How works the managers rule of non-competition with the company? (in Spain)
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Prohibition of competence with the company by the managers, or in other words, prohibition of
concurrence with the activities of the company, is laid down in article 230 of
the Spanish Companies Act (LSC).
This obligation is
established as a prohibition, but not an absolute prohibition, and in
consequence, competition by a manager with the company can be allowed. Competition
by the manager need to be approved by resolution of the shareholders’ general
meeting. That means it is necessary that the shareholders approve the permission
with abstention in the meeting by the manager, in case it was at the same time
manager and shareholder of the company.
If a manager
is competing with the company without prior approval (and taking into account that
implicit approval is not accepted), any shareholder may ask to the judge where
the company is registered, to remove the manager if the company is a S.L., or
may propose such removal first to the general meeting in case of S.A. (if that
proposition is not attended this shareholder shall go to the courts and apply
for the judicial removal).
Due to the fact
that authorization must be express, it is required to execute the agreement in
the Minutes of the Shareholders’ General Meeting.
As we saw in “Prohibición
de competencia por parte de los administradores y STS núm. 1166/2008 de 5
diciembre” (in Spanish), non-competition rule does not require an actual damage
or any evidence of damage, because this mandate is established as a preventive
rule.
This prohibition
applies to both the same activities and similar or complementary activities of
the company.
Finally, we should note that this
prohibition is closely linked to the duty of loyalty regulated in article 226
LSC, the prohibition of taking advantage of company’s business opportunities regulated
in article 228 LSC, and the obligation to communicate conflicts of interest
regulated in article 229 LSC. One of the most important reasons for laying down
this obligation of non-competition comes from the need to avoid behaviors
contrary to the above-mentioned obligations, due to the possible conflict of
interests between manager and company.
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