What is the company purpose?
The company purpose describes what business your company is engaged in. It shows customers, contractual partners, authorities and banks, in which field of activity your firm is active.
In the case of a stock corporation, the purpose must be specified in the articles of association (Art. 626 Abs. 1 Ziff. 2 OR). The same applies to an LLC (Art. 776 Ziff. 2 OR). For both corporate 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 commercial register excerpt should thus 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 sales channel. The purpose should define the field of activity comprehensively, not explain your entire business model.
How specific does the company purpose need to be?
A good company purpose is specific enough for the commercial register and open enough for business development.
Too general is: «The purpose of the company is 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 vague.
A wording that combines industry and activity is better. For example: «The purpose of the company is the provision of 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. This balance is crucial. If you want to formulate the company purpose, you should therefore ask yourself: Can an outsider roughly understand what your company earns money with after reading the purpose?
Why an overly narrow purpose is problematic
An overly narrow purpose can slow you down later. If today you only register «sale of handmade candles through an online shop», but later offer home accessories, workshops and B2B gifts, the original purpose may no longer fit correctly.
This is not just a formality. In corporations, the purpose is written in the articles of association. If it has to be modified, this usually requires an amendment of the articles of association and a commercial register mutation. This causes effort, costs, and sometimes delays.
Therefore, it is usually sensible not to name every single product. Instead of «sale of handmade scented soy wax candles», depending on the business model, «manufacture and trade in home accessories, decorative items and related products» might be more appropriate.
However, the purpose must not swing to the opposite extreme. «Trade in goods of all kinds» is too open if it is not clear from it in which area 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 deceive, 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, that can become delicate. Especially sensitive are industries where 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 a purpose description that is allegedly no longer correct and therefore misleading. In this case, the purpose description in the commercial register justified inquiries by the authorities, 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 formulated strategically, 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 might be: «The purpose of the company is the provision of services in the field of information technology, in particular the development of software, IT consulting, the operation of digital platforms as well as the trade in related products.»
For a marketing agency, the following is suitable: «The purpose of the company is the provision of services in the fields of marketing, communication, branding, digital advertising and content production.»
For an online shop, the purpose may, depending on the product range, be: «The purpose of the company is the trade in products in the field of household, lifestyle and gift items as well as the provision of services related thereto.»
For a consulting firm, a wording like this is often sensible: «The purpose of the company is the provision of consulting and project management services for companies, in particular in the fields of strategy, organization and digital transformation.»
For a gastronomy business, the purpose can be: «The purpose of the company is the operation of Gastronomy businesses as well as the provision of services in the fields of catering, events and food trade.»
Typical mistakes with the company purpose
A common mistake is pure promotional 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 an objective description of the field of activity.
A second mistake is too much detail. Documenting every product, every function, every target group and every platform makes the purpose unnecessarily rigid. Companies develop. The purpose should not block this development at every small adjustment.
A third mistake is overly general terms. «Services of all kinds», «consulting», «trade» or «investments» are usually too indefinite without further limitation. Better is a combination of activity and industry, such as IT consulting, business consulting, trade in cosmetic products or real estate management.
A fourth mistake is a contradiction between the company name and the purpose. If the name suggests a particular activity, the purpose should match it. A firm with «Treuhand» in its name that only describes fashion trade in its purpose can create false expectations with third parties. The prohibition of deception in commercial register law is therefore central (Art. 929 Abs. 1 OR).
Is a secondary purpose required?
Many purpose formulations contain a general addition after the main purpose. Typically, the company can establish branches, participate in other companies, acquire real estate or conduct any transactions that are directly or indirectly related to the purpose.
Such additions can be sensible, especially for corporations. However, they should never replace the actual main purpose. The sentence «The company can conduct any transactions that are suitable to promote the purpose» does not say on its own what the company actually does.
Therefore, the order is important. First comes the concrete main purpose. After that, contextually appropriate additions can follow.
A simple formula for the company purpose
If you want to formulate your company purpose, you can guide yourself by a simple formula: activity, industry, main services and logical addition.
A basic template is: «The purpose of the company is the provision of [activity] in the field of [industry], in particular [main services]. The company can perform [contextually appropriate secondary activities] insofar as these are related to the purpose.»
For a software startup, this could look like this: «The purpose of the company is the development, operation and marketing of software solutions in the field of HR management as well as the provision of related consulting and support services.»
Good purpose formulations are mostly sober, clear and rather short. They do not have to be particularly creative. They must be understandable.
Conclusion
To formulate the company purpose is not an incidental step in the incorporation. In the case of stock corporation and LLC, the purpose is stated in the articles of association and is registered 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 contextually related developments and avoids misleading or empty generalities.
As a rule of thumb: If an outside person, after reading the purpose, understands in which industry your company operates and which services it mainly provides, you are on the right track.
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