision of a modern legal framework, the purpose of this Act is to facilitate the consolidation of the market economy in Hungary, to enhance the income earning capacity of the national economy, to strengthen enterprises, to provide for the legal harmonization of this field of law with the directives of the European Community, as well as to ensure that the operation of business associations will neither restrict competition, create monopolies, nor interfere with the equitable interests of creditors, and that such operation is in harmony with public interests.
In the interest of the above, the Parliament hereby passes the following Act.

 

PART ONE

JOINT REGULATIONS ON BUSINESS ASSOCIATIONS

Chapter I.

General Provisions

Section 1.

(1) This Act shall regulate the foundation, organization and operation of business associations with a registered office in Hungary, the rights, obligations and responsibility of the founders and members (shareholders) of business associations, as well as the transformation, merger and demerger (hereinafter referred to jointly as "transformation") of business associations and the termination of such associations without legal successor.

(2) This Act shall apply to professional associations with legal personality (Chapter XIII), furthermore, this Act shall regulate the acquisition of an influencing interest in business associations (Chapter XIV).

Section 2.

(1) Business associations may only be founded in the forms regulated in this Act.

(2) Business associations without legal personality are: unlimited partnerships and limited partnerships. Business associations with legal personality are: joint enterprises, limited liability companies and companies limited by shares.

(3) Under its company name, a business association has legal capacity, may acquire rights and undertake obligations, in particular, may acquire property, conclude contracts, and may sue and be sued.

(4) Only a company limited by shares may issue securities representing ownership in the company.

Section 3.

(1) Business associations may be founded by foreign and domestic natural persons, legal persons or business associations without legal personality for the purpose of pursuing business-like economic activity and such persons may join these business associations as a member, or acquire participation (shares) therein.

(2) With the exception of limited liability companies and companies limited by shares, at least two members are required for the foundation of a business association.

(3) Business associations may also be founded by the members (shareholders) of the business association resolving the termination of such association and the simultaneous foundation of a legal successor business association, or by some of the members of the business association resolving to found a legal successor business association.

(4) The law may prescribe or render possible the foundation of business associations for public interest activities not aimed at profit, or for the discharge of other public duties.

Section 4.

(1) A natural person may be a member with unlimited liability in only one business association at a given point in time.

(2) A minor may not be a member with unlimited liability in a business association.

(3) An unlimited partnership or limited partnership may not be a member with unlimited liability in a business association.

(4) Unless otherwise provided by law, a single-member business association may not be the sole member or shareholder of a business association.

Section 5.

(1) International treaties may establish regulations departing from the provisions of this Act in respect of the participation of foreigners in business associations.

(2) Special securities or benefits for business associations operating with the participation of foreigners may be established by other laws.

Section 6.

(1) The law may prescribe that certain economic activities may only be pursued by certain forms of business associations.

(2) The law may make the foundation of a business association subject to an official license (hereinafter referred to as "license for foundation").

(3) If a legal regulation, not including local government resolutions, requires an official license (hereinafter referred to as "business license") for the pursuit of certain economic activities, the business association may only pursue the activity in question when in possession of such license.

(4) Unless otherwise provided by legal regulations, not including local government resolutions, activities subject to qualification may be pursued by business associations only if there is at least one person among its personally active members, its employees or parties acting for the benefit of the business association, on the basis of a permanent civil law contract concluded with the business association, who satisfies the qualification requirements set forth by law.

Section 7.

(1) Legal declarations and resolutions prescribed by this Act shall be communicated to addressees in writing or in some other verifiable manner. If this Act does not establish a deadline for a declaration or the performance of an act, such declaration or act shall be performed without delay, or shall be communicated to the addressee without delay.

(2) If a document has been sent by mail, such shall be considered to have been received at the point in time indicated on the notice of receipt, for registered mail on the fifth working day following dispatch, unless there is evidence to the contrary.

Section 8.

(1) The provisions of the Labor Code shall be applied in respect of the rights and obligations of employees employed at a business association, as well as to labor relations.

(2) Participation of a business association's employees in the supervision of its operations is regulated under Sections 36-37.

Section 9.

(1) Members (shareholders) may depart from the provisions of this Act, if so provided for by law. Within the framework of this Act and other legal regulations, members (shareholders) may freely establish the contents of the articles of association (deed of foundation, statutes).

(2) The provisions of the Civil Code shall be applied in respect of the property and personal relations of business associations and their members (shareholders) not regulated by this Act.

Chapter II.

Foundation of Business Associations

Title 1.

Articles of Association (Deed of Foundation, Statutes)

Section 10.

(1) The foundation of business associations is subject to the conclusion of the articles of association; for single-member business associations and close companies limited by shares to the approval of the deed of foundation, and for public companies limited by shares, to the approval of the statutes.

(2) The articles of association and the deed of foundation shall be signed by all members (founders). The articles of association (deed of foundation) may be signed on behalf of a member by a representative of such member having an authorization in a notarial document or private document representing conclusive evidence. The statutes of a company limited by shares shall be adopted by the statutory general meeting.

(3) The articles of association (deed of foundation, statutes) shall be drawn up in a notarial document prepared by a notary public, or shall be countersigned by a lawyer or the legal advisor of the founder.

(4) If the articles of association (deed of foundation, statutes) do not provide for the duration of the business association, such business association shall be considered to have been established for an unlimited duration.

Section 11.

The following shall be set forth in the articles of association (deed of foundation, statutes):

a) the company name and registered office of the business association;

b) the members of the business association, indicating their names (company names) and domicile (registered office), with the exception of shareholders in the statutes;

c) the scope of activities of the business association;

d) the subscribed capital of the business association, as well as how and when the subscribed capital (contribution of the members) is made available;

e) the method of signing for the company;

f) the name and domicile of executive officers;

g) the duration of the business association, if founded for a limited period of time; and

h) any other information required by this Act for the individual forms of business associations.

 

Title 2.

Contribution of Members (Shareholders)

Section 12.

(1) The contribution of all members (shareholders) shall be required for the foundation of a business association. The contribution of the members (shareholders) shall consist of contributions in cash (contributions in cash) and contributions in kind (contributions in kind) transferred to the property of the business association by the members (shareholders).

(2) The law may determine the proportion of contributions in cash and contributions in kind for the individual forms of business associations, and may establish the minimum amount of subscribed capital for business associations operating with the limited liability of members (shareholders).

(3) If the value of the contribution in kind is established by an auditor, the members of the business association, unless otherwise provided by law, may establish the value of the contribution in kind at an amount lower than the value established by the auditor.

(4) A member (shareholder) providing a contribution in kind shall accept responsibility towards the business association for a period of five years from the provision of the contribution in kind, to the effect that the value indicated in the articles of association (deed of foundation, statutes) does not exceed the value of the contribution in kind valid at the time of its provision.

Section 13.

(1) If a member (shareholder) fails to provide his contribution undertaken in the articles of association (deed of foundation, statutes) by the point in time set forth therein, the management of the business association shall order such member (shareholder) to provide the contribution within a period of thirty days. Such order shall also note that failure to perform will result in the termination of membership.

(2) In the event the period of thirty days elapses without performance, the membership shall be terminated on the day following the expiration of such period. The management of the business association shall inform the member thereof in writing.

(3) A member whose membership has been terminated with respect to the provisions of Subsection (2) shall be liable in accordance with the general rules of civil law for damages caused to the business association by virtue of his failure to provide the contribution.

 

Title 3.

Pre-Company

Section 14.

(1) As of the date of the countersignature of the articles of association (deed of foundation, statutes), or such being drawn up in a public document, the business association may operate as the pre-company of the business association.

(2) The executive officers of the business association to be established, as appointed in the articles of association (deed of foundation, statutes) shall act on behalf and for the benefit of the business association to be established until the registration of such. However, during the registration proceedings of the company, the character of the pre-company shall be indicated with the affix "registration in progress" on the business association's documents and in the course of its legal transactions.

