Attorney-at-Law Michael Horak, graduate engineer (Electrical Engineering), LL.M. (European Law)
 


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Commercial law

What is the scope of commercial law?

Commercial law centres on the people who practice commerce, the core of commercial law is the law of merchants. It includes the regulations on legal relations between merchants and third parties. Moreover, the German Commercial Code (Handelsgesetzbuch, HGB) regulates among others the use of trade-names and contains provisions about merchant’s auxiliaries, as well as regulates commercial book-keeping and accounting.

The German commercial law originated from the dispersed municipal laws of kingdoms, counties, towns and other local or regional political entities. What makes up the German Commercial Code of 1897 is still mercantile law, with a minor part devoted to commercial transactions. The German commercial law has been to a great extent influenced by the French and Italian commercial law, too.

The statutory basis of commercial law is characterised by its disintegration into a variety of statutes enacted at different times. The sources of the commercial law comprise in the first place the Commercial Code, provisions relating to transportation, law of business associations, the law relating to the industrial property protection, as well as the law relating to negotiable instruments.

What are the fundamental principles and policies of commercial law?

The core of commercial law is the law of merchants, i.e. its substance is status law stipulating the criteria for becoming a merchant and defining the rights and duties attached to this position.

By tradition a fundamental concern of commercial law has been to ensure the unhampered flow of mercantile transactions. Commercial law seeks to keep cumbersome and time-consuming formalities at a minimum so that commercial transactions can be executed more smoothly and quickly than provided for in civil law, which only plays a supplementing role. This is due to a presupposition that a merchant is better suited than others to judge what is commercially viable and what is not. Therefore, commercial law attempts at letting him take higher risks, but also at having him bear the consequences of his errors or bad judgement.

A number of formal requirements do not (or only in part) apply to merchants (Consumer Protection Act, Long Distance Sales Act, Standard Form Contracts Act, etc).

Apart from statutory law, commercial transactions are also based on the usage of trade that the merchants themselves developed, i.e. their mores, customs and other shared practices.

What is the area of application of commercial law?

The German Commercial Code applies without any limitations to merchants.

Under § 1 I of the Commercial Code “any person carrying on a commercial business activity is a merchant”. It is thus not the enrolment in the commercial register that is decisive. A commercial activity is defined primarily as the buying and reselling of goods for profit and on recurrent basis; transportation, sales agency, bailment, insurance and banking may be understood as more or less ancillary to the trading of goods unless it is a ”freelance activity”(self-employment). Within the meaning of § 84 I 2 of the Commercial Code, any person who is essentially free in organizing his work and in determining his working hours is self-employed. It is generally impossible to draw an exact line. Business associations such as the company with limited liability and the company limited by shares are merchants by virtue of their legal form alone.

Commercial law does not apply to the self-employed, those pursuing a scientific or artistic career, as well as farmers, fishermen and timber businesses.

Aside from the concept of the merchant which has been contained in the Commercial Code since it entered into force on 1st January 1900, there exists the concept of the enterprise in the Civil Code. It seems probable in the medium term that the latter concept will be included in the Commercial Code apart from the book-keeping regulations.

Under what circumstances is a no-competition clause binding?

A no-competition clause which can be found in numerous contracts can be agreed upon also for a certain period after the termination of the contract as long as the requirements set forth in §§ 74 ff of the Commercial Code are met. These regulations apply not only to employees who are merchants, but also to other employees according to § 110 of the Trade Regulation Act (Gewerbeordnung).

Apart from the formal requirements, any no-competition clause must be accompanied by granting a compensation and must not provide for a period longer than two years after the termination of the contract (§ 74a I 3 of the Commercial Code).

If the above-mentioned requirements have not been complied with, the clause can often become invalid.

What is a “trade name”?

The commercial register identifies a merchant (or a company, for that matter) by its trade name. The carrying of trade names is governed by rigid rules; under § 18 I of the Commercial Code, a trade name is required to be “true” and “unambiguous”. It must also be “distinctive” (“distinctiveness” being a concept stemming from the area of trademark law), which means that it must be suited to help identify its origin.

Apart from civil names, any descriptions of the company’s business as well as fantasy names as well as combinations of both of these are admissible as statutory trade names. The principles of the company’s uniformity, truthfulness, publicity, exclusiveness and permanence must be complied with.

What information must business letters contain?

Depending on the legal form of a company different laws are applicable. For instance, the limited liability company is governed by the Limited Liability Company Act. According to § 35 thereof, all business letters which are directed to a certain addressee are required to indicate the legal form of the company, the registered office of the company and the number under which the company has been entered into the Commercial Register. Furthermore, it is necessary to indicate the name of the managing director (or directors) and if applicable – of the president of the supervisory board. Similar requirements apply to the public limited company under § 80 of the Public Limited Company Act, for the general partnership (as well as for the limited partnership) under § 125a of the Commercial Code, and for other merchants under § 37a of the Commercial Code.

Under § 14 of the Turnover Tax Act (Umsatzsteuergesetz), all invoices must contain the tax identification number of the company, i.e. the national tax identification number and not the so called value added tax identification number (VAT Reg. No.). The latter can be voluntarily applied for at the Federal Financial Office (Bundesamt für Finanzen) in Saarlouis and is used for the purpose of turnover tax free business transactions within the EU.

What should you take into account when founding a company?

It is recommended to consult a tax advisor and an attorney-at-law when choosing a suitable legal form for your company.

Any person wishing to carry on a trade or business has to obtain a trading licence. In order to apply for such a licence, an application form for the operation of a business has to be filed at a regulatory authority of a town or town district in which the company has its seat. The local chamber of industry and commerce will then contact the founder or founders in order to offer (compulsory) membership and require the payment of subscription fees. If the company is going to employ employees, it must join mutual indemnity association (Berufsgenossenschaft), which usually establishes contact with the company automatically.

Furthermore, you can also look for support and help at the regional chamber of commerce and industry, communities and other public authorities and institutions.

What can we do for you?

Among others, we advise and represent you on the following issues:

  • commercial law and law of business associations, their influence on the whole transactional area of an enterprise;
  • choosing an appropriate legal form regarding the extent of the liability, taxation, capital contributions, employment law, organisation and profitability;
  • annual balance sheets, statements of revenues and losses, annual reports of the company, briefings;
  • rights of a shareholder towards the company and towards other shareholders;
  • law governing a limited liability company (GmbH), rights, obligations and liability of the management of a limited liability company;
  • shares, board of directors, supervisory board, general shareholders’ meeting.

What information do we need to deal with your question relating to commercial law?

The range of issues relating to the area of commercial law is very wide. Usually, however, we need – apart from your legal question, of course - documents, agreements and information relating to the company.

 

 

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© 1998-2007 Attorney at law Michael Horak· Roscherstrasse 12 · 30161 Hannover · Germany
Fon: 0.511.590910.20
· Fax: 0.511.590910.55 · mailto:horak@iprecht.de