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    May shareholders compete with their own company?

    Suppose you and I set up a company to distribute certain products. You take 80% of the shares and I take the remaining 20%. After a few years I start selling the same products through a company that I fully own. Is that permitted?

    The answer is: in principle yes, unless we have agreed on a non-compete clause in the articles of our joint company, in our shareholders agreement or otherwise. But in absence thereof, I may compete with the business of a company in which I hold shares.

    This rule was - in a similar case - recently confirmed by the Dutch Court Midden Nederland in summary proceedings (ECLI:NL:RBMNE:2015:5500). The Court held that a shareholder may in principle undertake activities which may compete with the company, but that this may be different on the basis of the circumstances of the case at hand. Whether these circumstances make things different is determined by the specific norm of behavior between shareholders as such (section 2:8 Dutch Civil Code) and the more general norm for tortious behavior (section 6:162 Dutch Civil Code). As the first norm was not written for factual behavior of shareholders, it is basically the second norm which rules here. Well, no shareholder wants to end up in court with the question whether competing behavior is permitted or not. Parties want certainty when they set up their business.

    Having said that, it is clear that shareholders should clearly define their joint business activities and specifically agree that they shall not compete therewith as long as they are a shareholder and preferably also for a certain period after they cease to hold shares.

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