(3) A pre-company may pursue business-like economic activities only after submitting the application for the registration of the business association, whereby it may not pursue activities subject to official license until registration.

Section 15.

(1) The rules applicable for the business association to be established shall apply to the pre-company, with the following deviations:

a) with the exception of the cases required by the Act, no changes may take place in the person of the members of the pre-company;

b) with the exception of fulfilling insufficient information orders by the court of registration, the articles of association (deed of foundation, statutes) may not be altered;

c) legal proceedings for the exclusion of a member may not be initiated;

d) no resolution may be made on termination without legal successor, or transformation into any other business association or into a non-profit company.

(2) If the application for registration of the business association is refused, the business association may not acquire further rights or assume new obligations, and shall be obliged to terminate its operation. The members (shareholders) shall accept liability for debts arising from the undertakings of the executive officers according to the rules applicable to the termination of business associations. This provision shall also apply to settlement of the members (shareholders) inter se.

(3) If, as a consequence of the form of the business association to be established, the liability of the members for the obligations of the business association is limited, and outstanding claims remain despite the members (shareholders) accepting liability, the executive officers of the business association to be established shall bear unlimited, joint and several liability towards third parties.

Title 4.

Court Registration of the Foundation of Business Associations

Section 16.

(1) Unless otherwise provided by the Act on Company Registration, Public Company Information and Court Registration Proceedings, the foundation of a business association shall be reported to the county courts (Municipal Court of Budapest) maintaining the register of companies (hereinafter referred to as "court of registration"), for registration and publication, within a maximum of thirty days after conclusion of the articles of association (deed of foundation, statutes). If a license for foundation is required for the establishment of the business association, such report to the court of registration shall be effected within thirty days after receipt of the license.

(2) Business associations shall be established upon entry into the register of companies as of the date of such entry. Rules governing the registration of business associations are set forth in the Act on Company Registration, Public Company Information and Court Registration Proceedings.

(3) Following registration, the Act on Company Registration, Public Company Information and Court Registration Proceedings shall apply to the avoidance of the articles of association (deed of foundation, statutes) and the alteration thereof.

Section 17.

The rights, facts and data constituting a part of the company registration records which relate to business associations, and the members, executive officers and supervisory board members thereof are public information, and shall be published in the official publication entitled Company Gazette, pursuant to the provisions of the Act on Company Registration, Public Company Information and Court Registration Proceedings.

 

Chapter III.

Joint Regulations on the Bodies and Executive Officers of Business Associations

Title 1.

Supreme Body of Business Associations

Section 18.

(1) For unlimited partnerships and limited partnerships the business association's supreme body is the meeting of members; for joint enterprises the council of directors; for limited liability companies the members' meeting; and for companies limited by shares the general meeting. Issues falling within the exclusive competence of the supreme body of business associations are regulated by the provisions on the individual forms of business associations.

(2) All members (shareholders) of a business association are entitled to take part in the activity of the business association's supreme body.

(3) Unless otherwise provided by this Act, the supreme body of a business association may discuss any issue not contained in the invitation to (announcement of) the meeting only if all members (shareholders) are present at the meeting, and unanimously agree to discuss such issue on the agenda.

(4) If, by law or pursuant to the provisions of the articles of association (deed of foundation, statutes), a member (shareholder) may not vote on a particular subject, the member concerned shall be disregarded when stating whether there is a quorum for passing a resolution on such subject.

(5) When passing a resolution, a member (shareholder) who is relieved from an obligation or responsibility through the resolution, or is granted some other benefit to the detriment of the business association, as well as a member (shareholder) with whom an agreement is to be concluded, or against whom legal proceedings are to be initiated as per the resolution, may not cast a vote.

Section 19.

(1) Unless otherwise provided by law or the articles of association (deed of foundation, statutes), the supreme body of business associations shall pass resolutions by a simple majority of votes.

(2) Members (shareholders) who have passed a resolution, in respect of which they knew, or should have known given reasonable care that such resolution was obviously contrary to the significant interests of the business association, shall bear unlimited, joint and several liability for resulting damages.

(3) Upon the foundation of the business association, the executive officers and the supervisory board members, as well as the auditor shall be appointed by the founders (members, shareholders) in the articles of association (deed of foundation, statutes). Thereafter, the executive officers, supervisory board members and the auditor of the business association shall be elected by the business association's supreme body, with the exception of the case contained in Section 33.

(4) No members' meeting (general meeting) shall function in the case of single-member business associations. The sole member or shareholder shall decide on the issues falling within the competence of the business association's supreme body.

Section 20.

(1) Unless otherwise provided by this Act, the business association's supreme body shall decide on the alteration of the articles of association (deed of foundation, statutes), whereby signature of the members is not required. The articles of association (deed of foundation, statutes) altered on the basis of a resolution of the supreme body may also be countersigned by the legal advisor of the business association.

(2) When altering the registered office (business premises) and branch office, or the scope of activities of the business association, the provisions of Subsection (1) shall apply whereby such alteration shall be entered in the minutes drawn up at the meeting of the business association's supreme body, and the decision shall be passed by the business association's supreme body by a simple majority of votes.

(3) Unless otherwise provided by the Act on Company Registration, Public Company Information and Court Registration Proceedings, alteration of the articles of association (deed of foundation, statutes) shall be reported to the court of registration within thirty days after the change taking place.

Title 2.

Management of Business Associations

Section 21.

(1) The executive officers shall conduct the management of the business association pursuant to the provisions governing the individual forms of business associations.

(2) Executive officers shall be understood as the member(s) entitled to management at unlimited partnerships and limited partnerships, the director at joint enterprises, and the managing director (managing directors) at limited liability companies.

(3) Unless otherwise provided by the deed of foundation of a close company limited by shares, management of a company limited by shares shall be carried out by the board of directors, and the members of the board of directors shall qualify as executive officers.

Section 22.

(1) The same person may be elected as an executive officer in three business associations at the most. The person elected shall inform in writing the business associations, at which he is already an executive office, within fifteen days after his acceptance of the new position.

(2) In his capacity as such, an executive officer may not be instructed by the members (shareholders) or the employer of the business association.

(3) Unless otherwise provided by this Act, an executive officer may only be a natural person. The duties of an executive officer may only be carried out in person, no representation is admissible.

(4) The supreme body of a business association may deprive an executive officer (the board of directors) of his competence falling within the scope of management only in the cases and to the extent rendered possible in the articles of association (deed of foundation, statutes).

(5) The provisions of Subsection (2) and (4) may not be applied in the case of single-member business associations. In respect of single-member business associations, the member (shareholder) may deprive an executive officer of his competence and may instruct him in writing. In such cases, the executive officer shall be exempted from the obligation set forth in Section 29 by the decision of the member (shareholder).

(6) The provisions of Subsection (4) may not be applied to the executive officers of business associations, in which a member (shareholder) holds a majority of three-quarters or more of the votes.

Section 23.

(1) A person who has been sentenced to imprisonment by a final judgment due to the commission of a crime may not be an executive officer of a business association until such person is relieved from the detrimental legal consequences related to his criminal record.

(2) A person who has been barred from a certain profession by a final judgment may not be an executive officer in a business association pursuing the activity indicated in such judgment during the force of such sentence.

(3) For a period of three years after the establishment of the insolvency (order of liquidation) of a business association by final judgment, a person who acted as an executive officer at the business association to be liquidated for one year or more during the period of two years prior to the date of the final judgment ordering such liquidation may not be an executive officer of another business association, unless he was specifically appointed as executive officer for the purpose of avoiding the liquidation.

(4) For a period of two years after cancellation of a business association from the register of companies based on cancellation proceedings ex officio, a person who, during the year preceding such cancellation, acted as an executive officer of the terminated business association by the cancellation may not be an executive officer of another business association.

Section 24.

