Without consent, an OG shareholder may generally neither conduct competing business in the company’s line of business nor participate in a similar company as an unlimited-liability partner. A breach can lead to damages or claims for surrender of the remuneration received from the competing activity.
A shareholder of an Austrian general partnership, the offene Gesellschaft or OG, may generally neither conduct competing business in the OG’s line of business nor participate in another similar company as an unlimited-liability partner without the consent of the other shareholders. The non-compete rule follows from section 112(2) UGB. If the rule is breached, section 113 UGB gives the company a choice between damages and specific claims concerning the business or remuneration obtained. The decisive points are the exact line of business, the scope of any consent, the type of competing transaction and the other shareholders’ knowledge. This article explains how the agreement can structure approval, evidence and the response to a breach.
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Section 112(2) UGB covers two situations. Without the consent of the other shareholders, a shareholder may not conduct business in the OG’s line of business. The shareholder may also not participate in another similar company as an unlimited-liability partner. The rule protects the common business and the information and influence position of the other shareholders. Its statutory wording addresses conduct in the shareholder’s capacity within the OG.
The line of business must be determined from the agreement and the actual activity. A few shared customers or a broadly similar trade do not automatically establish the same business. Services, products, target groups, distribution channels and the market position may all matter. The overview of shareholder and voting rights provides the wider context for information and loyalty duties within the company.
Consent from the other shareholders should describe the permitted conduct precisely enough to avoid a later dispute about its scope. The document can identify the outside company or side business, the line of business, permitted activities, duration and reporting duties. Consent for one defined participation does not automatically answer whether the shareholder may also conduct separate business or take further participations.
The agreement or resolution should also state who gives consent and how it is recorded. Signed minutes with the votes and supporting documents make later proof easier. Consent may include commercial conditions, such as information duties or a clear separation of opportunities and resources. The checklist for reviewing the articles adds a practical structure for consent and control clauses.
Section 112(3) UGB contains a specific rule for participation in another company. Consent is deemed to have been given if the other shareholders knew when the OG was formed that the shareholder participated in another company as an unlimited-liability partner, and they did not expressly require that participation to be ended. The statutory presumption concerns the specific circumstance known at formation.
Knowledge therefore does not create a general release for every later activity. The review must identify the information available at the time, the other company and whether ending the participation was expressly required. A change in activity, a new company or an additional role may require a fresh assessment. Formation documents, correspondence and minutes should be brought together with the evidence of what was communicated then.
For an own competing business, the individual transaction is central. Offers, invoices, customers, deliveries and payments can show whether the shareholder conducted business in the OG’s line for their own account. For participation in another company, the legal form and liability position must also be established. Section 112(2) UGB expressly names participation as an unlimited-liability partner for this second category.
The company should keep assumptions separate from established facts. A similar name, shared address or contact with a customer may justify an inquiry. A breach still requires a reliable connection to one of the statutory categories. An organised document list also prevents unnecessary collection of trade secrets, private information and material unrelated to the claim.
If a shareholder breaches the non-compete rule, section 113(1) UGB allows the company to claim damages. Instead, for transactions made for the shareholder’s own account, the company may require the transaction to be treated as one made for the company’s account. For transactions made for another person’s account, it may demand the remuneration received or the assignment of the claim to that remuneration. The consequence therefore depends on the type of transaction and its financial structure.
The phrase surrender of profit can hide this statutory distinction. For another person’s account, section 113 UGB refers to the remuneration received. For the shareholder’s own account, it provides for attribution of the transaction to the company. The amount must be established from invoices, costs, payments and the selected claim. Under section 113(2) UGB, the other shareholders decide whether these claims are brought.
The decision should state which claim is pursued and which documents support it. Combining damages, attribution of the transaction and surrender of remuneration in one unexamined demand makes the accounting harder. The separate article on earnings value and book value in compensation addresses a later exit question. It does not replace the analysis under section 113 UGB.
The review should start with a chronology. For each possible competing transaction, record the date, business partner, service, invoice, payment, resources used and the shareholder’s role. Place the articles, later resolutions and known participations beside that record. This shows whether consent existed, what it covered and when the other shareholders learned of the transaction.
The other shareholders decide whether to bring the claims. The resolution should identify the transactions, selected claim, authority for enforcement and supporting documents. A person affected by the allegation should not be included in the decision without examining the applicable conflict rules. The rules on resolutions and minutes can be considered separately in the guidance on GmbH exclusion procedures.
Section 113(3) UGB provides a short relative limitation period. The claims become time-barred three months after the other shareholders learn of the transaction or of the shareholder’s participation in the other company. Regardless of that knowledge, they become time-barred five years after the claim arose. The review must therefore distinguish the transaction, the date of knowledge and the date on which the claim arose.
Knowledge should be documented for each relevant shareholder and each specific event. A general rumour about a side activity does not automatically establish when a particular transaction became known. Emails, meeting minutes, review notes and the first concrete response should be preserved with their dates. Because the relative period is short, legal assessment belongs at the beginning of the internal response.
A useful agreement describes the OG’s line of business precisely enough for the non-compete rule to be applied. It can specify the statutory rule, set consent requirements and require information about side participations. The clause should address disclosure of conflicts, documentation of resolutions and allocation of business opportunities to the OG. A post-contract non-compete clause is a separate issue and is outside the statutory shareholder rule in section 112(2) UGB.
When a concern arises, the company needs a calm sequence: secure documents, define the line of business, check consent, record the date of knowledge and let the other shareholders decide on the claim. Section 113(4) UGB preserves the right to demand dissolution of the company. The appropriate response depends on the agreement, scope, fault, loss and the prospects for continued cooperation.
The initial document set should include the articles and amendments, consent resolutions, register and participation documents, business correspondence and a list of known customer and payment events. The glossary entry on the articles of association and the review checklist help organise that material for a first consultation.
Under section 112(2) UGB, a shareholder may not conduct business in the OG’s line of business without the consent of the other shareholders. Whether a particular offer or business falls within that line is assessed from the agreement and the actual activity.
Section 112(2) UGB concerns participation in another similar company as an unlimited-liability partner. Legal form, similarity, liability position and any consent must be assessed together in the individual case.
Under section 113(1) UGB, the company may claim damages. Alternatively, it may require own-account transactions to be treated as transactions for the company or, for another person’s account, demand the remuneration received or assignment of the remuneration claim.
The other shareholders decide on bringing the claims under section 113 UGB. The resolution should record the facts, selected claim, authority for enforcement and documents needed to support it.
Under section 113(3) UGB, the claims generally become time-barred three months after the other shareholders learn of the transaction or participation. An absolute period of five years applies from the date the claim arose, regardless of that knowledge.
Review and structure GmbH articles with Brandauer Rechtsanwälte in Austria.
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