Court rules on naming branches of foreign companies - International Law Office

International Law Office

Company & Commercial - Germany

Court rules on naming branches of foreign companies

April 11 2011

Facts
Legal framework
Decision


In a resolution of July 1 2010, the Munich Upper Regional Court held that the German regime on the registration of company names also applies to the registration of German branches of foreign companies, such as the German branch of an English private limited company.

Facts

Zahnarztpraxis Ltd (translated as Dental Practice Ltd) operated an office in Munich with two employees. The company provided organisation, billing and administration services for dental practices. The company did not operate a dental practice itself. In 2010 Zahnarztpraxis applied for the registration of a branch in Munich. The application was rejected by the Commercial Register due to the inadmissibility of the company name. In its subsequent appeal the company argued that the term 'dental practice' does not imply that the company actually operated a dental practice, as it was common sense that, in Germany, dental practices cannot operate in the legal form of a limited company. Moreover, as the company was registered in England, an EU member, the Commercial Register was not entitled to question the admissibility of the company name. The company's subsequent appeal was rejected by the Munich Upper Regional Court.

Legal framework

The registration of a foreign branch of a limited liability company – including an English private limited company – must comply with the German regime on the registration of company names set forth in Section 13 and following of the Commercial Code. Therefore, in order to be admissible, the company name Zahnarztpraxis Ltd had to be in line with Section 18 of the code. Section 18(1) stipulates that a company name must be suitable for the description of the business and that it must have a distinctive character. Section 18(2) sets out that a company name must not lead to public confusion.

Decision

The court confirmed that the aforementioned provisions also apply to companies that were established in an EU member state, as the protection of the public against deception and misuse, and the interests of other company founders to keep general commercial terms free for all merchants, constitute imperative reasons of public interest which justify a restriction of the freedom of establishment as set forth in Articles 49 and 54 of the Treaty on the Functioning of the European Union (formerly Articles 43 and 48 of the EC Treaty).

The court held that the company name 'Zahnarztpraxis Ltd' was not in line with the requirements of Section 18(1). A mere description of a business or general type of business (eg, the use of the word 'zahnarztpraxis') has no function of individualisation and, moreover, collides with the public interest in keeping mere general business descriptions free for all merchants.

Furthermore, the court held that the company name 'Zahnarztpraxis Ltd' infringed the 'principle of company name correctness', as set out in Section 18(2)(1), as it might have led to the impression that the company was operating a dental practice (although the company's objective was to provide organisation, billing and administration services for dental practices) and thereby contributed to public misconception as to the field of activity in which the company operated. In contrast to the company's opinion, the court held that the threat of such misconception could not be eliminated by adding the legal form 'Ltd' to the name, since such a specification of legal form gives no information as to the field of activity. The public cannot be expected to know that, in Germany, a dental practice cannot be operated in the legal form of a limited company, especially given that the applicable provisions differ from region to region. Even if members of the public are aware of the existing legal restrictions for the operation of dental practices, they may be under the impression that the dental practice in question operated under infringement of the legal requirements set out in the relevant health codes.

For further information on this topic please contact Karl von Hase and Patrizio Caruso at GSK Stockmann & Kollegen by telephone (+49 211 86 28 37 31), fax (+49 211 86 28 37 44) or email (hase@gsk.de or caruzo@gsk.de).


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