Purpose definition: The compass for new businesses

Defining the business purpose is one of the key elements when founding a new company. Whether it’s a sole proprietorship, LLC, or Ltd., the purpose not only fulfills formal requirements for the commercial register but also reflects a company’s strategic direction and vision.

What exactly is the business purpose?

The business purpose refers to the description of a company’s field of activity as entered in the commercial register. For partnerships, the purpose is directly visible in the registration. For legal entities (e.g., LLC, Ltd., foundations), it must be included in the articles of association and officially notarized. More detailed information about registering a company in the commercial register can be found on the Federal SME Portal.

How detailed should the purpose be?

Many founders wonder whether the purpose should be described as precisely or as broadly as possible. Our recommendation: a clear yet intentionally open formulation usually provides more flexibility – and helps avoid the need for costly amendments to the articles of association with every strategic change.

An example: “The company’s purpose is to provide services in the field of software development and to trade in related products.”
By combining primary and secondary purposes, a company can accurately reflect its activities while staying open to future developments.

Why is the purpose more than just a formality?

A well-thought-out business purpose serves several important functions:

• Legal compliance: The purpose must be compatible with applicable law and must not be immoral. Otherwise, registration in the commercial register may be denied.
• Internal alignment: A well-formulated purpose helps shape the company’s identity – employees and management know what the company stands for.
• External transparency: Customers, partners, and investors get a first impression of the company’s direction and ambitions through its stated purpose.
• Forward-thinking orientation: A modern business purpose should go beyond mere profit maximization. It can convey a sustainable vision and contribute to social value.

A legal basis for registration in the commercial register can also be found in the official Commercial Register Ordinance (HRegV), which sets out the content and structure requirements.

What should founders pay particular attention to?

Based on our experience and current best practices, we recommend considering the following points when defining the business purpose:

• Clarity and conciseness – avoid overly vague or excessively complex descriptions.
• Flexibility – consider potential business expansions and leave room to grow.
• Stakeholder focus – a strong purpose also considers the interests of customers, partners, and employees.
• Regular review – a company’s focus may shift over time. Periodic updates to the purpose ensure continued relevance and consistency.

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.