Civil Code (1959, as amended)

CIVIL CODE, ACT IV OF 1959, AS AMENDED (unofficial translation, excerpt)



Chapter V  Legal Capacity; Establishment and Termination of Legal Persons

Section 28

(1) The State, as the subject of property related legal relations, shall be deemed a legal person.

(2) According to the legal regulations that govern them, legal persons include state, local government, economic, social, and other organizations.

(3) All legal persons have legal capacity. Unless otherwise provided by legal regulations, the legal capacity of legal persons shall extend to all those rights and obligations that do not inherently pertain solely to individual human beings.

Section 29

(1) The conditions for establishing and terminating legal persons shall be defined by law for each type of legal person. Legal persons may also be established by law.

(2) The name, activity, headquarters, and (unless stipulated in a separate legal regulation) the representatives of each legal person shall be described in the legal regulation, resolution, or document pertaining to the foundation of the legal person.

(3) The representative of a legal person shall be authorized to sign on behalf of the legal person. If a document required by law to be issued in writing is not signed by the representative, the signatures of two persons vested with the right of representation shall be necessary. The signatures of two persons with the right of representation shall always be required for any orders pertaining to a bank account. A legal regulation may deviate for these provisions.

(4) If a legal regulation makes the creation of a legal person contingent upon registration, any change in the registered conditions in respect of third parties can only be effective if the change is registered.

Section 30

(1) Unless otherwise provided by legal regulation or, on the basis of authorization granted by such legal regulation, a declaration of foundation or charter, the organizational units of an legal person (manufacturing units, branch offices, business premises, plants, offices, local representations or groups, basic units, sections, etc.) shall not be legal persons.

(2) The head of an organizational unit shall act as the representative of the legal person in the area determined by the intended operation of the unit. A legal regulation, declaration of foundation or charter may provide otherwise.

Chapter VI:  Special Provisions Pertaining to Different Types of Legal Persons


7.  Non-Profit Companies

Section 57

(1) Non-profit companies are legal persons, serving the common interests of society on a regular basis, without aiming to acquire profits or accumulate assets. Non-profit companies may carry on business-type economic activities in the interest of promoting their non-profit activities. Profits generated by a company's activities may not be distributed among the members.

(2) In respect of non-profit companies, the common regulations pertaining to business associations and the provisions on limited liability companies prescribed in the Act on Business Associations shall be duly applied, with due regard to the differences set forth in this Act.

(3) The articles of incorporation of non-profit companies shall specify the public service activities and, when applicable, any business-type economic activities performed by the non-profit company. The articles of incorporation shall also prescribe the mode of utilizing the assets, described in Subsection (3) of Section 60, for public purposes in the event of the company's termination.

Section 58

(1) Non-profit companies may also be established as the companies of certain legal persons, including companies whose names includes the term "institution", or if a business association is transformed into a non-profit company. In this case, the non-profit company shall become the legal successor of the company (institution) of said legal persons or of the business association.

(2) In respect of the foundation of non-profit companies as described in Subsection (1), the provisions on the transformation of business associations shall be duly applied, unless the legal predecessor is a limited liability company that may be transformed into a non-profit company by having its articles of incorporation amended accordingly.

(3) Non-profit companies come into existence on the day on which they are entered into the register of companies.

(4) The designation "non-profit company" or its abbreviation ("kht.") shall be included in the company's registered name.

(5) Members may also be invited to join non-profit companies through public announcements.

Section 59

(1) All contracts concerning the pursuit of public service activities that are concluded by non-profit companies with agencies responsible for fulfilling the common needs of society shall be approved by the non-profit company's members' meeting.

(2) All non-profit companies are required to establish supervisory boards and choose auditors. The supervisory board, upon revealing any violation of a contract concerning the conditions for pursuing public service activities, shall immediately call a general meeting of the non-profit company's members.

(3) Contracts concluded on the basis of Subsection (1) are public, and any concerned person may have access to them.

Section 60

(1) Non-profit companies may not be transformed into business associations, they may only merge with other non-profit companies or de-merge into several such companies. The provisions of the Act on Business Associations shall be duly applied to such mergers and de-mergers.

(2) Upon termination, the court of registration shall remove non-profit companies from the register of companies, and such companies shall be regarded as terminated.

