The company purpose is of central importance for the foundation of a company and is the guideline for company policy, setting limits for any changes in the company’s activities.
The company’s purpose is among the first things founders of a start-up or any business and enterprise must consider. It must be formulated concisely and in such a way that third parties can clearly identify the activities carried out. Third parties must not be misled as to the company’s field of activity. And a company purpose that infringes the law or is considered immoral in any way will not be tolerated under Swiss law.
Company purpose and executive body
The purpose is a very important instrument for establishing the representation of the executive body of a company. The organs of an Ltd. or an LLC. (CO 718a I, 814 IV) have, according to the law, a well-defined representation: they can do, in the name of it, all acts that conform to the company purpose.
For example, in an Ltd. the company purpose constitutes a guideline for company policy that the board of directors must adhere to. The shareholders can limit the board of directors’ room for manoeuvre with a specific purpose. The board of directors is thus obliged to have important corporate policy decisions concerning new activities approved by the general meeting. With a broadly defined company purpose, the general meeting of the society can open up more entrepreneurial space for the board of directors. In an LLC. the principle is the same, but with the partners’ meeting and the company management as organs.
If the company purpose has to be changed
A qualified quorum of the shareholders’ meeting is required to change the company purpose of an Ltd. or an LLC. (cf. Art. 704 para. 1 or 808b para. 1). Any change or addition to the company’s purpose requires an amendment of the articles of association, since the purpose is part of the legally prescribed content of the articles of association (Art. 626 no. 2 CO). An amendment of the articles of association can only be decided by the general meeting of the Ltd. (art. 698 para. 2 no. 1 CO) or by the partners’ meeting of the LLC. (art. 804 para. 2 no. 1 CO).
In this context, wording with a broader scope is often chosen. This is because changes in the field of entrepreneurial activity often require swift action. At the same time, the holding of a general meeting and its registration in the Registry of Commerce takes some time.
Don’t define the purpose too narrowly
To avoid having to change the company purpose in the Registry of Commerce every time a small strategic adjustment is made, it is advisable not to define the company purpose too narrowly. Too many founders unnecessarily limit themselves in the wording and thus risk amending the articles of association unnecessarily. Therefore, it is necessary to formulate the company purpose in such a way as to preserve as much room as possible for entrepreneurial action. However, the Registry of Commerce does not allow the purpose to be formulated too broadly (e.g. ‘services of all kinds’ or ‘production of goods of all kinds’ will not be accepted for the entry).
Founders should have the purpose of the company verified by an expert in order to avoid rejection by the Registry of Commerce office and at the same time maintain a wide scope for entrepreneurial action.
This blog article does not constitute legal advice, it is made available “as is” and makes no claim to completeness or accuracy. Hoop makes no warranty or liability as to its content. This is excluded to the extent permitted by law. Use is at your own risk. Legal advice is recommended if necessary.
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