(1) Executive officers shall be elected, or appointed by the articles of association (deed of foundation, statutes), for a definite period of time, but for a period of no more than five years. If no provisions are made in the articles of association (deed of foundation, statutes) on the duration of the mandate of the executive officers by the members (shareholders), the executive officers shall be considered to have been elected for a period of five years, unless the business association is established for a shorter period of time.

(2) The mandate of an executive officer shall take effect by its acceptance by the person concerned. Executive officers may be re-elected, and may be removed by the business association's supreme body.

(3) Unless forbidden by law, performance of the duties of an executive officer may be subject to remuneration. No remuneration may be granted to executive officers during the period of the liquidation proceedings following the establishment of the insolvency of the business association by a final judgment.

Section 25.

(1) With the exception of acquiring shares in a public company limited by shares, an executive officer may not acquire interest in another business association pursuing an activity identical to that of the business association, furthermore, may not be an executive officer in another economic organization pursuing an activity identical to that of the business association, unless rendered possible in the business association's articles of association (deed of foundation, statutes), or the business association's supreme body grants its consent.

(2) An executive officer and his close relatives [Paragraph b) of Section 685 of the Civil Code] may not conclude transactions falling within the scope of activities of the business association in his own name or to his own benefit, unless specifically permitted in the articles of association (deed of foundation, statutes).

(3) An executive officer and his close relatives [Paragraph b) of Section 685 of the Civil Code] may not be elected as a member of the supervisory board at the same business association.

(4) Indemnification claims for damages caused to the business association by violation of the rules set forth in Subsections (1)-(3) may be enforced for a period of one year from the occurrence of such damage.

Section 26.

(1) The executive officers shall be responsible for reporting to the court of registration the foundation of the business association, alteration of the articles of association (deed of foundation, statutes), the rights, facts and data entered in the register of companies and changes therein, as well as any other data required by law.

(2) Executive officers shall bear joint and several liability for any damage resulting from the incorrectness of the data, rights or facts reported, or from the delay in filing or failure to file the report.

Section 27.

(1) Executive officers shall safeguard as business secrets any information obtained regarding the affairs of the business association.

(2) Upon request by the members (shareholders), executive officers shall provide information on the affairs of the business association, and allow inspection of its books and documents. In the event that executive officers do not comply with such request, upon request of the member concerned, the court of registration shall oblige the business association to provide information or to provide for inspection.

(3) Exercise of the right pursuant to Subsection (2) by the members (shareholders) may not infringe upon the business interests or business secrets of the business association.

Section 28.

(1) Unless otherwise provided by the articles of association (deed of foundation, statutes), executive officers shall exercise employer's rights over the employees of the business association. For companies limited by shares, employer's rights shall be exercised by the board of directors within the framework set forth in the deed of foundation (statutes).

(2) The articles of association (deed of foundation) or a resolution by the business association's supreme body may, if there are several executive officers, transfer exercise of the employer's rights to a single executive officer, or to another person employed by the business association.

Section 29.

(1) Executive officers shall conduct the management of the business association with the increased care generally expected from persons occupying such positions, and give priority to the interests of the business association. Executive officers shall be liable to the business association in accordance with the general rules of civil law for damages caused to such by violation of the law, or breach of the articles of association (deed of foundation, statutes), the resolutions of the business association's supreme body, or their management obligations.

(2) In respect of executive officers with joint authorization to sign for the company, and the board of directors of companies limited by shares, the liability for damages caused according to Subsection (1) shall be joint and several. If such damage is caused by a resolution of the board of directors of a company limited by shares, no liability shall lie with a member of the board of directors who did not take part in the decision or voted against the resolution, and informed the supervisory board thereof in writing within fifteen days after passage of such resolution.

(3) The business association shall be liable for damages caused to third parties by its executive officer acting within his sphere of competence as such.

(4) Following termination of the business association without legal successor, indemnification claims may be brought against the executive officers by the members (shareholders) with membership at the time of the cancellation of the business association by the court of registration, for a period of one year following such cancellation by a final judgment. If, during the existence of the business association, the liability of the member (shareholder) for the obligations of the business association was limited, the member (shareholder) may exercise such indemnification claim up to the proportion due to him from the assets distributed upon termination of the business association.

Section 30.

(1) The mandate of the executive officer shall terminate

a) upon expiration of the mandate,

b) upon removal of the executive officer,

c) upon occurrence of statutory grounds for disqualification,

d) upon resignation,

e) upon death of the executive officer.

(2) Executive officers may resign their mandate at any time. However, if so required by the operation of the business association, such resignation shall only take effect on the sixtieth day after the announcement thereof, unless the business association's supreme body has already provided for the election of a new executive officer beforehand. Until the resignation takes effect, the executive officer shall participate in making any urgent decisions and taking any urgent measures.

(3) If the executive office is carried out within the framework of a labor relationship, the rules of the Civil Code on contracts of agency (Sections 474-483 of the Civil Code) shall apply correspondingly in respect of the legal relationship of the executive officer.

 

Title 3.

Supervision of the Operation of Business Associations

Section 31.

(1) If so justified by the number of the members of a business association, or the importance or nature of its activity, or the founders, members (shareholders) deem it otherwise necessary, a supervisory board consisting of no less than three, but no more than fifteen members may be established in the articles of association (deed of foundation).

(2) Establishment of a supervisory board shall be obligatory:

a) for companies limited by shares;

b) for limited liability companies, if the initial capital of the company exceeds fifty million HUF;

c) for any business association, if the annual average of the number of full-time employees employed by the business association exceeds two-hundred.

(3) For a single-man limited liability company, establishment of a supervisory board shall be obligatory only on the basis of Paragraph c) of Subsection (2).

Section 32.

(1) A person elected as a member of the supervisory board shall inform in writing the business associations, at which he is already a supervisory board member, within fifteen days after his acceptance of the new position.

(2) The supervisory board supervises the management of the business association for the business association's supreme body. The supervisory board may request information from the executive officers or the managerial employees of the business association, and may inspect the books and documents of the business association.

(3) The supervisory board shall examine all substantial business policy reports on the agenda of the meeting of the business association's supreme body, as well as any proposals relating to issues falling within the exclusive competence of the business association's supreme body. The business association's supreme body may pass resolution on the report prepared according to Act XVIII of 1991 on Accounting (hereinafter referred to as the "Accounting Act"), and on the appropriation of after-tax profits only in possession of the written report of the supervisory board.

(4) If, in the judgment of the supervisory board, the activity of the management is contrary to the law, the articles of association (deed of foundation, statutes) or the resolutions of the business association's supreme body, or otherwise infringes on the interests of the business association or its members (shareholders), the supervisory board shall call an extraordinary meeting of the business association's supreme body and shall propose its agenda.

(5) Members of the supervisory board shall take part in the meeting of the business association's supreme body with a right of consultation.

Section 33.

(1) The deed of foundation (statutes) of a company limited by shares, or the articles of association of a limited liability company may transfer to the competence of the supervisory board the election and removal of the members of the board of directors (managing director), the establishment of their remuneration, as well as the approval of the legal transactions set forth in the deed of foundation (statutes, articles of association).

(2) The supervisory board shall report at the next meeting of the business association's supreme body on the measures it has taken within the competence transferred to it.

(3) If, within its competence pursuant to Subsection (1), the supervisory board has refused to approve a legal transaction, the executive officers of the business association or the board of directors are entitled to convene the business association's supreme body. In such cases, the members' meeting (general meeting) of the business association may approve the legal transaction by a majority of three-quarters or more of the votes.

Section 34.

(1) The supervisory board shall act as an independent body. The supervisory board shall elect a chairman (if necessary, deputy chairman or deputy chairmen) from among its members. The supervisory board shall have quorum if two-thirds of its members, but at least three members are present. The supervisory board shall pass resolutions by simple majority.

(2) The members of the supervisory board shall act in person, representation is not admissible. A member of the supervisory board may not be instructed in his capacity as such by the members (shareholders) or the employer of the business association.