(3) In the event of the termination of a non-profit company without a legal successor, only the members' core deposits may be disbursed at their original value once all of the obligations have been settled. Any assets remaining thereafter shall be used for public purposes.

8.  Societies and Public Corporations

Section 61

Societies are voluntarily established self-governing organizations that are formed for the purposes defined in their statutes, have registered membership, and organize their members' activities in order to achieve their objectives. Societies are legal persons.

Section 62

(1) The bylaws of societies shall include provisions regarding the society's name, purpose, registered office, and structure.

(2) Societies come into existence when they are registered by the court.

(3) Societies shall manage their assets independently. Societies may not be formed with the principal purpose of performing economic activities.

(4) Societies shall be liable for their debts with their own assets. The members, above and beyond the payment of membership dues, shall not be responsible for the liabilities of the society with their own assets.

Section 63

Societies shall cease to exist if

a) their dissolution or merger with other societies is resolved by its supreme body;

b) they are dissolved or declared terminated by a duly authorized agency.

Section 64

For the purposes of this Act, the provisions pertaining to societies shall govern social organizations formed on the basis of the right of association.

Section 65

(1) Public corporations are self-governing organizations with registered membership whose establishment has been ordered by law. Public corporations perform public duties related to their membership and/or the activities performed by their membership. Public corporations are legal persons.

(2) Public corporations are, in particular, the Hungarian Academy of Sciences, the chamber of commerce, and professional associations.

(3) The law can prescribe certain public duties that must be performed by public corporations. Public bodies have the authorization, defined by law, to fulfill public duties, and they shall exercise such rights through self-management.

(4) The law may prescribe that certain public duties be performed exclusively by public corporations and that certain activities may only be performed by members of public corporations.

(5) Data relating to public duties performed by public corporations are of public interest.

(6) Unless otherwise provided by law, the provisions pertaining to societies shall be duly applied to public corporations.

9.  Companies of Certain Legal Persons

Section 70

(1) Local governments and the national association of cooperatives shall be entitled to establish companies. Such companies are legal persons.

(2) Societies shall only be entitled to establish companies if the authority to do so is granted by the society's statutes.

Section 71

(1) A company's charter must specify, in addition to the facts and circumstances defined in Subsection (2) of Section 29, the name of the founding legal person, the company's initial assets, and other facts and circumstances stipulated by legal regulations.

(2) The names of companies shall include a reference to their activities, and their names shall be selected in order to distinguish each company from other economic organizations.

(3) Companies are deemed established upon registration in the register of companies and they are deemed terminated upon being stricken from the register of companies.

Section 72

(1) The founding legal person shall, within the limits of the law, determine the sphere of activities of a company and shall provide the assets necessary for such activities.

(2) The founding legal person may receive a share of the company's profits remaining after obligations to the state budget have been met to the extent determined in the charter.

(3) The founding legal person is responsible for the liabilities of the company as surety.

(4) The director of a company is appointed and removed by the founding legal person, which exercises other employer's rights regarding the director's employment.

(5) The founding body shall be entitled to stipulate that the general management of the company be carried out by an executive body (in addition to the appointed director). The order of establishing the executive body, the number of its members, and the scope of its authority must be prescribed in the charter, and this and the other matters pertaining to its operation must also be included in the organizational and operating regulations.

(6) The founding legal person shall be entitled to terminate the company.

(7) If the company is terminated without a legal successor (with the exception of liquidation), there shall be a final settlement. The provisions of Act VI of 1977 on State-Owned Companies (frequently amended) shall be applied to the manner in which the final settlement is conducted, with the difference that any remaining assets may be claimed by the founding body.

Section 73

(1) The director represents the company vis-a-vis third persons, before courts and other authorities. The director shall be entitled to transfer such authority occasionally, or with respect to specific categories of affairs, to employees of the company. The authority to represent and sign for the company shall be registered in the proxy book.

(2) The organizational and operating regulations of a company shall be determined by the director in order to ensure the most appropriate organizational structure possible for sustaining the company's activities.

10.  Subsidiaries

Section 74

(1) Economic organizations and other legal persons engaged in economic activities, defined in legal regulations, shall be entitled to establish subsidiaries. Subsidiaries are legal persons.

