Serving as a statutory body within a company entails more than merely signing contracts and making strategic decisions. This role encompasses a duty of care and loyalty. Consequently, the Commercial Code enforces the non-compete prohibition, aimed at preventing members of the statutory body (or occasionally members of other company bodies or shareholders) from pursuing personal gain at the company's expense. Breaching these regulations can primarily result in liability for damages, criminal accountability, and loss of trust, potentially culminating in the revocation of the statutory body's position. Below is an overview of the scenarios governed by this prohibition across various legal forms.
When Does the Non-Compete Prohibition Apply?
The non-compete prohibition applies to situations where a member of the statutory body or a shareholder could gain advantages at the company's expense. The specific conditions and scope of the prohibition depend on the company's legal form:
□ General Partnerships (from Slovak term “verejná obchodná spoločnosť”)
Each partner who is also a statutory body member shall not engage in business in the same field as the company, even for the benefit of others. Exceptions can be agreed upon in the partnership agreement (e.g., to broaden or narrow the scope).
□ Limited Partnerships (from Slovak term “komanditná spoločnosť”)
The non-compete prohibition applies to general partners acting as the statutory body. Limited partners are not bound by this prohibition unless otherwise stipulated in the partnership agreement.
□ Limited Liability Company (from Slovak term “spoločnosť s ručením obmedzeným”) and a Joint-Stock Company (from Slovak term “akciová spoločnosť”)
The non-compete prohibition for these forms is defined in detail. Unless additional restrictions are specified in the company's corporate documents, the statutory body (and a supervisory board member, if established) shall not:
- Enter into transactions in their own name or on their own account related to the company's business activities.
- Broker the company's business to third parties.
- Participate in another company's business as a shareholder with unlimited liability.
- Serve as a statutory body or member of a statutory or other body of another legal entity with a similar business purpose (there are legal exceptions to this prohibition).
According to Slovak case law, obtaining a trade license for the same business activity as the company does not infringe upon the non-compete prohibition if the individual does not actively engage in that business. The emphasis is on actual business activity, not formal registration.
Companies may extend the non-compete prohibition to shareholders (in the case of a Limited Liability Company) within the articles of association.
□ Simple Company on Stocks (from Slovak term “jednoduchá spoločnosť na akcie”)
While the law does not impose a non-compete prohibition, it can be validly established in the articles of association. Members of the board in a simple company on stocks must notify the company in writing in advance of their competitive activities.
□ Cooperative (from Slovak term “družstvo”)
Members of the board, supervisory committee, proxies, and director must not be entrepreneurs or members of statutory or supervisory bodies of legal entities with a similar business scope. However, the cooperative's statutes may exclude, narrow, or expand the non-compete prohibition beyond statutory regulation.
Authors
Cyril Hric
Senior Manager, Legal
Peter Dibala
Consultant, Legal
What Are the Consequences of Breaching the Non-Compete Prohibition?
If the non-compete prohibition is breached, the company may:
- Demand the release of any benefits gained from the competitive activity.
- Request the transfer of rights arising from the competitive activity.
These claims must be filed within three months of discovering the breach, but no later than one year from its occurrence. Subsequently, the company must initiate legal proceedings within four years of the breach. Additionally, the company may seek damages. If the breach is severe, it may lead to criminal liability if the elements of the criminal offense are satisfied.
In practice, a breach often results in the revocation of the statutory body's position.
Can a Non-Compete Prohibition Be Agreed Upon After Leaving Office?
The Commercial Code does not explicitly regulate the non-compete prohibition after the termination of the statutory body's office, unlike the Labour Code. However, in practice, a non-compete clause for the period after leaving office can be agreed upon in the Management Agreement. The Commercial Code does not prohibit this, making it a legal option under the principle that what is not prohibited is permitted.
Such a prohibition must be reasonable in terms of duration, subject matter, and geography. Otherwise, the company risks forfeiting legal protection if challenged in court.
The Non-Compete Prohibition in Practice
The non-compete prohibition for statutory bodies is not just a formal clause. It is a protective mechanism that prevents conflicts of interest. While conditions vary by company type, the principle remains the same: if you have decision-making power in a company, you shall not act against its interests or profit at its expense. It's crucial to have clear rules set in contracts and to know what the company can claim in case of a breach. To avoid issues after a statutory body leaves, it's advisable to agree on a non-compete clause in advance.
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