Is it easy to do business here?Regulations, laws, improvements

Andrea Jadi Nemeth

22 March, 2013 - Budapest

Budapest International Business Center Conference

Topics

1. Corporate law

2. Employment

3. Innovations and intellectual property

1. Corporate law

Third book of the new Civil Code (effective from March 15, 2014)

- Seleted topics:

• Freedom to „regulate otherwise”

• The right of representation

• Liability of the executive officer

• Limited liability company:

- starting capital

- board of directors

• Limited companies

- financial assistance

1.1. Freedom to „regulate otherwise”

– The provisions of the Act can be replaced by alternate rules that better suit the legitimate purpose of the company.

– Shareholders will be allowed to deviate from the provisions of the Civil Code, unless it is forbidden by the law; or it violates the rights of creditors, employees or the minority of

the shareholders; or it hinders the enforcement of the oversight of the legitimate

operation of the company

1.2. The right of representation

– Restrictions regarding the rights of the representatives will be ineffective towards third parties

unless: the third party had, or should have had knowledge about the limitation (need for approval, or any sort of restrictions)

Therefore: Caution!

Screening of corporate documents is required

1.3. Liability of the executive officer

– New regime:

The general rule for breach of contracts will be applied for damages caused by the executive officers to their companies

– Executive officers will only be able to avoid liability if the damage was attributable to an: Unavoidable Unforeseeable Outside circumstance

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– Fiduciary Duties: Duty of loyalty Duty of care

1.4. Further rules of importance

– Limited liability companies

∙ Starting Capital: 3,000.000 HUF

∙ Board of DirectorsAnglo-Saxon model will be available

– Companies limited by shares ∙ Strict rules on financial support according to the Business Associations Act:

LC’s may not provide financial aid (loans, surety ships) if it’s sole purpose is to assist third persons in the acquisition of the company's’ shares.

∙ The New Civil Code:will allow financial support for private limited companies in order to acquire its own shares (only at market rates + financed from its assets); andthe general meeting decided with a 3/4 majority

2. The new labor law

New Labor Code in Hungary effective since July 1, 2012:

Act I of 2012 on the Labor Code

- Approach

- Termination

- Business transfer

- Liability for damage

- Non-competition obligations

2.1. Termination

New definitions: Ordinary dismissal dismissal Extraordinary dismissal termination with immediate effect

A selection of changes:

Fixed-term employment can be terminated (under special circumstances) Exclusion of the right of termination for a maximum of one year Maximum notice period 1 year 6 months Incapacity from work no longer bans termination, but the notice period starts

only upon the the employee’s return to work Unlawful termination: compensation for lost wages is caped at an absence fee

of 12 months Employee shall not be entitled to severance pay if the ground for termination:

Is the employee’s behavior are the employee’s non-health-related abilities

2.4. EmploymentFurther relevant changes

Business Transfer: employee’s consent is not required ↔ but if the new labour conditions cause „excessive grievance” for the employee right for termination with the same consequences as if the employer had initiated the termination.

Minimum Salary: The Government has the right to declare varying minimum level of salary for different types of employees

Liability of employees:

– cap raised to 4 months’ remuneration

– unlimited liability for gross negligence or willful misconduct

Non-competition agreement–maximum term reduced to 2 years

–minimum compensation reduced to 30%

3. Intellectual Properties, Innovations, data transfer and know-how

The importance of intellectual property Special sectors: pharmaceutical,

transportation, telecom, etc. Separate legislation on patents,

trademarks, copyright, etc. Current regulation in the Civil Code:

Section 86(4):

„Persons shall also be entitled to protection with respect to their economic, technical and organizational knowledge and experience that has pecuniary value.”

3. Intellectual Properties, Innovations, data transfer and know-how

– According to Wikipedia:

„in the context of industrial property (now generally viewed as intellectual property) know-how is a component in the transfer of technology in national and international environments, co-existing with or separate from other IP rights such as patents, trademarks and copyright and is an economic asset.”

Closing thoughts…

„Succes is not final, failure is not fatal: it is the courage to continue that counts.”

- Winston Churchill

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