(2) The charter of a subsidiary shall prescribe, in addition to the facts and circumstances defined in Subsection (2) of Section 29 and in Subsection (1) of Section 71, the manner in which the subsidiary and the founding body will cooperate as well as the rights and obligations of the founding body and the subsidiary in connection with their cooperation.

(3) The provisions pertaining to the companies of certain legal persons shall be applied to subsidiaries with the exception that, unless otherwise provided by legal regulation, the prior consent of the Minister of Finance is not required for the establishment of a subsidiary.

(4) Additional provisions pertaining to subsidiaries shall be determined by a separate legal regulation.

11. Foundations

Section 74/A

(1) Private persons, legal persons, and unincorporated business associations (jointly referred to hereinafter as "founders") shall be entitled to form a foundation in a charter in order to serve a long-term public interest. A foundation may not be formed for the principal purpose of performing economic activities. A foundation shall provide sufficient assets for achieving its objectives. A foundation is an legal person.

(2) A foundation is deemed established once it has been registered by the court. Registration cannot be refused if the charter is in conformity with the conditions prescribed in this Act.

(3) A founder may not withdraw a foundation after registration.

(4) A foundation is registered by the county court of competency in the area of the foundation's registered office or by the Metropolitan Court of Budapest (jointly referred to hereinafter as the "court"). The application for registration shall be submitted to the court by the founder with the charter attached.

(5) The court shall, in nonlitigious proceedings, expedite its decisions concerning registrations. The court shall also send a copy of its decision on registration to the public prosecutor's office.

(6) A foundation is deemed terminated upon removal from the register. The relevant provisions concerning the registration of a foundation shall be duly applied to removal.

Section 74/B

(1) The charter of a foundation shall contain:

a) the name,

b) the purpose,

c) the available assets and the manner in which they are to be utilized, and

d) the registered office.

(2) A founder may prescribed the conditions of joining along with other options in the charter.

(3) A founder shall, in the charter, be entitled to declare an organizational unit of the foundation to be an legal person, if such organizational unit has an independent administrative and representative body, and if it has the necessary assets, allocated from the assets assigned for the purposes of the foundation, for operation.

(4) If a founder allows others to join the foundation (open foundation), anybody may join the foundation under the conditions set forth in the charter. For the creation of an open foundation, assets that are at least sufficient for commencing operation must be made available to the foundation.

(5) A founder shall be entitled, in justified cases, to amend the charter, without causing any injury to the foundation's name, purpose, or assets. The provisions on the registration of a foundation shall otherwise be appropriately applied to amending the charter.

(6) The provisions governing the financial management of societies [Subsection (3) of Section 62] shall be applied to the financial management of foundations.

Section 74/C

(1) A founder shall be entitled to designate a managing body in the charter or create a separate organization for such purpose. The managing body (organization) shall represent the foundation.

(2) The court shall order the appointment of a managing body (organization) if the founder has failed to provide for one or if the managing body (organization) does not undertake to perform this task.

(3) A managing body (organization) in which the founder is entitled, directly or indirectly, to assert any controlling influence regarding the utilization of the foundation's assets may not be appointed or established.

(4) The founder, if establishing a separate organization for the management of the foundation, shall prescribe the composition thereof in the charter and designate the person authorized to represent the foundation. If more than one person is authorized to represent the foundation, the founder shall also prescribe the manner and extent to which the right of representation can be exercised. Any limitation on the right of representation shall have no effect vis-a-vis bona fide third persons.

(5) The foundation shall be liable for any damages caused to a third person by the managing body (organization) or an officer (member) thereof in the course of fulfilling its/his responsibilities. An officer (member) who causes damage to the foundation shall be liable for the damage caused in that capacity in accordance with the general rules of civil law.

(6) If the activities of the managing body (organization) jeopardize a foundation's objectives, the founder shall be entitled to dismiss the managing body and appoint another body (organization) to replace it. The court shall be entitled to do this following the death or termination of the founder.

Section 74/D

If a foundation has been endowed by will, the court shall be notified thereof; such foundation shall be deemed a public charge if its endowment is not in conformity with the conditions prescribed by law.

Section 74/E

(1) The court shall remove a foundation from the register, if:

a) the objective defined in the charter has been realized;

b) the period of time defined in the charter has elapsed;

c) the condition defined in the charter has occurred.

