The right company form is essential for the success of your business. By reading our article, you will learn about the main characteristics of the most commonly chosen company forms and their advantages and disadvantages.
Choosing the future company form is one of the most important decisions we have to make before founding our company. Each company form promises different benefits, but also entails different obligations, so it is important to know our options. In our article, we will review the most commonly chosen company forms.
Joint venture with minimum capital
A limited partnership is a company that has at least two members: a general partner and a limited partner. This form of company can be ideal for businesses where the limited partner appears more as an investor and the general partner actively manages the company’s affairs, since the general partner is liable for the business’s activities with all his/her private assets, while the general partner is only liable for the financial contribution s/he has made. The structure is also advantageous because the establishment of a limited partnership does not require a large amount of share capital and the administration is relatively simple. Of course, in this case, it is also mandatory to prepare a partnership agreement, which must set out the basic rules of the company’s operation.
The most popular form
Nowadays, the limited liability company (Kft.) form is very popular, the characteristic of which is that the liability of the members is limited in principle, so they are only liable up to the amount of their contributed share capital, which protects private assets from the company’s potential debts. A difference from the Bt. form is that a share capital of at least 3 million forints is required to establish a Kft., and that even one single person can establish such a company. It is also important that it is not necessary for each member to contribute the same amount, but the share capital contribution of each member must be at least 100 thousand forints.
Limited liability company – tailored for large companies
The choice of the joint-stock company form may be suitable for larger, more capital-rich enterprises, which is also due to the fact that a higher share capital is required for its establishment (20 million forints in the case of a Nyrt., while at least 5 million forints in the case of a Zrt.). The basis for the distinction between the two types is that the shares of a publicly operating joint-stock company (Nyrt.) can be traded on the stock exchange due to its name, while the shares of a privately operating joint-stock company (Zrt.) are not publicly traded. In the case of an Rt., the liability of the shareholders is limited, extending only to the nominal value or issue value of the shares but, accordingly, the members have no direct say in the operation of the company.
Individual proprietorship
Although it is not a corporate form in the traditional sense, since only the sole proprietor is active in a sole proprietorship, it is worth mentioning this extremely simple way of conducting economic activity. Its advantage is that the registration process associated with it is less complicated, no start-up capital is required, and the administration is also simpler (the associated certificate can also be requested through the Customer Portal/Client Gate). Due to these advantages, it is often chosen by those who wish to carry out extra economic activity in addition to their already existing employment relationship. However, its disadvantage is that the sole proprietor is liable for the debts of the enterprise with all of his or her assets.
Which one might be best suited for your company?
As we have tried to outline, the appropriate business and/or company form depends on countless factors, such as the goals of the business, the number of participants, the available capital and the willingness to take risks. It is worth considering these carefully before making a decision and, of course, seeking expert advice, as this can determine the success and financial stability of any business in the long run.
