A partner sets up a competing business: what recourse does the company have?

A partner sets up a competing business: what recourse is available to the company ?

To discover that a partner has just set up a business engaged in competing activity may, of course, cause concern amongst the other partners.

The company may fear a loss of customers, the misuse of certain internal information or, more broadly, a loss of turnover to this new organisation.

However, the mere fact of being a partner does not necessarily prevent a person from carrying on a competing business. The company cannot, therefore, automatically secure the cessation of that business.

The remedies available depend, in particular, on the duties performed by the partner, their conduct and the provisions set out in the articles of association or the partnership agreement.

Can a partner set up a rival company?

In principle, a non-executive partner may carry on a business that competes with that of the company in which he holds shares.

The Court of Cassation therefore considers that, unless otherwise stipulated, a partner in a SARL is not required to refrain from carrying out a competing activity, nor even to inform the company of such an activity. He is only required to refrain from engaging in acts of unfair competition (Commercial Court of Cassation, 15 November 2011, No. 10-15.049).

The same approach is adopted in respect of the members of an SAS (Commercial Court of Cassation, 19 March 2013, No. 12-14.407 ; Commercial Court of Cassation, 21 June 2023, No. 21-23.298).

The mere fact of setting up a business offering the same products or services is therefore not sufficient to render the partner liable.

The situation is, however, different when the latter is also company director.

The manager of a limited liability company (SARL) is, in particular, subject to a duty of loyalty and fidelity towards the company. The Court of Cassation has recently clarified that this duty prohibits the manager, as a matter of principle, from setting up a competing company whilst in office, irrespective of any act of unfair competition (Commercial Court of Cassation, 17 June 2026, No. 25-13.855).

The company may then be held liable on the basis of Article L. 223-22 of the French Commercial Code.

In what circumstances does competition by a partner become unfair?

Even when he is free to carry on a competing business, a partner may not use unfair practices to promote his new business.

Unfair competition may be characterised, in particular, by:

• Le misappropriation of a customer database ;
• Discrediting the company in the eyes of its customers or partners; ;
• The poaching of employees where this leads to disruption within the company; ;
• The use of confidential information or trade secrets; ;
• The creation of confusion between the two companies; ;
• Or certain parasitic behaviours that involve taking advantage, without offering anything in return, of the investments and work carried out by society.

However, a loss of customers is not, in itself, sufficient to prove the existence of unfair competition. The company must be able to demonstrate that improper practices have been used.

She will then be able to take liability claim on the basis of sections 1240 et seq. of the Civil Code. Such a claim requires proof of fault, damage and a causal link between the two.

Depending on the circumstances, the company may, in particular, demand that the disputed conduct cease and claim damages to obtain compensation for the loss suffered.

The gathering of evidence is therefore of particular importance: correspondence with clients, commercial documents, messages, files used and even reports can help establish the truth of the alleged actions.

Can the articles of association or the partnership agreement protect the company?

Before considering legal action, it is also necessary to check the articles of association as well as any partnership agreement.

These documents may provide for a non-competition clause prohibiting the partner from carrying out certain activities for a specified period and within a specified territory.

Where it is valid and applicable to the situation, a breach of it may give rise to the partner’s contractual liability. The provisions laid down may, in particular, enable the claimant to obtain damages or the enforcement of a penalty clause.

The articles of association of an SAS may also provide for the’expulsion of a partner in certain circumstances. The article L. 227-16 The Commercial Code does indeed allow for a provision whereby a shareholder may be required to sell their shares under the conditions set out in the articles of association.

A competing activity may therefore constitute grounds for exclusion where it is expressly referred to in those provisions.

Where a partner sets up a competing business, the company’s options therefore depend largely on the circumstances.

Whether a person is a director or a mere partner, the existence of any dishonest conduct, and the content of the articles of association or the partnership agreement must be examined before taking any action.