Businesses Requiring Supervision: Definition and Legal Framework
Definition and Significance
The term businesses requiring supervision refers, under German trade law, to certain activities that, due to their particular risk potential or their significance for the public, are subject to increased government oversight. These types of businesses are primarily regulated by the Act to Combat Illegal Employment and Unregistered Work as well as by the Trade Regulation Act (GewO), and require special official supervision and, depending on the circumstances, government reliability checks. The aim of this regulation is to ensure public protection, maintenance of public safety and order, as well as consumer protection.
Legal Basis
Trade Regulation Act (GewO)
The relevant provisions are found in particular in Sections 38 and 38a of the Trade Regulation Act (GewO). According to Section 38(1), sentence 1 GewO, certain branches of trade are deemed “businesses requiring supervision” and trigger a reliability check of the person required to register the business (the entrepreneur) when registering the business. The affected sectors are listed exhaustively in Section 38(1), sentence 1, numbers 1 to 14 GewO.
Other Laws and Regulations
In addition to the Trade Regulation Act, numerous special laws and regulations govern the requirements and control mechanisms of individual businesses requiring supervision, such as the security industry under Section 34a GewO, the real estate and property developer sector under Sections 34c and 34d GewO, or the pawnbroking business under Section 34 GewO in conjunction with the Pawnbroker Ordinance.
Typical Types of Businesses Requiring Supervision
According to the Trade Regulation Act, the following businesses, among others, require supervision:
- Dealers in used goods (e.g. car dealerships, antique dealers)
- Brokering of certain goods (e.g. real estate, land brokers)
- Pawnbrokers and pawn shop operators
- Security services (personal, property, and asset protection services)
- Private detective agencies
- Rental car businesses
- Tour operators
- Operators of gaming halls and operators of gaming machines with the possibility of winning prizes
An exact list of the activities covered by the law is provided in Section 38(1) GewO.
Obligations of the Entrepreneur
Notification Requirement and Reliability Check
Anyone wishing to operate a business requiring supervision must notify the competent authority in accordance with Section 38 GewO. In contrast to standard business notifications, additional checks are required:
- Submission of a certificate of good conduct pursuant to Section 30(5) of the Federal Central Register Act (BZRG)
- Submission of an extract from the central trade register
- In specific cases, further documents (e.g. proof of orderly financial circumstances, evidence of professional competence)
The competent authority examines the trade law reliability of the persons making the notification and may prohibit the operation of the business in the event of unreliability.
License Requirement for Certain Businesses
For some types of businesses, notification is not sufficient; instead, a government license must be obtained before commencing activities. This applies, for example, to security companies and the pawnbroking trade. The authority here particularly examines personal reliability, orderly financial circumstances, as well as professional qualifications.
Supervision and Control Measures
The authorities have broader powers of control over businesses requiring supervision than over other commercial enterprises. These include:
- Conducting reliability checks
- Requesting further information and evidence
- Case-specific or random business audits
- Possibility to obtain information from other authorities (e.g. police, tax office)
If, in the course of supervision, indications of unreliability or risk to the public arise, measures up to and including a prohibition of the business operation may be imposed.
Definition Compared to Other Types of Businesses
Not every licensed business is also subject to supervision. Likewise, not every business requiring supervision requires a license. The distinction is made based on the level of risk and the public interest in intensive control. While the standard registration procedure is sufficient for the overwhelming majority of businesses, supervision obligations under Section 38 GewO are intended specifically for those areas where there is reason to fear opportunities for abuse and criminal activity (e.g. fencing, money laundering, organized crime).
Significance for Practice
The provisions regarding businesses requiring supervision are of considerable practical importance. They affect numerous sectors and are intended to secure public trust in the integrity and reliability of individual branches of trade. Violations of the notification requirement, the obligation to submit necessary documents, or official orders may be punished with fines and prohibitions.
Legal Protection and Consequences
Entrepreneurs whose reliability is denied by the authority or whose business operation is prohibited may pursue administrative legal remedies. The standard of review here is in particular the degree of reliability and the discretionary actions of the authority. Legal remedies against administrative decisions are usually by way of objection, and then before the administrative court.
