In course of the lifespan of a company, situations may arise where the company needs to acquire treasury shares: for example when an outsider's entry into the company needs to be prevented or when this is necessary to achieve certain strategic goals.
Under the old Hungarian company law regime (applicable before the New Civil Code's entry into force in March 2015) a company could only acquire treasury shares via a sale and purchase agreement, if certain criteria in relation to the company’s equity were met. These criteria meant that a company could only acquire treasury shares (i) if the purchase price is paid from the company’s equity exceeding its registered capital and (ii) if the company was entitled to pay dividends. These requirements were not modified by the New Civil Code and thus still apply if the treasury shares are transferred via a sale and purchase agreement.
The innovation of the New Civil Code is that it introduces a further possibility in addition to the relatively cumbersome sale and purchase process by allowing companies to acquire treasury shares as a gift. The advantage of this solution is that the above criteria in relation to the company’s equity do not apply at all. Therefore, a company may freely acquire treasury shares even if it does not have the required equity.
A company wishing to experiment with this new solution should nevertheless note the following limitations: