Non-compete for a partner in a partnership – how does it work?

What is the purpose of a non-competition clause, and who is actually bound by it?

The primary purpose of introducing a non-competition clause in commercial companies is to protect the company’s commercial interests and to ensure the loyalty of persons associated with it. This prohibition prevents situations in which a partner or a member of a governing body, by exploiting the knowledge and contacts acquired through their involvement in the company, could engage in activities contrary to its interests and thereby weaken its market position. In practice, it serves as a means of building trust among partners and a tool for mitigating the risk of conflicts of interest.

The legal basis for the non-competition clause varies depending on the type of company. In partnerships – such as general partnerships, professional partnerships, limited partnerships or limited partnerships with share capital – the non-competition clause stems from the provisions of the Commercial Companies Code, and its source is the partners’ duty of loyalty to the company. In particular, in a general partnership, this prohibition is expressly regulated in Article 56 of the Commercial Companies Code, and by reference it also applies to other partnerships. It covers partners as entities actively involved in the management of the partnership’s affairs and its representation.

The situation is different in capital companies, where the decisive factor is the company’s assets rather than the personal involvement of the partners. In a limited liability company or a public limited company, there is no general statutory non-competition clause for the partners or shareholders themselves. However, the regulations do provide for such a prohibition against members of governing bodies – in particular members of the management board – who, by virtue of their role, have a direct influence on the company’s affairs and access to its most important information.

In summary, from the perspective of the legal basis and the purpose of the regulations, a distinction must be made between the situation of partners in partnerships, for whom the non-competition clause is statutory, and shareholders in capital companies, who are subject to such a clause only if it is included in the articles of association, the shareholders’ agreement or separate agreements. In every case, the common denominator is the need to protect the company’s interests and ensure its stable development in a competitive market environment.

What may give rise to a non-competition clause against a partner?

The non-competition clause applicable to a partner is not uniform and depends both on the type of company and on the contractual arrangements adopted within it. In the Polish legal system, there is no general rule that would automatically impose a non-competition clause on all shareholders. This means that its sources may vary – ranging from statutory provisions, through the articles of association, to separate agreements concluded between shareholders or with the company.

1. The Articles of Association – this is the most common and natural source for establishing a non-competition clause. In a limited liability company, where the legislator has not provided for a general non-competition clause for shareholders, the introduction of appropriate contractual provisions allows the scope of the clause to be tailored to the specific nature of the company’s business and interests.
2. Shareholders’ agreement – increasingly used as a supplement or extension of the provisions of the articles of association. Thanks to its greater flexibility, it allows for the introduction of more detailed and practical regulations that are not always suitable for a formal articles of association. The agreement may include, for example, obligations regarding a ban on investing in competing entities, restrictions on cooperation with the company’s clients, or a duty to inform the company of plans to undertake new business activities.
3. Separate agreements with the company – in specific situations, a partner may be bound by a non-competition clause arising from a separate civil law agreement concluded directly with the company. This solution is often applied to partners actively involved in the management of the company’s affairs or those who additionally remain in an employment relationship or provide services to the company.
4. Statutory regulations in partnerships – unlike in companies, in partnerships the non-competition clause applicable to partners arises directly from the provisions of the Commercial Companies Code. Article 56 of the Commercial Companies Code is of key importance, as it prohibits a partner in a general partnership from conducting competing business without the consent of the other partners. By reference, this provision also applies to professional partnerships, limited partnerships and limited joint-stock partnerships, with appropriate modifications.

How to draft an effective non-competition clause?

An effective non-competition clause for a partner should be drafted precisely and tailored to the specific nature of the company’s business. It is crucial to clearly define what the parties mean by ‘competitive business’ – in terms of subject matter, territory and market. It is worth ensuring that the clause covers not only the conduct of one’s own business, but also participation in competing entities, the provision of services to them, or investment in them.

To fully protect the company’s interests, it is advisable to supplement the non-competition clause with additional provisions, such as a prohibition on poaching clients and employees or a confidentiality obligation. It is also good practice to introduce materiality thresholds, exemptions and procedures for granting consent to specific activities, which ensures flexibility and reduces the risk of disputes.

The aspect of practical enforceability must not be overlooked – the clause should provide for compliance mechanisms, shareholders’ disclosure obligations and sanctions for breaches, e.g. contractual penalties or the right to demand the cessation of specific activities. Only such a comprehensive approach allows for the creation of a tool that effectively safeguards the company’s interests whilst maintaining proportionality towards the shareholders.

Summary

A non-competition clause for partners is an important instrument for protecting the company’s interests, and its significance stems from the need to safeguard the company against the risk of disloyal actions that could lead to the loss of customers, know-how or market advantage. In partnerships, this prohibition is statutory in nature and is based on the partners’ duty of loyalty, whereas in companies it must be expressly provided for in the articles of association, the partnership agreement or in separate agreements.

In practice, the effectiveness of the non-competition clause depends on the care taken in its drafting. The more precisely the grounds for competitive activity, the procedure for granting consent and the sanctions for breach are defined, the greater the legal certainty and the effective protection of the company’s interests. A well-drafted clause becomes not only a means of prevention but also a tool enabling a swift response in the event of a conflict of interest within the company.

In practice, it proves helpful to have the support of experienced advisers who are able to translate general regulations into solutions tailored to the realities of a specific business.