In legal parlance, a business name (firma) is the designation of an undertaking, whether a sole trader, partnership, or company. The principal rules for creating business names are laid down under the Civil Code (“CC”) and the Commercial Companies Code (“CCC”). The business name of a natural person (individual) is his or her first and last name, and for a legal person, it is its business name. In addition to the basic data provided for under law, the business name may also include other optional designations, such as the scope of business, location, or an alias. The limits are framed above all by the principle of truthfulness: the business name should be sufficiently distinct from business names of other undertakings and it cannot be misleading, particularly regarding the identity of the undertaking (sole trader, partnership, or company), objects and place of business, or supply sources. Pursuant to Article 5 of the Act on Counteracting Unfair Competition of 16 April 1993, any activities in breach of the above are acts of unfair competition.
By definition, a business name incorporating the last name of a third party violates the above requirements. However, Article 439 § 1 of CC provides that an undertaking may authorize another undertaking to use its business name unless it is misleading. It must be noted that no transfer of the business name is involved here, as such a transaction is impermissible and an agreement providing for it would be unconditionally invalid. The authorization referred to above offers the opportunity to employ the market standing and reputation of another undertaking, thus improving the success prospects of a fledgling business. A case in point is a franchising agreement under the terms of which the franchisor gives its various franchisees the right and at the same time imposes an obligation on them to conduct the business in line with the principles prescribed by it; the franchisor among others authorizes its franchisees to use its business name.
Pursuant to Article 438 § 1 of CC, in the event a name partner/shareholder ceases to be a member, the partnership/company may retain his or her name as included in its business name only with written consent and in the event of his or her death, with the consent of his or her spouse and children. The requirement of written form has been prescribed here for evidentiary purposes (ad probationem). The outgoing partner/shareholder may but is not required to grant such consent. This is a personal right, and the other partners/shareholders and the partnership/company may not enforce granting such consent before the court. The same holds true for an undertaking taking over a business under e.g. a transfer agreement, as pursuant to Article 438 § 2 of CC, the obligation to obtain the consent applies as appropriate in the event the business of one natural person is continued by another natural person being his or her legal successor.
One should also note the principles pertaining to the formulation of the business (trading) name of a natural person in case of takeover. In order not to mislead other entities, the business name must indicate as required the identity of the individual currently conducting the business, and the name of the predecessor can be incorporated in the business name as the optional item referred to above.
As provided for under legal regulations, the acquisition of a right to another undertaking’s business name is possible under certain conditions, the purpose being to provide security to the businesses operating in the market as well as the consumers.