Hungarian Corporate Migrations Within the EU

There is a long-standing and yet unresolved debate within the European Union on how to best provide the freedom of movement and establishment for legal entities under the Treaty on the Functioning of the European Union while, at the same time, protecting the interests of public policy or security at national levels, e.g., creditors or local regulators.

Apart from a couple of legal entities the operation of which is harmonized under European law, such as societas Europaea, uniformity between national corporate laws is lacking. Due to their complexity, such harmonized company forms are rarely used by stakeholders, despite being free to move within the EU. Beyond these, it is currently not possible to transfer a Hungarian company’s registered office to another member state without first winding up the company in Hungary and then re-registering it in the other member state. This is because Hungarian corporate law applies the domicile (real seat) theory, meaning that companies acquire the nationality of the state where they maintain their seat. At the same time, Hungarian courts do not register or recognize foreign companies as Hungarian law-governed entities because they transferred their headquarters to Hungary without conducting a standard company establishment procedure ensuring compliance of the company’s operations with Hungarian corporate law.

This Article was originally published in Issue 9.3 of the CEE Legal Matters Magazine.