A shareholder’s ownership percentage does not always reveal who truly controls a company. In an acquisition, joint venture or minority investment, influence depends as much on negotiated governance rights as on the shares held. This is particularly relevant for foreign investment in Hungary. An investor may want existing management to run the business while retaining a say over decisions that could materially affect its investment. The aim is to protect the investment without slowing the company down.
Ownership alone does not determine influence
The usual starting point is a list of reserved matters requiring the investor’s consent. Examples include material acquisitions, disposals, financing arrangements, changes to the business plan, entry into new markets and contracts above an agreed value. These rights can give a minority shareholder meaningful protection even though it cannot carry an ordinary shareholder vote alone.
The list must remain selective. If routine contracts, recruitment or modest expenditure also require shareholder approval, governance soon becomes an obstacle to business. Approval thresholds should reflect the company’s size, transaction volume and decision-making speed – and not be copied from another deal.
Influence can also be exercised through management appointments and representation rights. An investor-appointed managing director may have individual signing authority, favouring speed, or joint signing authority, providing stronger oversight. The right model depends on trust between the shareholders and the company’s operational needs.
Under Hungarian company law, internal approval restrictions are generally not effective against third parties. A contract signed by a managing director with valid representation rights may bind the company even if an internal consent is missing. The director may face internal liability, but the transaction will not necessarily be affected. Internal approvals and signing rights must therefore form one coherent system.
Building a governance system that works
Effective corporate governance involves more than veto rights. Investors not participating in daily management can rely on financial reporting, access to budgets and business plans, and notification of material events. Well-designed information rights often identify problems earlier than a formal approval mechanism.
Reporting obligations also require balance. Investors need timely, relevant information, while management needs clear deadlines and formats that do not create a disproportionate administrative burden.
An investor committee can review proposals before they reach the board or shareholders’ meeting. A supervisory board may receive decision-making powers over clearly identified matters in the articles of association. These solutions add scrutiny without transferring the company’s entire management to the investor.
Hungarian law nevertheless sets boundaries: an additional body cannot take over powers allocated by law to another corporate body. Responsibilities must remain clear, and the documents should specify what happens if approval is refused. Escalation procedures, time limits and deadlock mechanisms are therefore as important as the veto right itself.
A practical governance system should answer three questions: who decides, how quickly must they decide, and what happens if they cannot agree? If any answer is unclear, even an extensive rights package may fail when most needed.
Governance begins from incorporation
Governance matters not only in M&A transactions, but also when starting a business. Anyone considering company formation in Hungary or seeking to set up a company in Hungary should address decision-making powers before company registration in Hungary. The same applies where an international group intends to establish a company in Hungary or operate through a Hungarian subsidiary.
The articles of association, shareholders’ agreement and internal policies must complement one another. Together, they should protect the investor, allow management to run the business and provide a workable route out of disagreement. Standard templates rarely achieve this balance because each ownership structure and business model creates different risks.
An experienced corporate lawyer in Hungary can translate the parties’ commercial expectations into practical governance rules. When selecting a corporate law firm in Hungary, investors should look beyond registration work and consider whether it can provide integrated corporate legal services in Hungary throughout the investment lifecycle.
No governance model can replace trust. Its purpose is to define how the parties will cooperate when interests diverge, not to assume that every decision will become a dispute. The strongest structures combine clear legal safeguards with enough flexibility for the company to grow.