The choice of the company name of stock corporation or limited liability company in practice (Part 1) – General barriers
In principle, the company name can be freely chosen. However, certain restrictions must be observed. For example, the name may not be misleading as to the purpose of the company and factual terms may not stand alone.
According to Art. 944 et seq. of the Code of Obligations (“CO”), a company name must not be deceptive, must be true and must not be contrary to the public interest. On this basis, the commercial registry authorities and the courts have developed an extensive practice. According to this practice, certain criteria are used to define when a company name is considered inadmissible. In the following, we would like to present the principles and illustrate them with some examples.
*Company names must not be misleading as to the purpose of the company (so-called company-purpose relationship).
This is always the case if the company name contains terms that refer to an activity or a product or service that is not mentioned in the description of the purpose or business activity. For example, the term “Rudolf Stahlhandel AG” would not be permitted if the company does not engage in steel trading but has the purpose of managing Mrs. Rudolf’s apartment buildings. In particular, the terms “university”, “hospital”, “public” or “non-profit” are also not permitted, unless the company is really a hospital or actually works for the public good, etc. Also not allowed is the term “bank” or “banker” without having a banking license.
This point is extremely important and can often determine the admissibility of the company name. For example, the designation “Stonehedge Irland Reisen GmbH” would be permissible, provided that according to its purpose it is a travel agency specializing in Ireland. However, the same designation would probably be inadmissible for a regional carpentry business.
*Material terms which describe the activity of the company may not be chosen on their own as a company name.
These terms are available to all and may not be claimed by a single company. Thus, the following examples would not be permitted: “Auto AG”, “Handels GmbH” or “Maler AG”. However, if such a term is supplemented by other elements and the name is individualized in this way, it is permissible to include factual designations in the company name. These can be the name of the owner, the registered office or any combination of characters. For example, “H. Meier Auto AG”, “MiDio Handels GmbH”, “Maler 2000 AG”, “TATA Transport AG”, “Lagerhaus Weinfelden AG” would be permitted.
If a material term does not describe an activity of a company but is fanciful, the designation may be used directly. However, the legal form must then always be indicated in the company name (e.g. “Grüner Esel AG”, “Tiger AG”; not permitted would be simply “Tiger”).
*Legal form-specific company formation – trading companies
Trading companies, and thus also stock corporations and limited liability companies, are free to choose their company name, subject to the general company principles (see above).
The legal form must be indicated in the company name (Art. 950 para. 1 CO). The legal form may be written out in full (” stock corporation” or “limited liability companies”) or abbreviated (“AG”, “ag” or “GmbH”, “gmbh”, “GMBH”).
The company name may contain one or more personal names and it is not required that the listed names correspond with that of a shareholder.
We will discuss the possibility of including geographical terms in the company name in our second article.
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*In German the acronym for a stock corporation is “AG” and for a limited liability company it is “GmbH”