Summary
Businesses requiring supervision represent a special category under German trade law due to their particular risk potential and the need to protect the public. Their special oversight serves to prevent and combat illegal business practices. The statutory requirements are extensive and demand a multitude of documents from the entrepreneur and a willingness to be subject to government control. Violations can have serious trade law and public regulatory consequences. The regulations ensure transparency, trustworthiness, and the integrity of the affected economic sectors.
Frequently Asked Questions
What legal requirements must be met to engage in an activity in a business requiring supervision?
To operate a business requiring supervision in Germany, strict statutory requirements must be met, which are primarily governed by the Trade Regulation Act (GewO), especially Sections 34 et seq. GewO, as well as various special laws. First, it is necessary to obtain an official license if the trade in question is listed in Annex A to the GewO, such as the security industry or hospitality trade. Applicants are generally required to demonstrate their reliability, personal suitability, and, in some cases, orderly financial circumstances, which is often done through police certificates of good conduct, extracts from the central trade register, and certificates of good standing from the tax office. In some cases, proof of passing specific professional examinations or training under Section 34a or 34c GewO is mandatory. Upon successful review, the competent authority grants the license, possibly with conditions whose observance is regularly monitored.
What monitoring and control mechanisms does the law prescribe for businesses requiring supervision?
The legal regime of control for businesses requiring supervision encompasses regular, sometimes even unscheduled, inspections by the relevant regulatory or trade authorities. Authorities are permitted to enter business premises during normal business hours and inspect documents such as books, records, and permits to monitor compliance with regulations (Section 29 GewO). There may also be industry-specific special regulations, for example, for companies subject to anti-money laundering laws or for security companies, which are often required to provide special evidence regarding their staff and company management. Violations of control requirements can lead to the denial or revocation of the license as well as substantial fines.
What notification and documentation obligations exist for entrepreneurs in the area of businesses requiring supervision?
Entrepreneurs operating a business requiring supervision are subject to comprehensive notification and documentation obligations. Under Section 14 GewO, operators are required to immediately notify the competent authority of the commencement, amendment, and termination of their activities. For certain activities, such as the trade in used goods, it is also necessary to keep a so-called “used goods register” pursuant to Section 38(1) GewO. In the security sector, all personnel employed must be recorded in a security staff file, and there are regular notification obligations toward the authority concerning personnel changes or special incidents. The scope and format of the required documentation may vary depending on the business, but they must always be strictly observed, as violations are subject to fines.
What are the legal consequences of violating the regulations for businesses requiring supervision?
Legal violations—such as conducting a licensed activity without the necessary permit, neglecting supervision, notification, or documentation obligations, or employing unsuitable persons—can lead to a wide range of sanctions, from fines (Section 146 GewO) up to criminal consequences. Particularly serious or repeated violations may result in the revocation or withdrawal of the business license (Section 35 GewO). If the authority revokes the license, any further operation of the business is prohibited; this may in some cases be existentially threatening for the affected company. In addition, there is the risk of civil liability if, for example, lack of controls leads to damages to customers or third parties.
What obligations regarding the professional competence and reliability of personnel are prescribed by law?
In many businesses requiring supervision, the personal reliability of staff and, in particular, the legal representatives of the company is a key admission criterion. Before issuing the license—and during operation, either randomly or for cause—the authorities check whether the staff and management possess the required expertise for the respective activity. In the security trade, for example, security staff must provide evidence of a successfully completed competence examination before the Chamber of Industry and Commerce as per Section 34a GewO. For other sectors, such as real estate (Section 34c GewO), proof of orderly financial circumstances or information about relevant legal regulations must be provided. If, during official checks, doubts arise about reliability or expertise, continuation of the activity can be prohibited.
How does the legal classification as a business requiring supervision differ from other types of businesses?
Legal classification as a “business requiring supervision” entails a multitude of additional obligations and restrictions compared to other (non-supervised) businesses, going far beyond the general notification requirement under Section 14 GewO. These include, in particular, the requirement for a prior license, higher demands for personal and professional suitability of entrepreneurs and their personnel, intensified reporting and supervision obligations, and special record-keeping and retention requirements. While non-supervised businesses often require only a simple registration and can be operated freely, businesses requiring supervision are subject to continuous government inspection, as they typically pose greater risks to customers, third parties, or the general public.