(3) Meetings of the supervisory board shall be convened and chaired by the chairman. Any member of the supervisory board may request the chairman in writing to convene such meeting, indicating the reason and the purpose thereof. The chairman shall, within a period of eight days after receipt of such request, call a meeting of the supervisory board at a date within a period of thirty days. If the chairman fails to comply with such request, the member shall have the right to convene the meeting himself.

(4) In other respects, the supervisory board shall establish its rules of procedure itself, which shall be approved by the business association's supreme body.

(5) If the number of supervisory board members falls below the number set forth in the articles of association (deed of foundation, statutes), or there is no person to convene the meeting of the supervisory board, the management of the business association shall convene the business association's supreme body in the interest of restoring proper operation of the supervisory board.

Section 35.

The supervisory board may entrust any of its members to fulfill certain supervisory tasks, or may divide supervisory duties among its members on a permanent basis. Such division of supervisory duties shall not concern the responsibility of the supervisory board member, nor his right to extend his supervision to other activities falling within the supervisory duties of the supervisory board.

Section 36.

(1) In the case set forth in Paragraph c) of Subsection (2) of Section 31, the employees of the business association shall take part in the supervision of the operation of the business association by way of the supervisory board. In such cases, one-third of the members of the supervisory board shall be comprised of employees' representatives. In the event of an uneven number, such one-third shall be calculated in such a manner which is more favorable for the employees.

(2) If the business association is established through transformation from an organization, at which employees were not represented in the supervisory board, but the conditions set forth in Paragraph c) of Subsection (2) of Section 31 were fulfilled, it shall be ensured in the articles of association (deed of foundation, statutes) that employees take part in the operation of the supervisory board immediately following transformation.

(3) Employees' representatives taking part in the supervisory board shall, with the exception of business secrets, inform the company's employees by way of the works council.

Section 37.

(1) Following a statement of opinion of the trade unions operating at the business association, the employees' representatives in the supervisory board shall be nominated by the works council from among the employees.

(2) Persons nominated by the works council shall be elected as members of the supervisory board by the business association's supreme body at its first meeting following such nomination, unless statutory grounds for disqualification exist in respect of the nominees. In this case, a new nomination shall be requested.

(3) In the supervisory board, employees' representatives shall have the same rights and same obligations as all other members. If the opinion of the employees' representatives unanimously differs from the majority standpoint of the supervisory board, the minority standpoint of the employees shall be stated at the meeting of the business association's supreme body.

(4) Membership of an employees' representative in the supervisory board shall terminate together with the termination of his labor relationship. Employee representatives may only be dismissed by the business association's supreme body upon the proposal of the works council, unless the works council fails to meet its obligation to make such proposal despite statutory grounds for disqualification.

Section 38.

(1) The period of the mandate of supervisory board members may differ from the period with regard to which the business association's supreme body has elected the executive officers.

(2) With the exception of employee representation, employees of a business association may not become supervisory board members.

(3) In other respects, Subsections (1)-(2) of Section 23, Section 24 and Section 30 shall apply correspondingly with regard to the formation and termination of supervisory board membership, and Section 25 and Subsection (1) of Section 27 with regard to the contents of the legal relationship.

(4) Supervisory board members shall bear unlimited, joint and several liability for damages caused to the business association through the violation of their supervisory obligation.

Chapter IV.

Legal Representation of Business Associations; Authorization to Sign for the Company

Section 39.

(1) Business associations are represented by their executive officers vis- -vis third parties and before the court and other authorities. The right of representation of executive officers may be restricted in the articles of association (deed of foundation, statutes), or may be distributed among several executive officers. Any restriction of the right of representation shall be void vis-....-vis third parties.

(2) The business association's supreme body may confer the right of general representation upon an employee appointed by it (hereinafter referred to as "company secretary"). Employees who otherwise satisfy the requirements of executive officers may be appointed as company secretary. If the business association pursues activities at business premises or branch offices other than its registered office, more than one company secretary may be appointed.

(3) The company secretary shall carry out his duties independently, on the basis of the instructions of the executive officers. If the company secretary questions the legality or expediency of an instruction given to him by an executive officer, he may refer to the supervisory board.

(4) In respect of particular groups of issues, executive officers may invest employees of the business association with the right of representation.

(5) The company secretary and employees entitled to representation may not transfer the right of representation to any other party.

Section 40.

(1) Unless otherwise provided by the articles of association (deed of foundation, statutes), the right of the executive officers of the business association and the company secretary to sign for the company, including disposal over the bank account, shall be exclusive, whereas the joint signature of two persons having the right of representation shall be required for the validity of other representatives signing for the company.

(2) The articles of association (deed of foundation, statutes) may stipulate that an executive officer with joint authorization to sign for the company may jointly sign for the company together with an employee entitled to representation.

(3) Signature for the business association shall be effected on the documents of the business association by the persons entitled to represent the business association signing such documents under the company name of the business association, in accordance with their certified specimen signature.

Chapter V.

Guarantees for the Lawful Operation of Business Associations

Title 1.

The Auditor

Section 41.

(1) Election of an auditor shall be obligatory

a) for companies limited by shares,

b) for limited liability companies, the initial capital of which exceeds fifty million HUF, furthermore, in the case of single-man limited liability companies, and

c) if so prescribed by law.

(2) The business association's supreme body may decide on the election of an auditor even if this is not obligatory.

(3) Persons included in the register of auditors in accordance with the relevant legal regulations may be elected as an auditor.

(4) The auditor shall be elected, or appointed in the articles of association (deed of foundation, statutes) for a definite period, such period not to exceed five years. Following election (appointment) of the auditor, the management of the business association shall conclude a contract in accordance with the general rules of civil law.

(5) If the auditor is an economic organization, it shall indicate the member, executive officer or employee thereof who is personally responsible for auditing. Such person may be appointed only with the consent of the business association's supreme body.

Section 42.

(1) In the case set forth in Section 41, the business association shall have the authenticity and legal compliance of the report prepared pursuant to the Accounting Act examined by the auditor. Without a statement of opinion by the auditor, the business association's supreme body may not decide on the report prepared pursuant to the Accounting Act. Furthermore, the auditor shall examine all substantial business reports proposed to the business association's supreme body from the point of view of whether such contain true data and comply with all legal regulations.

(2) The auditor may inspect the books of the business association, may request information from the executive officers, supervisory board members and employees, and may examine the bank account, the petty cash, the stocks of securities and goods, and the contracts of the business association.

(3) The auditor shall safeguard the information obtained about the affairs of the business association as business secrets.

Section 43.

(1) A founder or member (shareholder) of the business association may not be an auditor. Neither executive officers, supervisory board members, close relatives of such [Paragraph b) of Section 685 of the Civil Code] nor employees of the business association for a period of three years after termination of such capacity, may be elected as auditors.

(2) If the auditor is an economic organization, in addition to the person pursuing the activity of the auditor, the regulations related to personal conflict of interest shall also be applied to all members (shareholders), executive officers and managerial employees of the economic organization.

(3) The person responsible for the audit may not be commissioned to carry out any other work for the business association. Similarly, an auditor economic organization may carry out other duties only if the subject of such commission does not concern the duties of the auditor set forth in the contract indicated under Subsection (4) of Section 41.

(4) Other laws may establish other regulations pertaining to conflicts of interest in respect of auditors.

Section 44.

(1) The auditor shall take part in meetings of the business association's supreme body. If so required, the auditor may be invited to attend the meeting of the management body or the supervisory board with a right of consultation, or the auditor himself may initiate his attendance at such meetings. In this latter case, the request of the auditor may be refused only in exceptionally justified cases.

(2) If the auditor ascertains or otherwise learns that a considerable decrease in assets of the business association is probable, or perceives any other issue which entails the liability of the executive officers or the supervisory board members as set forth in this Act, he shall request that the business association's supreme body be convened.

