The Role and Liability of Managing Directors in a Hungarian LLC
Legal framework, practical obligations, personal risk, and governance requirements
The Hungarian limited liability company (korlátolt felelősségű társaság, or Kft.) is the dominant legal form for small and medium-sized businesses in Hungary. One of its central features is the “limited liability” principle, which shields shareholders from personal responsibility for corporate debts beyond their capital contributions.
However, a persistent misconception is that the same protection applies to managing directors.
Under Hungarian law, the managing director is not merely the representative signatory of the company. They are the individual charged with overseeing compliance, safeguarding company assets, and steering critical business decisions. In fulfilling these responsibilities, their personal liability can under certain circumstances be triggered.
1. Legal status and appointment of the managing director
Statutory definition
The Civil Code (Act V of 2013) defines the managing director as the executive organ of the company.
Key responsibilities include:
- representing the company vis-à-vis third parties,
- managing ordinary course operations,
- and making legally binding declarations on behalf of the company.
Unlike a corporate board in larger companies, the managing director in a Kft. typically embodies both executive authority and statutory responsibility.
Appointment and removal
A managing director:
- is appointed either in the articles of association or by members’ resolution,
- can be recalled at any time,
- remains liable for acts taken during the mandate even after removal.
Critically, liability persists after termination, if the conduct occurred while in office.
Personal nature of the position
Although operational tasks may be outsourced or delegated, responsibility cannot.
From the State’s perspective, the managing director is the accountable party.
2. The scope of responsibilities: what the law requires
2.1 Legal and regulatory compliance
Hungarian directors must ensure that the company complies with all relevant laws, including:
- Company law:
Maintaining corporate registers, filing amendments, reporting beneficial ownership. - Taxation and accounting:
- timely submission of returns to the National Tax and Customs Authority (NAV),
- accurate VAT calculations,
- fulfilment of social security and payroll obligations,
- proper bookkeeping practicable within the Accounting Act.
- Annual reporting obligations:
Preparing the balance sheet and profit and loss statement and publishing the annual report on time is not optional — delays can result in:
- fines,
- the company being struck off the register,
- and personal exposure if caused by negligence.
- Employment compliance:
Labour law, minimum wage requirements, workplace safety, and reporting employment relationships. - Sector-specific licensing:
Some industries — food service, financial services, digital assets, manufacturing — require special permissions, registrations, or facility approvals. - GDPR and data handling:
The managing director is ultimately accountable for lawful data processing.
These compliance responsibilities illustrate why directors cannot simply rely on external consultants.
While bookkeepers handle mechanics, legal accountability remains with the managing director.
2.2 Duty of care and fiduciary obligations
Hungarian law embeds a general duty of care similar to common-law fiduciary obligations.
The managing director must:
- act in the company’s best interest,
- exercise ordinary business prudence,
- avoid foreseeable harm,
- and base decisions on reasonable information.
Unlike shareholders, who may prioritise personal preferences, the managing director must prioritise the company’s welfare even where it conflicts with member expectations. The Civil Code treats this obligation as an objective standard — negligence, not intent, is the trigger point.
Examples of violations include:
- signing contracts without evaluating commercial risk,
- entering into commitments without funding,
- continuing loss-making operations without mitigation.
2.3 Duty to protect company assets and ensure financial sustainability
A critical portion of a managing director’s duty concerns financial oversight.
Responsibilities include:
- monitoring the company’s liquidity position,
- maintaining creditor and debtor control,
- avoiding depletion of corporate assets,
- and ensuring business continuity planning.
The law treats these responsibilities seriously because lack of oversight has systemic effects: employees remain unpaid, suppliers suffer losses, and tax liabilities accumulate.
Importantly, maintaining liquidity is not equivalent to maintaining profit — many companies fail due to mismanaged cashflow despite profit on paper.
3. Civil liability: personal responsibility toward the company
If the company suffers loss due to a breach of duty — even unintentionally — the managing director can be held personally liable.
Civil liability applies when:
- the director commits an act or omission contrary to obligations,
- this behaviour causes measurable loss,
- the loss is attributable to negligence or fault.
