| CORPORATE LAW : Unless otherwise stipulated in the articles of association or in the shareholders’ agreement, shareholders, as opposed to the management, are not bound by a duty of loyalty and non competition towards their company. |
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In a decision dated November 15, 2011, the French Supreme Court (Cour de Cassation) ruled that, unless otherwise stipulated, a shareholder of a commercial company is neither prohibited from engaging in competing activities, nor is required to notify such activity. Thus, a shareholder can conduct business in the same field than that of the company in which he holds an interest. The Court sets a caveat in case of disloyal competition, as it is a fault sanctioned by article 1382 of the French civil code (even in the silence of the corporate agreements), given the proof of such a disloyal competition (such as customers or employees poaching, disclosure of corporate secrets) can be provided. This decision, although ruled in a case involving a Limited Partnership Company (“Société à Responsabilité Limitée”), can also be applied to shareholders of Limited Liability Companies (“Société par Actions Simplifiée” ou “Sociétés Anonymes”), and highlights once again the importance of the shareholders’ agreement, in particular among the founders of innovative companies. As far as the management is concerned, it is reminded by the Court that a director remains bound not only by a duty of loyalty, but also of fidelity, which prohibits him from entertaining an activity competing the company without the prior approval of the shareholders. |