(3) If the business association's supreme body is not convened, or the supreme body fails to take the decisions required by legal regulations, the auditor shall inform the court of registration exercising legal supervision.

Section 45.

(1) The mandate of the auditor shall terminate upon the removal of the auditor based on the decision by the business association's supreme body, upon expiration of the period of the contract concluded with the auditor, upon the occurrence of statutory grounds for disqualification, or upon termination of the contract by the auditor. The auditor may be re-elected.

(2) In respect of the liability of the auditor, the rules on liability set forth in legal regulations pertaining to auditors, and in the Civil Code shall be authoritative.

Title 2.

Legal Supervision by the Court of Registration

Section 46.

Pursuant to the provisions of the Act on Company Registration, Public Company Information and Court Registration Proceedings, legal supervision of business associations shall be carried out by the court of registration competent for the registered office of the business association.

 

Title 3.

Court Review of Resolutions of Business Associations

Section 47.

(1) Any member (shareholder) of a business association may request a court review of resolutions passed by the organs of the business association with reference to the point that such resolution conflicts with this Act, other legal regulations, or the articles of association (deed of foundation, statutes).

(2) With reference to the violation set forth in Subsection (1), any executive officer or supervisory board member may also initiate court review of a resolution passed by the business association's supreme body.

(3) The claim for court review of a resolution of the business association violating the law shall be lodged against the business association within thirty days after learning of such resolution. Following expiration of a ninety day non-appealable deadline from the date of passing the resolution, the resolution may not be contested even if it has not been communicated to the person entitled to lodge a claim or he has not learned thereof.

(4) The right to lodge claims may not be validly excluded, but shall not be granted to persons who contributed with their votes to the passage of the resolution, except for cases of mistake, misrepresentation or duress.

(5) Lodging a claim shall have no delaying force on the implementation of the resolution, but the implementation of the resolution may be suspended by the court, against which there shall be no appeal.

Section 48.

(1) If a review is initiated by an executive officer of the business association, and the business association remains without an executive officer who can represent the business association, a supervisory board member appointed by the supervisory board shall represent the business association in the proceedings. If the business association does not have a supervisory board, or all the supervisory board members are involved in the proceedings as plaintiffs, the court shall order a curator ad litem to represent the business association.

(2) Resolutions in violation of the law shall be repealed by the court.

(3) The court judgment passed in the course of the review of a resolution of the business association in violation of the law shall also extend to those members (shareholders) who were not involved in the proceedings.

Title 4.

Exclusion of Members by Court Judgment

Section 49.

(1) A member of a business association shall be excluded from the business association by the court based on a claim initiated by the business association against such member, if the continued membership of the person in question would seriously endanger achievement of the business association's purpose.

(2) No claims may be lodged for the exclusion of shareholders. A member may not be excluded from a business association, if the business association has only two members. A member holding three-quarters or more of the votes may not be excluded.

(3) The supreme body of a business association shall pass a resolution to lodge a claim, for which a majority of three-quarters of the votes shall be required. Such resolution shall be made in writing. The person concerned may not vote on the issue of lodging the claim. The claim may be submitted to the county courts (Municipal Court of Budapest) competent for the registered office of the business association within a fifteen day non-appealable deadline from the date of passing the resolution.

(4) A separate claim may not be lodged for court review of the business association's resolution on lodging a claim, however, the defendant may refer to the illegality thereof in the exclusion proceedings.

Section 50.

(1) Both in the first and second instances, the court shall act in extraordinary proceedings for the exclusion of a member. If no other arrangements are required, the hearing shall be set for no later than the fifteenth day after receipt of the statement of claim by the court, or for arbitration proceedings, after formation of the council.

(2) Claims for the exclusion of a member may not be joined with any other claim, and no amendment of the claim or counterclaim is admissible. As compared to the originally submitted statement of facts, the plaintiff may not turn to other factual arguments in exclusion proceedings.

(3) During exclusion proceedings, stay or suspension is not admissible, and court injunctions may not be issued. The plaintiff may withdraw his claim at any stage of the proceedings without the consent of the defendant.

(4) Upon request, the court may suspend the defendant from exercising his membership rights until the end of the proceedings by a final judgment. Such suspension shall not affect the right of the member to the share of after-tax profits due to him. There shall be no appeal against a judgment ordering suspension, however, the court itself may amend such judgment upon request.

(5) With the exception of the cases set forth as obligatory in the Act, during the period of suspension of membership rights, the business association may not alter the articles of association, may not initiate the exclusion of another member, may not resolve the transformation of the business association, and may not resolve termination without legal successor.

(6) The deadline for submitting an appeal against the judgment passed in the exclusion proceedings shall be eight days. Re-opening of the proceedings may not be initiated against a final judgment.

Title 5.

Minority Rights in the Interest of Lawful Operation

Section 51.

(1) Members (shareholders) representing one-tenth or more of the votes may at any point in time request that the business association's supreme body be convened, indicating the reason and the purpose thereof. The articles of association (deed of foundation, statutes) may also grant this right to members (shareholders) representing a smaller proportion of the votes. If the management does not comply with this request within a period of thirty days, upon the request of the members making the proposal, the court of registration shall convene the meeting of the business association's supreme body within a period of thirty days after the submission of a request to this effect. There shall be no appeal against a judgment of the court of registration admitting such a request.

(2) The court of registration shall be obliged to convene the business association's supreme body pursuant to Subsection (1) only if the members (shareholders) making the proposal advance the necessary costs, and provide for all other conditions for the meeting to be held. The business association's supreme body shall decide whether the costs incurred by convening the business association's supreme body be borne by the business association or the persons convening such meeting.

(3) If the business association's supreme body has refused a proposal that the last report prepared pursuant to the Accounting Act, or any event which has occurred in the management during the last two years be examined by an auditor, or, if the decision on a regularly announced proposal to this effect has been ignored by the supreme body, such examination shall be ordered by the court of registration upon a request by members (shareholders) representing one-tenth or more of the eligible votes.

(4) Under penalty of forfeiture of rights, the request set forth in Subsection (3) shall be submitted within a period of thirty days after the date of the meeting of the business association's supreme body. In the event of a judgment admitting such request, an auditor shall be appointed by the court of registration, and the costs thereof shall be advanced by the business association. The business association's supreme body shall decide whether the costs incurred through the activity of the auditor be borne by the business association or the persons proposing the examination.

(5) If the supreme body of a business association has refused the proposal to enforce a claim against the members, executive officers, supervisory board members or against the auditor of the business association, or, if no decision on a regularly announced proposal to this effect has been reached by the business association's supreme body, members (shareholders) representing one-tenth or more of the eligible votes may, under penalty of forfeiture of rights, enforce such claim on behalf of the business association in court proceedings within a period of thirty days after the meeting of the business association's supreme body. The costs of lodging the claim shall be advanced by the business association. However, in the event that the action fails, the costs thereof shall be jointly and severally reimbursed to the business association by the members (shareholders) lodging such claim.

Title 6.

Arbitration Proceedings

Section 52.

(1) In accordance with the provisions of Act LXXI of 1994 on Arbitration, permanent or contingent arbitration may be stipulated in the articles of association (deed of foundation, statutes) with regard to corporate legal disputes.

(2) Legal disputes arising in relation to the articles of association or the operation of the business association in the legal relationship between the business association and its members (shareholders), including former members excluded from, or otherwise withdrawing from the business association, or among the members (shareholders) inter se shall qualify as corporate legal disputes.

Chapter VI.

Termination of Business Associations

Section 53.

(1) The business association shall terminate,

a) if the period of time set forth in the articles of association (deed of foundation, statutes) expires or any other condition of termination is realized;

b) if it resolves its termination without legal successor;

c) if it resolves its termination with legal succession (transformation);

d) if the number of its members declines to one person, unless otherwise provided by the provisions on the individual forms of business associations;

e) upon being declared terminated by the court of registration;

f) upon the order of the court of registration on its cancellation ex officio;

g) if terminated by the court in liquidation proceedings;

h) if so prescribed by the provisions of this Act on the individual forms of business associations.

