In the case of a multi-member limited liability company, an agreement between the members is almost invariably concluded, regulating their mutual relations, the management of the company, exit from the company, and other important matters. Very often, such agreements also contain a non-compete provision, under which the members undertake that, for as long as they remain members of the company, they will not compete with the company or even with each other.

However, in our opinion, such a provision in a members’ agreement is null and void.

The Law on the Protection of Competition provides that restrictive agreements are prohibited and null and void, unless they are expressly permitted by law or approved by the Commission for the Protection of Competition.

A provision prohibiting competition with the company in a members’ agreement constitutes an agreement between independent market participants, because the members are not the same as the company; they remain independent economic entities with their own market interests. Therefore, such an agreement between the members may constitute a restrictive agreement.

What is then permitted?

An agreement on the prohibition of competition may exist, but only within the framework prescribed by Article 75 of the Company Law.

In accordance with Article 75 of the Company Law, it is possible, through the founding act (but not through a members’ agreement), to: (i) extend the prohibition to other persons; (ii) extend the duration of the prohibition for up to two years after the termination of the status of a member of the company; (iii) determine the activities, manner or place of their performance which do not constitute a breach of the duty of non-compete.

A non-compete provision stipulated in a members’ agreement, or regulated differently from what is prescribed by the Company Law, is likely to be null and void, and consequently also unenforceable.