Under what conditions is a limited partner subject to a non-compete clause? This question plays an important role in practice. General partners of a GmbH & Co. KG are personally liable and are appointed to manage the company. They are subject to a statutory non-competition clause, Sections 112 and 113 of the German Commercial Code (HGB). The background is the conflict of interest, on the one hand, having to protect the interests of the company and, on the other hand, having the opportunity to harm the interests with insider information about the company by taking advantage of business opportunities. However, there is no statutory non-competition clause for a limited partner without management authority. However, there are exceptions to this.
dr Christian Andrelang, LL.M.
Specialist lawyer for international business law Specialist lawyer for commercial and corporate law
Limited partner and non-compete agreement – what is it about?
According to the legal rule, only the personally liable partners are subject to a non-competition clause (§ 112 HGB in conjunction with § 161 Paragraph 2 HGB), but not the limited partners, because § 165 HGB expressly excludes the applicability of § 112 HGB to limited partners. However, due to his duty of loyalty, the limited partner is also required not to take advantage of business opportunities that are attributable to the GmbH & Co. KG. This aspect of the duty of loyalty is all the stronger the more extensive the limited partner's participation, management powers and information rights are (BGH, judgment of May 8, 1989 - Ref: II ZR 229/88, NJW 89, 2687; BGH, judgment of February 13, 1995 – Ref: II ZR 225/93, NJW 1995, 1358). If the limited partner learns of business opportunities, such as the chance of concluding a lucrative contract, he is not allowed to compete with the GmbH & Co. KG.
Non-Competition Agreement – Managing Limited Partner
However, in the GmbH & Co KG there is often a limited partner who is also the managing director of the GmbH. He is subject to the statutory non-competition clause for managing directors of a GmbH. The fact that the limited partner is free to compete does not apply to this constellation of the managing limited partner. According to its wording, the managing director's non-competition clause enshrined in Section 43 GmbHG only applies directly to the GmbH. However, according to the case law of the BGH, § 43 GmbHG is applicable in the GmbH & Co. KG due to its protective effect (BGH, judgment of June 18, 2013 - Ref: II ZR 86/11, ZIP 2013, 1712; BGH, judgment. dated November 12, 1979 - Ref: II ZR 174/77, NJW 1980, 589; BGH, judgment of March 24, 1980 - Ref: II ZR 213/77, NJW 1980, 1524; BGH, judgment of February 25. 2002 – Ref: II ZR 236/00, ZIP 2002, 984). This non-competition clause obliges every managing director to protect the company's advantages and to use business opportunities only for them and not for themselves personally (BGH, judgment of May 8, 1989 - Ref: II ZR 229/88, NJW 89, 2687; BGH, judgment . from February 13, 1995 – Ref: II ZR 225/93, NJW 1995, 1358). The managing limited partner may therefore not compete in the company's business area and may not conduct any business on his own account or for the benefit of third parties (BGH, judgment of May 8, 1989 - Ref: II ZR 229/88, NJW 89, 2687; BGH, judgment. dated February 13, 1995 – Ref: II ZR 225/93, NJW 1995, 1358). Every managing limited partner is therefore automatically subject to a legal non-compete clause. However, the company can exempt him from the non-competition clause in whole or in part by a shareholder resolution.
Mere preparatory actions by the limited partner do not fall under the non-competition clause if they are aimed at transactions for the period after the position as limited partner ceases. However, even after leaving the company, a managing limited partner is obliged not to abuse any of the company's earning opportunities (BGH, judgment of May 8, 1989 - Ref: II ZR 229/88, NJW 89, 2687; BGH, judgment of . February 13, 1995 – Ref: II ZR 225/93, NJW 1995, 1358).
Exceptions: inside information
In addition to the managing limited partner, there is another exceptional case in which the limited partner has a non-compete clause, even if he is not also the managing director of the GmbH & Co. KG. This is the case, for example, if the limited partner has access to special information from the management of the GmbH & Co. KG like a personally liable partner in a way other than as managing director. This inside information may be limited to individual business areas. In these cases, the limited partner can act in the same way as the managing director in the business area of the GmbH & Co. KG and can therefore be subject to a comprehensive non-competition clause.
Be careful about the company's business opportunities
Even if the limited partner is not subject to a non-competition clause or is not in a competitive situation, every limited partner has a duty of loyalty not to thwart the company's business opportunities. The company's business opportunities are assigned to it and may not be taken advantage of by a shareholder for themselves or third parties. This should not be confused with a non-competition clause: The non-competition clause refers to competing activities in the business area of the GmbH & Co. KG. However, a business opportunity for GmbH &a Co. KG can also arise outside of its commercial activities, for example when purchasing cheap property for a production or sales facility.
Therefore, even if he is not subject to his own non-competition clause, a limited partner may not engage in any business that falls within the company's business area and is already assigned to it due to certain specific circumstances and to which the limited partner can only do so after informing the company and not beforehand in other ways, access (BGH, judgment of May 8, 1989 - Ref: II ZR 229/88, NJW 1989, 2687). No limited partner is therefore allowed to “snatch from under the GmbH & Co KG’s nose” transactions that the company is currently implementing, particularly through concrete negotiations.
It cannot be said generally when these requirements are met in detail. However, the limited partner is likely to come into conflict with a business opportunity for the GmbH & Co. KG if the company was the first to come into contact with the business and the limited partner only found out about the details of the business due to his status as a limited partner (BGH, ruling . from May 8, 1989 – Ref: II ZR 229/88, NJW 1989, 2687). The fact that the company cannot exploit the business opportunity itself is fundamentally irrelevant. Something different only applies if the company is legally prevented from taking advantage of a business opportunity.
Of course, this also applies to the managing limited partner. For the managing limited partner, it is irrelevant whether he or she became aware of a business opportunity for business or private purposes. The managing limited partner's duty of care and loyalty towards the GmbH & Co. KG is indivisible.
Non-compete clause – what’s important now?
The limited partner is not subject to any non-compete clause unless he is a managing limited partner or has access to special inside information. Regardless of the non-competition clause, the limited partner is also prohibited from taking advantage of the GmbH & Co. KG's business opportunities due to his duty of loyalty. The basis of a limited partner's fiduciary duties is always the legitimate expectations of the other partners based on the specific partnership relationship. The partnership agreement forms the basis of the shareholder's duty of loyalty and thus also determines its content and scope. The individual partner is only obliged to the extent that he promised in the partnership agreement (BGH ruling of January 25, 2011 - Ref: II ZR 122/09, NJW 2011, 1667).