(2) Business associations shall be terminated upon cancellation from the register of companies.

Section 54.

(1) In the event of termination of a business association, claims to be enforced on the basis of obligations of the business association being terminated shall lapse after a period of five years, unless legal regulations establish a shorter limitation period for certain claims.

(2) If the liability of a member for obligations of the business association was unlimited during the existence of the business association, and his membership was terminated prior to the termination of the business association, the limitation period shall be reckoned from the termination of the membership.

Section 55.

(1) In the event of termination of a business association with legal succession, the legal successor business association shall be responsible for the obligations of the legal predecessor business association. The liability of the members (shareholders) of the legal predecessor business association may be established only if the legal successor business association failed to fulfill its obligation to accept liability.

(2) Members (shareholders) of business associations shall be liable for the obligations of business associations terminated without legal successor.

Section 56.

(1) If the liability of a member for the obligations of the business association was unlimited, joint and several during the existence of the business association, his obligation to accept liability shall also be unlimited and joint and several for the obligations of the terminated business association. A debt incurred with regard to the obligation to accept liability among members shall be divided proportionately to their share in the assets of the business association.

(2) If the liability of a member for the obligations of the business association was limited during the existence of the business association, the liability of the member (shareholder) for the obligations of the terminated business association shall be limited to that share of the assets distributed upon the termination of the business association which is due to such member (shareholder).

(3) A member who has abused his limited liability may not make reference to such limited liability. Therefore, a member of a limited liability company or a company limited by shares, who has abused the separate legal personality and limited liability of the business association to the detriment of creditors, shall bear unlimited, joint and several liability for the unsatisfied obligations of such business association.

(4) The liability of the members according to Subsection (3) shall be valid in particular, if such members disposed over the assets of the business association as if they had been their own, or, if they reduced the assets of the business association for the benefit of others or their own in a way, in which they knew or should have known with due care that the business association would not be able to satisfy its obligations towards third parties as a result thereof.

Section 57.

(1) With the exception of liquidation proceedings and cancellation by the court of registration ex officio, upon the termination of a business association without legal successor, voluntary dissolution is admissible.

(2) In its resolution on the commencement of voluntary dissolution, the business association's supreme body shall appoint the person in charge of voluntary dissolution. In addition to the executive officers of the business association, other persons may also be appointed as the person in charge of voluntary dissolution.

(3) Any of the creditors of the business association, or the members (shareholders) representing one-tenth or more of the subscribed capital may, indicating the reason thereof, request the court of registration in writing to appoint a different person to be in charge of voluntary dissolution. The articles of association (deed of foundation, statutes) may also grant this right to members (shareholders) representing a smaller proportion of the subscribed capital.

(4) The court of registration shall render a decision on requests pursuant to Subsection (3) within eight days. There shall be no appeal against a judgment of the court of registration admitting such request.

(5) The detailed regulations for voluntary dissolution are contained in Act XLIX of 1991 on Bankruptcy Proceedings, Liquidation Proceedings and Voluntary Dissolution.

Section 58.

Chapter VII provides for the termination of business associations with legal succession.

Chapter VII.

Termination of Business Associations with Legal Succession (Transformation)

Title 1.

Joint Regulations on Transformation

Section 59.

(1) Unless otherwise provided in this Chapter, the regulations pertaining to the foundation of business associations shall apply to the transformation of a business association into a different business association.

(2) Merger (consolidation, acquisition merger) and demerger (division, separation) of a business association shall also qualify as transformation of a business association.

(3) Business associations may also transform into non-profit companies (Point 7 of Chapter VI of the Civil Code).

(4) Unless otherwise provided by law, upon transformation according to this Chapter, additional tax or duty obligations shall not result.

Section 60.

(1) Business associations undergoing liquidation or voluntary dissolution may not transform into another business association.

(2) Business associations may resolve transformation into a different business association only if the members (shareholders) thereof have fully provided their contributions as set forth in the articles of association (deed of foundation, statutes).

(3) With the exception of the merger of companies limited by shares, only a close company limited by shares may be founded through transformation.

(4) Business associations being established through transformation may not operate as a pre-company. Therefore, the date of the legal successor business association starting operations may not be an earlier point in time than the day following registration of the business association. Until registration of the legal successor business association, the business association shall continue its activity in its registered form of business association. The fact that the transformation is in progress shall be expressly indicated in the documents of the business association and in the course of its legal transactions.

(5) In the course of the transformation, special rights or benefits granted to certain members (shareholders) shall be entered in the articles of association (deed of foundation) of the business association being established, unless the member (shareholder) concerned expressly waives such right or benefit in writing.

Section 61.

(1) If, on the basis of the data from the report prepared pursuant to the Accounting Act, a business association does not possess equity corresponding to the subscribed capital prescribed for its form of business association in two consecutive years, and the members (shareholders) of the business association do not provide for the necessary equity within a period of three months after approval of the report prepared pursuant to the Accounting Act for the second year, the business association shall be required to resolve transformation into a different business association.

(2) In the course of transformation, a form of business association shall be chosen, for which the Act does not specify a minimum amount of subscribed capital, or for which the subscribed capital can be satisfied by the business association by transformation.

Section 62.

(1) The business association's supreme body shall pass a resolution on the transformation on two occasions.

(2) On the first occasion, based on the proposal of the executive officers and the supervisory board, the business association's supreme body shall establish whether the members (shareholders) of the business association agree on the intent to transform, shall assess in advance which of the members (shareholders) of the business association intend to become a member (shareholder) of the legal successor business association, and shall resolve into what form of business association the business association shall transform.

(3) If the business association's supreme body agrees on transformation, the executive officers shall prepare, as at a reference date defined by the business association's supreme body, the draft source and application of funds statement and the draft inventory of assets of the business association undergoing transformation, the (opening) source and application of funds statement, the draft inventory of assets and the draft of the articles of association (deed of foundation) of the business association being established through transformation, as well as the proposal on rendering accounts with the persons not intending to take part in the legal successor business association as members (shareholders). The members of the legal successor business association shall be entitled to conclude the articles of association (to approve the deed of foundation) of the legal successor business association.

(4) The draft source and application of funds statement of the business association being established through transformation may differ from the draft source and application of funds statement of the business association undergoing transformation:

a) by the contribution of new members (shareholders) joining the business association simultaneously upon transformation;

b) by the contribution of existing members (shareholders) to be provided subsequently, imposed as a condition of transformation;

c) by the proportion of the assets due to members (shareholders) not intending to take part in the business association being established through transformation.

Section 63.

(1) The draft source and application of funds statements shall be prepared in accordance with the methods and in the balance sheet format of the report prepared pursuant to the Accounting Act. The balance sheet of the report prepared pursuant to the Accounting Act may also be accepted as the draft source and application of funds statement of the business association undergoing transformation if the reference date thereof is no more than six months earlier than the second decision on the transformation.

(2) A business association undergoing transformation may re-evaluate its assets and liabilities as shown in the balance sheet of the report prepared pursuant to the Accounting Act.

(3) The detailed regulations of preparing draft source and application of funds statements, draft inventories of assets and those of the re-valuation, as well as the provisions on the establishment of the planned equity and subscribed capital of the business association being established through transformation are included in the Accounting Act.

(4) The draft source and application of funds statements and draft inventories of assets shall be examined by an auditor and, if a supervisory board operates at the business association, by the supervisory board. The auditor of the business association is not entitled to conduct this examination. The auditor who examined the draft source and application of funds statements of the transformation may not be appointed as the auditor of the business association being established for a period of three years after registration of the business association. The value of the assets of the business association and the amount of its equity may not be established at a value which is higher than the value determined by the auditor.

