Can I Sue If a Limited Liability Company Shareholder Opens a Competing Business?

Shareholder Disputes

Prepared by: Constantinople

A limited liability company shareholder's involvement in another business is not always subject to the same prohibition. The shareholder's duty of loyalty, any competition provisions in the articles of association and the manager's specific obligations are examined separately. A definite litigation outcome therefore cannot be stated without determining whether the person is only a shareholder or also a manager. Permission and approval documents form part of the assessment.

Prepare the articles of association, manager appointment resolution, details of the competing business's activities and any written approvals. Dated evidence is required where customers are alleged to have been diverted, quotations used or a business opportunity transferred to another company. It is important not to assess a departing employee's conduct and a shareholder's conduct on the same legal basis. A social media statement alone may not prove the amount of loss.

Depending on the outcome sought, stopping the activity, limiting a manager's authority, damages or expulsion may have different requirements. An allegation of competition does not automatically permit shares to be taken without payment or all of the person's commercial activities to be prohibited. The scope of the prohibition, authorised activities and the relationship between breach and loss are assessed separately. The other party's defences are also included in planning the case.

Prepare the overlapping activities, articles of association and any written permissions in chronological order. Shareholders' and managers' obligations are assessed separately.

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