Examples:
- failure to file taxes leading to fines,
- inadequate contract management resulting in litigation or unpaid invoices,
- unapproved asset disposal,
- missing compliance deadlines.
The company may demand compensation from the director personally.
Compensation claims frequently arise in:
- shareholder disputes,
- liquidation,
- reorganisation,
- or when new management reviews past actions.
4. Liability toward creditors: when personal exposure “breaks through”
The point where most directors underestimate risk is the insolvency threshold.
Once insolvency is foreseeable, the managing director’s primary duty shifts from protecting the company’s interests to protecting creditors.
Failure to recognise or act upon insolvency signals can expose the director personally.
Personal liability can arise if the director:
- continues trading while no reasonable prospect of solvency exists,
- selectively pays preferred creditors,
- accrues new obligations without the ability to meet them,
- or fails to file for bankruptcy where required.
This is known as “wrongful trading”, a concept shared with many EU jurisdictions.
The logic is straightforward:
creditors should not bear losses caused by managerial optimism or denial.
This personal exposure is not theoretical. Hungarian case law confirms that courts may:
- hold the director personally liable,
- disqualify the director from future management roles,
- and in severe cases, attach personal assets.
5. Criminal liability: the final escalation
Certain acts cross the boundary from civil wrongs into criminal offences.
A managing director may face prosecution for:
- insolvency fraud or asset concealment,
- falsification of accounting records,
- tax evasion or fraudulent VAT refunding,
- misuse of corporate assets for personal benefit,
- fictitious invoicing schemes,
- misuse of company funds when insolvency is imminent.
Criminal investigations may result in:
- financial penalties,
- prohibition from future office,
- and in serious cases, imprisonment.
The threshold for liability is often lower than expected.
Demonstrating intent is not always necessary; gross negligence can suffice.
6. Practical strategies for reducing personal risk
Implement internal controls
Directors should establish structured governance frameworks, including:
- cashflow forecasts and liquidity dashboards,
- written internal approval procedures,
- delegation matrices with oversight checkpoints,
- documented procurement and contracting workflows.
Document decision-making
Written records of commercial rationale can be critical evidence in defending a claim.
Directors should keep:
- meeting minutes,
- investment memos,
- risk assessments,
- and communications with advisors.
Engage external advisors
Modern business regulation is multidisciplinary.
Prudent directors secure specialist input from:
- tax advisors,
- corporate lawyers,
- auditors or accounting professionals,
- HR compliance practitioners.
External advice mitigates risk but also demonstrates diligence if questioned later.
Be transparent with shareholders
Misalignment between ownership and management drives many disputes.
A director should communicate major risks clearly and in writing.
Recognise insolvency early
The timing of response often separates safe from liable directors.
Proactive consultation, restructuring, or debt negotiation may prevent exposure.
7. Common misconceptions among directors
Several assumptions repeatedly place Hungarian directors at risk:
Misbelief 1: “The accountant is responsible for filings.”
Reality: Legal responsibility remains with the director.
Misbelief 2: “If the company fails, my personal assets are safe.”
Reality: Only up to the point of compliance; insolvency or misconduct puts assets at risk.
Misbelief 3: “A profitable company cannot be insolvent.”
Reality: Insolvency concerns cashflow, not accounting profit.
Misbelief 4: “Problems can be sorted later.”
Reality: Delay tends to aggravate liability.
Misbelief 5: “The law only punishes intentional fraud.”
Reality: Hungary recognises negligent breach as sufficient ground for sanctions.
Managing directorship in a Hungarian Kft. is one of the most misunderstood corporate roles.
The position carries both authority and substantial personal responsibility.
Directors must:
- safeguard compliance,
- make prudent and informed decisions,
- preserve company assets,
- monitor solvency,
- act in creditors’ interests near insolvency,
- and document their actions.
Failure to do so can trigger liability across three dimensions:
- civil liability towards the company,
- personal liability toward creditors when insolvency threatens,
- and criminal liability in cases of fraud, concealment, or gross misconduct.
Thus, the limited liability of the entity is not a shield for its management.
Competent governance, early awareness of risk, and a willingness to seek timely professional advice form the core of legally sound and defensible directorship.