Section 64.

(1) The business association's supreme body shall resolve on the approval of the drafts set forth in Subsection (3) of Section 62 following preparation of such. A period longer than three months may not elapse between the reference date of the draft source and application of funds statements and the date of such decision, with the exception of the case contained in Subsection (1) of Section 63.

(2) The employees' interest representation organs operating at the business association shall be informed of the decision on transformation.

(3) On the basis of the data from the draft source and application of funds statements and the proposal of the executive officers, the share of planned subscribed capital due to members (shareholders) of the business association being established through transformation shall be established, furthermore, the share of assets due to members (shareholders) not intending to take part in the legal successor business association, and the disbursement thereof shall be established in detail. Accounts shall be rendered with respect to the ratio of equity as per the draft source and application of funds statement to former subscribed capital, and that of equity to the balance sheet grand total.

(4) If, after appropriating the amount due to members (shareholders) not intending to take part in the legal successor business association, the equity as per the draft source and application of funds statement of the business association being established through transformation does not reach the minimum amount of subscribed capital as set forth in the Act, transformation shall be considered to have failed, unless in the interest of such transformation, the members (shareholders) of the legal successor business association themselves make the difference available to the business association prior to the application for registration.

(5) The share of assets due to members (shareholders) not intending to take part in the legal successor business association shall be disbursed within a period of thirty days after registration of the business association being established through transformation, unless an agreement with the persons concerned specifies a later point in time.

Section 65.

(1) The business association shall initiate the publication of an announcement on the decision on its transformation at the Company Gazette within eight days after the decision set forth in Subsection (1) of Section 64. Such announcement shall be published in two consecutive issues of the Company Gazette.

(2) Such announcement shall contain:

a) the name, registered office and company registration number of the business association undergoing transformation;

b) the form, name and registered office of the business association being established;

c) the date of concluding the articles of association (approving the deed of foundation);

d) the key data from the draft source and application of funds statement of the business association undergoing transformation and the draft source and application of funds statement of the business association being established, in particular, the amount of equity and subscribed capital, and within the latter, the share of contributions in cash and in kind;

e) the activity of the business association being established;

f) the name and domicile of the executive officers of the business association being established;

g) notice to the creditors (Section 66).

Section 66.

(1) Transformation shall not result in the expiration of claims outstanding against the business association undergoing transformation.

(2) Those creditors, whose unexpired outstanding claims against the business association undergoing transformation originated prior to the first publication of the resolution on the transformation, may demand security up to the amount of their claims from the business association undergoing transformation within a thirty day non-appealable deadline following the second publication of said resolution.

(3) If the liability of a member (shareholder) for the obligations of the business association undergoing transformation is limited during the existence of the business association, the provision included in Subsection (2) shall be applied only if the subscribed capital of the business association being established through transformation is lower than that of the legal predecessor business association as at the time of making a decision on transformation.

Section 67.

(1) The business association being established through transformation is the legal successor of the business association undergoing transformation. The legal successor business association shall be entitled to the rights of the legal predecessor business association, whereas the obligations of the legal predecessor business association shall pass to the legal successor business association, including the obligations contained in the collective agreement concluded with the employees.

(2) If an application of the business association for the issue of an official license is in progress, the business association shall report the decision on transformation to the authorities issuing such license without delay. The holder of the official license shall be the legal successor business association, unless such legal successor fails to meet the conditions for the official license.

Title 2.

Regulations for Individual Forms of Business Associations

Section 68.

(1) If a business association has resolved its transformation into a limited liability company, non-profit company or company limited by shares, the provisions on the share of the contribution in cash and contribution in kind need not be applied when establishing the initial capital (share capital) of the legal successor business association or non-profit company.

(2) In the cases set forth in Subsection (1), in the draft source and application of funds statement of the legal successor business association, those assets shall be identified which will constitute the subscribed capital of the legal successor business association on the basis of the proportionate value of the equity to the balance sheet grand total.

(3) In addition to the items listed under Subsection (2) of Section 65, in the case of transformation into a company limited by shares, the type, category (class) and face value of the shares, and the name and domicile of the supervisory board members, whereas in the case of transforming into a non-profit company, the public service activity shall also be indicated in the announcement of transformation, respectively.

Section 69.

(1) If a company limited by shares transforms into a different business association or non-profit company, when resolving the transformation as defined in Subsection (3) of Section 64, a decision must also be reached on the conversion of bearer shares to registered shares. The shares shall become invalid upon the registration of the business association being established through transformation, and the executive officers of the legal successor business association shall provide for the application of the legal consequences of such invalidity within thirty days after receipt of the resolution ordering such registration. In the course thereof, the provisions of Section 263 shall apply correspondingly.

(2) If a limited liability company transforms into a non-profit company, alteration of the articles of association of the business association undergoing transformation shall suffice in lieu of preparing a draft for the articles of association of the business association being established through transformation.

Section 70.

If a business association transforms into a limited partnership, the amount of contribution of the limited partners shall also be included in the announcement of transformation, in addition to the items listed under Subsection (2) of Section 65.

Section 71.

(1) If an unlimited partnership transforms into a limited partnership, or a limited partnership transforms into an unlimited partnership, alteration of the articles of association of the business association undergoing transformation shall suffice in lieu of preparing a draft for the articles of association of the business association being established through transformation.

(2) A change in the form of business association as set forth under Section 104 shall not qualify as transformation.

Title 3.

Merger of Business Associations

Section 72.

(1) In the course of the merger of business associations, the joint regulations on transformation and the regulations on the form of business association being established through transformation shall be applied with the deviations included in Sections 73-75. Mergers may take the form of acquisition merger or consolidation.

(2) Following the resolution on transformation, the executive officers of the business associations involved in the merger shall provide all information to the members (shareholders) of such business associations regarding the affairs of the business associations related to the transformation.

(3) On the basis of the decision of the business associations involved in the merger, the same independent auditor may act in the course of the examination of the draft source and application of funds statements for all business associations.

(4) If any of the business associations are not be entitled to certain rights (e. g. the right to issue shares) from among the combining business associations, only those business associations which possessed such rights may be considered as legal predecessor with respect to the exercise of such rights.

(5) In the course of mergers, the provisions of the Act on the Prohibition of Unfair Market Behavior and the Restraint of Competition on the supervision of the interpenetration of enterprises shall also be applied.

Section 73.

(1) In respect of acquisition mergers, the target business association shall terminate and its assets shall devolve to the acquiring business association as legal successor, whose form of business association shall remain unchanged.

(2) In respect of acquisition mergers, the face value of the participation of the target business association in the acquiring business association shall be disregarded when establishing the subscribed capital of the legal successor business association.

(3) In respect of acquisition mergers, the initial capital (share capital) of an acquiring limited liability company or company limited by shares may not be increased by the value of own capital contributions or the face value of shares owned by the target business association.

(4) In respect of acquisition mergers, the initial capital or share capital of the acquiring limited liability company or company limited by shares may not be increased by the value of those capital contributions or the face value of shares of the target business association which are owned by the acquiring business association.

(5) The value of the participation indicated under Subsections (2)-(4), or the value of the capital contributions or shares may no longer be included in the draft source and application of funds statement of the business association being established.

Section 74.

(1) In respect of consolidations, the combining business associations shall terminate and their assets shall devolve to a new business association being established as legal successor through transformation. In the course of consolidation, only business associations having the same form of business association may choose a different form of business association for the legal successor business association. In all other cases, the legal successor business association may only be established in the form of business association of one of its legal predecessors.

(2) In respect of consolidations, the value of own capital contributions and the value of shares of the business associations, as well as the value of their mutual participation shall be disregarded when establishing the subscribed capital of the legal successor business association. In such cases, the provisions of Subsection (5) of Section 73 shall be applied.

Section 75.

