What is the business purpose?
The business purpose describes what your company does in terms of business. It shows customers, contractual partners, authorities and banks in which field of activity your company is active.
In the case of a stock corporation, the purpose must be stated in the articles of association (Art. 626 Abs. 1 Ziff. 2 OR). The same applies to a LLC (Art. 776 Ziff. 2 OR). For both legal forms, the purpose is also entered in the commercial register (Art. 45 Abs. 1 lit. g HRegV, Art. 73 Abs. 1 lit. g HRegV).
The most important principle is set out in the Commercial Register Ordinance: The legal entity must describe its purpose in such a way that its field of activity is clearly visible to third parties (Art. 118 Abs. 1 HRegV). Anyone reading the extract from the commercial register should therefore understand what the company does at its core.
However, this does not mean that you have to list every single service, every product and every distribution channel. The purpose should define the field of activity in an understandable way, not explain your entire business model.
How concrete must the business purpose be?
A good business purpose is concrete enough for the commercial register and open enough for entrepreneurial development.
Too general, for example, is: «The company aims to provide services of all kinds.» From this it is not clear whether it is about IT, consulting, gastronomy, construction, marketing, care or financial services. The field of activity remains undetermined.
A wording that combines industry and activity is better. For example: «The company aims to provide services in the field of information technology, in particular the development of software, IT consulting and the operation of digital platforms.»
This wording names the field, the main services and still leaves room for related activities. Exactly this balance is crucial. If you want to formulate the business purpose, you should therefore ask yourself: Can an outside person roughly understand how your company makes money after reading the purpose?
Why an overly narrow purpose is problematic
A purpose that is too narrow can slow you down later. If today you only enter «sale of handmade candles via an online shop», but later offer home accessories, workshops and B2B gifts, the original purpose may no longer fit cleanly.
This is not just a formality. In the case of corporations, the purpose is stated in the articles of association. If it has to be changed, this usually requires an amendment to the articles of association and a commercial register mutation. This causes effort, costs and sometimes delays.
That is why it usually makes sense not to name every single product. Instead of «sale of handmade scented candles made from soy wax», depending on the business model, something like «manufacturing and trade in home accessories, decorative items and related products» may be more suitable.
However, the purpose must not tip over into the opposite. «Trade in goods of all kinds» is too open if it does not show the area in which the company is actually active.
Why an overly broad purpose is also risky
A very broad purpose sounds flexible, but can cause problems. Commercial register entries must be true, must not mislead and must not contradict any public interest (Art. 929 Abs. 1 OR).
If a company lists activities that have nothing to do with its actual orientation, this can be delicate. Particularly sensitive are industries in which certain terms arouse expectations or permits play a role, such as financial services, insurance, medicine or legal advice.
The Federal Supreme Court made it clear in a decision that a company should not simply leave an allegedly no longer applicable and thus misleading description of its purpose. In this case, the description of the purpose in the commercial register justified official investigations, and the company had to bear the costs (BGer 2A.345/2006 E. 3.3.2).
The practical lesson is simple: the company purpose may be strategically formulated, but should not describe a fantasy universe of possible activities.
Examples of good purpose formulations
If you want to formulate the company purpose, examples often help more than abstract rules. The following formulations serve as guidance and must always be adapted to the specific company.
For an IT company, a suitable formulation could be: «The company aims to provide services in the field of information technology, in particular the development of software, IT consulting, the operation of digital platforms and the trade in related products.»
For a marketing agency, something like this is suitable: «The company aims to provide services in the areas of marketing, communication, branding, digital advertising and content production.»
For an online shop, depending on the range, the purpose may be: «The company aims to trade in products in the household, lifestyle and gift items sectors, as well as to provide related services.»
For a consulting company, a formulation like this is often useful: «The company aims to provide consulting and project management services for businesses, particularly in the areas of strategy, organization and digital transformation.»
For a gastronomy company, the purpose can be: «The company aims to operate gastronomy establishments and to provide services in the areas of catering, events and food trade.»
Typical errors in the company purpose
A common mistake is pure advertising language. Statements like «innovative, sustainable and unique solutions for a better future» sound good, but often say too little about the concrete activity. The company purpose is not a pitch, but a factual description of the field of activity.
A second mistake is too much detail. Anyone who lists every product, every function, every target group and every platform makes the purpose unnecessarily rigid. Companies develop. The purpose should not block this development with every small adjustment.
A third mistake is overly general terms. «Services of all kinds», «consulting», «trade» or «investments» are usually too indefinite without closer limitation. A combination of activity and industry is better, such as IT consulting, management consulting, trade in cosmetic products or property management.
A fourth mistake is a contradiction between company name and purpose. If the name suggests a specific activity, the purpose should match. A company with «Trustee» in its name that only describes fashion trade in its purpose can arouse false expectations in third parties. The ban on deception in commercial register law is therefore central (Art. 929 Abs. 1 OR).
Is a secondary purpose necessary?
Many purpose formulations contain a general addition after the main purpose. It is typical, for example, that the company can establish branches, participate in other companies, acquire real estate or conduct any business directly or indirectly related to the purpose.
Such additions can make sense, especially for corporations. However, they should never replace the actual main purpose. The sentence «The company may conduct all business suitable for promoting the purpose» does not say on its own what the company does.
Therefore, the order is important. First comes the concrete main purpose. After that, factually appropriate additions can follow.
A simple formula for the company purpose
If you want to formulate your company purpose, you can use a simple formula: activity, industry, main services and useful addition.
A basic template is: «The company aims to provide [activity] in the field of [industry], in particular [main services]. The company may carry out [factually appropriate secondary activities] as far as these are related to the purpose.»
For a software startup, this could look like this: «The company aims to develop, operate and market software solutions in the field of HR management and to provide related consulting and support services.»
Good purpose formulations are usually sober, clear and rather short. They do not have to be particularly creative. They have to be understandable.
Conclusion
Formulating the company purpose is not an incidental step in the founding process. In the case of stock corporations and LLCs, the purpose is stated in the articles of association and is entered in the commercial register. It must be formulated in such a way that third parties can clearly recognize the field of activity (Art. 118 Abs. 1 HRegV).
The best purpose formulation is neither too narrow nor too broad. It describes the actual field of activity in an understandable way, leaves room for factually related developments and avoids misleading or empty generalities.
As a rule of thumb: If an outside person understands, after reading the purpose, in which industry your company is active and what services it mainly provides, you are on the right track.
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