How to appoint and remove officers in a Hungarian subsidiary

Under Hungarian law, there are two forms of holding the position of a corporate officer. First and foremost, the corporate officer’s position should be held by a senior officer, and the title of the position depends on the form of the company. For instance, in the case of a limited liability company, the title of the senior officer is "managing director" (“ügyvezető”), while at the private limited company the corporate officer is the so-called chief executive officer (“vezérigazgató”).

General management tasks may be performed by one or several persons, or in the case of a private or public limited company – by a board of directors. The corporate officer must be of legal age and must have full legal capacity in the scope required for performing his functions. If the senior officer is a legal person, that legal person must designate a natural person to perform the functions of the senior officer in its name and on its behalf.

The senior officer manages the company under a personal service contract or under a contract of employment, as agreed with the company.

There are also special exclusion rules for corporate officers:

• any person who has been sentenced to imprisonment by final verdict for a crime may not be a senior officer until acquitted from the detrimental consequences of having a criminal record;
• person may not be a senior officer if he has been prohibited from practicing that profession;
• any person who has been prohibited by a final court order from practicing a profession may not serve as a senior officer of a legal person that is engaged in the activity indicated in the verdict;
• any person who has been prohibited from holding the office of a senior officer may not serve as a senior officer within the time period specified in the prohibition order;
• conflict of interest: a senior officer may not acquire any share in the capital of the company which is engaged in the pursuit of the same economic activity, as its main activity, as the company in which he or she is a corporate officer. The only exception to this rule is the of public limited company where such exclusion does not exist;
• disqualification: in special cases of liquidation procedures the court of registration disqualifies members or senior officer for 5 years.

The company’s supreme body may decide to appoint one or several managers (« cégvezető ») to assist the senior officers in their work. Managers perform their functions under a contract of employment. Managers are employees who direct the continuous operation of the company on the basis of the senior officer’s instructions.

The first corporate officers of the company must be delegated in the company’s articles of association, and after the company is established, the officers are selected, appointed and dismissed by the members or by the founders. The appointment of a senior officer takes effect when accepted by the person appointed. The appointed officer must also make a declaration stating that there are no grounds for exclusion (see point no. 1.). A corporate official may be appointed for a fixed or indefinite period.

A corporate officer may resign at any time by means of notice addressed to the legal person, delivered to the legal person’s other corporate officer or decision-making body. However, if it is required by any vital interest of the company, the resignation will take effect only upon the delegation or election of a new corporate officer, or, failing this, on the sixtieth day after the announcement is made.

In such cases it is important to emphasize the institution of the so-called hold harmless warrant (« felmentvény »). If the company’s supreme body provides such a warrant to a corporate officer at the time of approval of the financial report, thus acknowledging the senior officer’s management activities during the previous financial year, the company may not bring any action against the senior officer on the grounds of breaching managerial obligations in a claim for damages except if the facts and information underlying the hold harmless warrant proved to be false or incomplete.

Generally, it is easy to remove corporate officers from their position. Members of the company are entitled to dismiss the senior officer at any time, without giving any reason. Such a decision in general can be made by the decision-making body, but in some cases, for instance in the case of a limited liability company or a private limited company, such right can be delegated to the supervisory board in the company’s articles of association.

The mandate of a corporate officer can be terminated in other cases as well:

• upon expiration of the designated term of office;
• if the mandate is subject to a certain condition for termination, when the condition is met;
• by dismissal;
• upon resignation;
• upon death or dismissal of the senior officer without succession;
• if the senior officer’s legal capacity is limited in the scope required for performing his functions;
• upon the occurrence of any grounds for exclusion.
  

The right to receive compensation depends on the contract which determinates the position of the corporate officer. As it was mentioned earlier, the senior officer manages the operations under a personal service contract or under a contract of employment.

Since a corporate officer may be removed by the decision-making body without giving any reason or justification, it can be assumed in general that removal from a position will not result in any compensation to the corporate officer. It is possible for the corporate officer and the company to agree on compensation in the event of dismissal.

However, there are special cases where compensation may be awarded to a dismissed corporate officer or manager (“cégvezető”, see point 1.).

If the corporate officer carries out his tasks under a contract of employment, the special rules of the Labor Code must be applied, for instance, the company may not terminate the employment relationship by notice during pregnancy or maternity leave.
The same rules must be applied to those managers who always carry out their task in the frame of a contract of employment.