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Clarifying the Corporate Form in Germany
Under Statute Effective April, 2003

by Jens Nebel *
First published on April 24, 2003

A somewhat obscure change in the German Commercial Code ("Handelsgesetzbuch" - HGB of May 10, 1897, as amended on June 26, 1998) now requires all companies and sole proprietors to clarify their corporate form within their business name. The amendment, known as "Handelsrechtsreformgesetz" (HRefG) and published at BGBl I, p. 1474, went into effect on April 1, 2003, when a temporary statute governing newly-formed businesses expired.

Now, sole proprietors need to state in their firm name the term "eingetragener Kaufmann", which they may abbreviate as "e. K.", "e. Kfm." or "e. Kfr.", the latter being reserved for female sole proprietors, as Section 19(I) HGB requires. In the case of a partnership ("Offene Handelsgesellschaft") or a limited partnership ("Kommanditgesellschaft"), the companies have to clarify their legal forms by the respective terms or by comprehensible abbreviations. Common abbreviations are "OHG" for the "Offene Handelsgesellschaft" and "KG" for the "Kommanditgesellschaft".

With the new rule in effect, the use of business names like "Kraut & Fritz" is no longer permitted in Germany. One of the main purposes of the reform was to ensure a higher level of transparency in trade. Therefore, the amended requirements force proprietors and companies to avoid ambiguity over corporate powers and liability connected with their respective corporate form.

These changes also affect companies or traders operating websites. Under the German Teleservice Act (Teledienstgesetz - TDG), teleservice operators must provide information about the company’s full name, including specifications of their legal form, address, commercial registration number, tax identification number, and, if applicable, the name of the company’s officers.

Under this statute, the information should be easily recognizable and accessible. On January 29, 2003, the Landgericht Düsseldorf ruled that the statutory requirements are violated when a visitor to a website needs to perform several clicks in order to find the information, case number 34 O 188/02. German commentators to the Teleservice Act suggest that the information should be accessible with one click from any page of the website in order to meet the requirements.

These changes have already triggered a new wave of private cease-and-desist orders. A small group of attorneys have committed themselves to this shady business in which companies are systematically approached with aggressive demands for a forbearance agreement. The agreement usually commits them to pay the lawyer’s fees which in fact is the main purpose for such lawyers. Although these attorneys sail close to the wind, there is yet no antidote against this dubious practice. Criminal litigation usually leads to nothing, since most cases fail for lack of proof of the lawyer committed an intentional fraud. See also Christiane Krüger, Private cease-and-desist orders, and Markus Perz, Doing Business As: Auftreten im US-Geschäftsverkehr unter anderem Namen.

* Jens Nebel obtained his law degree from the Ruhr-Universität in Bochum, Germany. He currently is an intern with Berliner, Corcoran & Rowe, L.L.P. in Washington, D.C. Jens Nebel anticipates his German bar admission in September, 2003.