In Hungary, a legal entity can separate into multiple legal entities through division or spin-off. In the case of a spin-off, the original legal entity continues to exist, and a portion of its assets is transferred to the newly formed legal entity as its successor.
The legislator supplemented this regulation with the institution of the internal spin-off, stating that "internal spin-off can also occur in a way that the separating legal entity remains, and with a portion of its assets, it creates the successor legal entity, of which it becomes the sole shareholder."
Essentially, what distinguishes internal spin-off from spin-off is that the newly formed "new successor" legal entity is not owned by shareholders of the separating legal entity, but the separating legal entity becomes its sole shareholder. Another important change is that while previously, Private Limited Companies (Zrt.) could not undergo separation, now the possibility of internal spin-off is also provided for them.
Considering that the accounting and procedural rules related to internal spin-off are covered by a separate law, the Act on Accounting and the Act on Transformation, Merger and Demerger of Certain Companies were necessary to modify. The regulations state that the rules of separation are fundamentally applicable to internal spin-off, while simultaneously specifying different rules applicable to the new institution.
As this specific form of corporate separation was not possible before, it is expected that many businesses will take advantage of this opportunity.
Restrictions on Alienation and Encumbrance of Business Shares
From January 1, it is possible for the entitled parties to include restrictions on alienation and encumbrance not only in the company's articles of association and member list but also in the publicly accessible company register.
Extension of Information on Pledge
The new rules of the Civil Code on pledges now require the disclosure of the amount of the claim and the maximum amount in the company register regarding pledge rights burdening business shares. This means that the scope of registration data related to pledge rights encumbering business shares is extended. This data extension for registered and existing pledge rights on business shares can only be made through the amendment requests of the parties involved.
With the introduction of these new legal institutions, the legislator has provided new solutions for business entities, meeting the serious demand that has emerged in economic life in recent years.
By Lilla Majoros, Attorney at law, KCG Partners Law Firm