Opinion Of The Supreme Court Of Hungary Concerning Certain Issues Relating To Pre-Emption Right Regarding The Ownership Interest Held In A Limited Liability Company

The Supreme Court of Hungary issued a Civil Law Opinion on 24 June 2009 on various practical issues concerning pre-emption right in regard of the ownership interest held in a limited liability company (the ownership interest is hereinafter referred to as "quota").

Legal Background

Under the Hungarian Civil Code, co-owners have a statutory pre-emption right before third parties in regard of each other's ownership portion. Unless otherwise prescribed by law, the pre-emption right granted to other persons in specific other legislation has priority over the pre-emption right of co-owners.

Under the Act on Business Associations, with the exception of the company's own quota, a quota held in a limited liability company may freely be transferred among the owners (aka "quotaholders") of the company. In the company's articles of association, quotaholders may grant each other a pre-emption right or may restrict or render conditional the quota transfer to third persons by other means. Furthermore, under the Act on Business Associations, the quotaholder(s), the company or a person designated by the quotaholders' meeting has, in this statutory order, a pre-emption right in regard of the quota to be transferred by means of a sale and purchase agreement, provided that this is not precluded or restricted by the articles of association.

If the quotaholder fails to make a declaration on whether or not he wishes to exercise his pre-emption right within fifteen days from receipt of the purchase offer, he shall be considered not to have exercised his pre-emption right. As for the company or the person it has designated, the deadline open for exercising the pre-emption right is thirty days from receipt of the purchase offer.

Based on the Act on Business Associations, each quotaholder may have only one quota. If a quotaholder acquires another quota, his quota increases by the quota acquired.

The Act on Business Associations also provides that one quota may be owned by several persons. Those persons qualify as one quotaholder from the perspective of the company; their rights, including the conclusion of the articles of association, may be exercised only through their joint representative and they bear a joint and several liability for the quotaholders' obligations.

Opinion Of The Supreme Court

The articles of association of a limited liability company may set forth that the provisions of the Act on Business Associations governing the pre-emption right in the event...