(1) In respect of all forms of business associations, if the business association's supreme body has resolved in favor of the merger, the executive officers of the combining business associations shall prepare the draft merger agreement, in which the following shall be defined:

a) the name, registered office and company registration number of the combining business associations, the form, name and registered office of the business association being established;

b) the method of merger, the date of concluding the articles of association (approving the deed of foundation, statutes) of the legal successor business association;

c) in respect of acquisition mergers, the necessary alterations in the articles of association (deed of foundation) of the acquiring business association;

d) in respect of consolidations, the draft of the articles of association (deed of foundation) of the new business association.

(2) In addition to the items listed under Subsection (2) of Section 65, the method of merger shall also be indicated in the announcement of transformation (merger).

Title 4.

Special Regulations on the Merger of Companies Limited by Shares

Section 76.

(1) A public company limited by shares may be established through merger only if the acquiring business association is a public company limited by shares, or the combining business associations are public companies limited by shares.

(2) In the event of a merger of companies limited by shares, in addition to the items listed under Subsection (1) of Section 75, the following shall also be defined in the merger agreement:

a) the share exchange ratio of the merging companies limited by shares;

b) the detailed rules for the transfer of the shares of the acquiring business association;

c) the point in time, following which the shares are entitled to a portion of after-tax profits;

d) the rights granted by the legal successor business association to the shareholders invested with special rights (in particular, with regard to the benefits due to founders, or the rights attached to preference, employees' or interest-bearing shares) or to the holders of other securities, as well as the proposal on arrangements related thereunto.

(3) Simultaneously upon preparation of the merger agreement, the executive officers of the combining business associations shall prepare a written report in which the necessity of the merger and the share exchange ratio are justified on the basis of legal and financial considerations. If the assessment met with particular difficulties, such shall also be stated. Upon the request of shareholders and at the cost of the business association, full or summary copies of the documents accessible to shareholders shall be prepared.

(4) The auditor preparing the draft source and application of funds statements shall make a statement on what methods the company limited by shares used for establishing the exchange ratio set forth in Paragraph a) of Subsection (2), what value each of these methods resulted in, and whether the exchange ratio is correct in his opinion. If the assessment met with particular difficulties, such shall also be stated.

(5) The auditor acting in accordance to the provisions of Subsection (4), or any other expert independent of the merging companies limited by shares shall make a statement, in a report prepared on commission by the companies limited by shares, regarding the sound foundations of the contents of the draft merger agreement, and the written report of the executive officers. Such statement shall also contain an opinion on whether the planned merger endangers the satisfaction of creditors' claims outstanding against the companies limited by shares.

(6) In respect of convertible bonds, the company limited by shares being established through the merger shall provide such entitlements to bond holders, which are at least equivalent to the entitlements they possessed in the legal predecessor business association, unless each of the bond holders gives his consent to the change of entitlement. Holders may also claim the redemption of convertible bonds or bonds with subscription rights issued by the combining business associations from the legal successor company limited by shares. The provisions of this Subsection need not be applied if, upon the issue of the security, the position of bond holders in the case of an eventual merger had been defined in advance.

Section 77.

(1) Thirty days prior to the date of the general meeting resolving the approval of the merger agreement, the draft merger agreement, the written report prepared by the executive officers of the merging companies limited by shares, and the report of the auditor or independent expert containing his opinion on the draft merger agreement and on the written report shall be submitted by the companies limited by shares involved in the merger to the court of registration keeping the register of merging companies limited by shares.

(2) For a period of thirty days prior to the second general meeting resolution on the merger, all shareholders of the business associations involved in the merger shall have the right to become acquainted with the contents of the reports of the combining business associations prepared pursuant to the Accounting Act over the previous three years, in addition to the documents prepared for the resolution of the general meeting.

(3) If there are several categories or classes of shares, Section 238 shall be applied correspondingly when passing a resolution on merger.

(4) Based on corresponding application of the provisions contained in Subsection (2) of Section 66, creditors of companies limited by shares involved in the merger may demand security if they certify that such merger endangers the basis of satisfying their claims, provided that the companies limited by shares involved in the merger have not granted security to such creditors at an earlier point in time.

(5) The provisions contained in Subsections (2)-(5) of Section 76 and Subsections (2)-(3) may not be applied if the acquisition merger or consolidation takes place between companies limited by shares, in the case of which either of the companies limited by shares operates as a single-member business association of the other company limited by shares.

Title 5.

Demerger of Business Associations

Section 78.

(1) In the course of the demerger of business associations, the joint regulations on transformation and the regulations on the form of business association being established through transformation shall be applied with the deviations included in Sections 78-79. Demergers may take the form of division or separation.

(2) The supreme body of business associations may resolve the demerger of the business association into several business associations. A public company limited by shares may not be established through demerger.

(3) In respect of divisions, the business association being divided shall terminate and its assets shall devolve to the business associations being established as legal successors through transformation.

(4) In respect of separations, the business association from which separation is effected, shall continue to operate in its previous form following alteration of the articles of association (deed of foundation, statutes), while a new business association shall be established with the participation of the separating members (shareholders) and use of a part of the assets of the business association.

Section 79.

(1) In addition to the provisions of Subsection (2) of Section 62, the business association's supreme body shall also examine which legal successor business association the members (shareholders) of the business association intend to become a member in.

(2) The executive officers of the business association shall prepare the draft terms of demerger, in which the following shall be defined:

a) the form, name, registered office and company registration number of the demerging business association, and the name and registered office of the business associations being established;

b) the method of demerger, and the date of concluding the articles of association (approving the deed of foundation) of the business associations being established through the demerger;

c) the proposal on the distribution of assets, that is, the distribution of the assets of the business association among the members (shareholders) of the demerging business association and the principles thereof, as well as the proposal on the division of the rights and obligations of the demerging business association;

d) in respect of separations, the necessary alterations in the articles of association (deed of foundation) of the remaining business association, as well as the draft of the articles of association (deed of foundation) of the business association being established through separation;

e) in respect of divisions, the draft of the articles of association (deed of foundation) of the new business associations being established.

(3) The legal successors of demerging business associations, including those business associations from which separation was effected, shall be liable for the obligations of the business association originating prior to demerger in proportion to the distribution of assets.

(4) If any of the assets has not been provided for in the demerger agreement, such an asset or the value thereof shall be due to all legal successor business associations in proportion to the distribution of assets. If an obligation becomes known only after the agreement, liability of the legal successor business associations shall be joint and several. The legal successor business associations shall bear joint and several liability even if, despite providing for an obligation in the demerger agreement, the business association obliged on the basis of the demerger agreement fails to discharge such obligation.

(5) In addition to the items listed under Subsection (2) of Section 65, the following shall also be defined in the announcement of transformation (demerger):

a) the method of demerger;

b) the key provisions of the agreement on the division of the rights and obligations due to the demerging business association, in particular, the proportion of such division;

c) notice to the creditors.

(6) In the event of the demerger of a company limited by shares into companies limited by shares, the provisions contained under Title 4 shall be applied correspondingly.

Title 6.

Duties Following the Registration of Transformation

Section 80.

(1) Upon registration of the legal successor business association, with the exception of the legal predecessor business association in the case of separation, and the acquiring business association in the case of acquisition merger, the legal predecessor business association shall be canceled from company registration records.

(2) Within a period of ninety days after registration of the business association being established through transformation, a final source and application of funds statement and inventory of assets shall be prepared as at the date of registration, both for the legal predecessor business association and the legal successor business association. A positive difference between the equity defined in this source and application of funds statement and in the draft source and application of funds statement shall be accounted for as assets over the subscribed capital, whereas in the case of a negative difference, unless the assets over the subscribed capital provide cover for such, the subscribed capital shall be reduced. The detailed regulations on the final source and application of funds statement and inventory of assets are contained in the Accounting Act.

(3) If the court of registration refuses to register the transformation, or the final judgment ordering registration is repealed, the business association intending to transform shall continue to operate in its previous form.