(2) A foundation shall also be removed from the register if the court orders it to be terminated or merged with another foundation.

(3) On the basis of a petition filed by the public prosecutor's office, the court shall order the termination of a foundation if it has become impossible to achieve its objective, or if the foundation's registration is refused owing to a change in the law.

(4) The court may terminate a foundation if any of the activities of the managing body (organization) jeopardize the objective of the foundation and the founder, despite a court order, fails to dismiss the managing body and appoint another body (organization) to replace it.

(5) Unless otherwise stipulated in the charter, the assets of a terminated foundation shall be allocated by the court for the support of another foundation with a similar purpose.

(6) Upon the joint request of the founders, the court shall, for the purpose of establishing a new foundation or merging with another foundation, be entitled to order the merger of the foundations, if such merger is in consonance with realizing the objectives of the foundations concerned. For the court proceeding, the new or duly amended charter shall also be attached to the application for the merger of foundations, while the provisions pertaining to the registration of foundations shall be applied with regard to other issues.

Section 74/F

(1) The public prosecutor's office shall, in accordance with the relevant regulations, exercise legal supervision of foundation activities.

(2) The public prosecutor shall be entitled to file for court action if the legitimacy of a foundation's activities cannot be otherwise ensured. The court shall order the foundation's management to restore the lawful operation of the foundation by a specific deadline. The court shall terminate the foundation if the management fails to comply by the aforementioned deadline.

Section 74/G

(1) A public foundation may be established by Parliament, the Government, or the representative body of a local government for the purpose of continuous performance of public responsibilities. The establishment of public foundations can be made mandatory by law.

(2) For the purposes of Subsection (1), the state or local government responsibilities that are prescribed by legal regulation to be provided by the state or local government shall be deemed as public responsibilities. The establishment of a public foundation shall not affect the obligation of the state or local government for fulfilling such responsibilities.

(3) A public foundation may also be formed by a foundation donating its entire assets, with the consent of the founder, to a duly authorized body in order to establish a public foundation with the same objective. The party entitled to form a public foundation, if it accepts the donation, shall establish the public foundation together with the foundation's founder. The foundation shall be terminated upon the establishment of the public foundation, which shall thereby become its legal successor, and the founders of the public foundation shall, unless otherwise provided in the charter, exercise the founders' rights together.

(4) A body entitled to found a public foundation shall only be entitled to establish foundations that are public foundations.

(5) When a public foundation is established, the charter shall also specify the managing body; or a separate body, including the body entitled to supervise the managing body, shall be created for this purpose.

(6) The charters of public foundations must be published in an official gazette.

(7) Unless otherwise provided by law, anybody shall be entitled to join a public foundation without conditions; however, the charter can stipulate that joining is contingent upon the approval of the managing body (organization).

(8) The managing body (organization) shall report to the founder annually on the operation of the public foundation, and it shall publish the most important details of its financial affairs. The legitimacy and propriety of the financial management of public foundations, with the exception of public foundations founded by the representative body of a local government, shall be overseen by the State Audit Office.

(9) The court shall, upon the founder's request, terminate a public foundation in a non-litigious proceeding if there is no longer any need for the public responsibility, or if the public responsibility can be performed more efficiently in another way or through a different organizational structure. When a public foundation is terminated, the foundation's assets shall, after satisfying any creditors, remain with the founder, who shall use the assets for a purpose similar to that of the terminated public foundation and shall appropriately inform the public thereof.

(10) Concerning those matters not specifically regulated, the provisions pertaining to foundations shall also be applied to public foundations.

12.  Professional Associations

Section 74/H

(1) A professional association is an incorporated cooperative association founded by its members in order to promote their business activities, coordinate their economic activities, and represent their professional interests. A professional association shall not aim for profit; its members shall sustain unlimited joint and several liability for any liabilities exceeding its assets.

(2) A professional association may also pursue other service and joint economic activities in support of its coordination duties.

(3) Professional associations come into existence when they are entered into the register of companies, effective as of the day of registration.

(4) The designation "professional association" shall be indicated in the corporate name of the cooperative association.

(5) The detailed regulations on professional associations shall be established in a separate law.