No enforcement of a non-competition clause in a two-member limited liability company through legal action by the co-member

In a company with only two shareholders, a claim by the company against one of the shareholders cannot simply be asserted by way of an actio pro socio (shareholder action). The remaining shareholder entitled to vote must bring the action in the name of the company. He or she may represent the company in court or appoint a legal representative without the need for a shareholder resolution. This follows from a ruling by the Brandenburg Higher Regional Court (OLG) dated May 14, 2025 (4 U 40/25).

Facts of the case

The ruling of the OLG is based on the following facts: In 2023, the plaintiff acquired 15% of the shares in a limited liability company (GmbH, “company”) as part of a purchase and assignment agreement. The respondent (“defendant”) held the remaining shares in the Company and was also authorized to represent the company. The company organizes trade fairs, including a hemp fair since 2016. The respondent allowed the company to use a word trademark registered in his name free of charge.

The company was dissolved by resolution of the shareholders. The plaintiff filed an action for annulment against this resolution. For the 2025 trade fair, the defendant organized the event through a GmbH that he founded in 2024. This new company concluded the exhibitor contracts and took over ticket sales.

The plaintiff then applied in his own name for a preliminary injunction against the defendant, seeking to prohibit the defendant from organizing the trade fair. The plaintiff argued that the defendant was violating a non-competition clause. The Regional Court rejected the application for a preliminary injunction. The plaintiff appealed against this decision.

Brandenburg Higher Regional Court, judgment of May 14, 2025 – 4 U 40/25

The appeal was unsuccessful. The Brandenburg Higher Regional Court clarified that the plaintiff was not entitled to apply for a preliminary injunction in his own name. The claims concerned the company, and only the company could assert them in court. While a shareholder action (actio pro socio) is generally possible, the prerequisites were not met in this case. The necessary subsidiarity was lacking, as the company would have been able to assert the claims even against the will of the defendant. In a two-shareholder company, such legal action does not even require a shareholder resolution pursuant to Section 46 No. 8 of the German Limited Liability Companies Act (GmbHG).

The court further held that the company itself could also not require the defendant (or his GmbH) to refrain from organizing the trade fair. Upon dissolution of the company and the entry of the liquidation in the commercial register, the business activities are limited to the actions necessary for liquidation. Therefore, there was no longer any reason for a broader non-competition obligation. Such an extended or post-contractual non-competition clause had also not been agreed otherwise agreed.

Practical note

The decision of the Higher Regional Court of Brandenburg addresses several practical issues in corporate law.

The court highlights that a shareholder action (actio pro socio) is, in principle, subsidiary and only available if the company itself does not take legal action. In companies with two shareholders, it is therefore important to carefully assess whether a shareholder may exceptionally assert the company’s claims in his or her own name. As a rule, the company itself must bring the action. A resolution pursuant to Section 46 No. 8 GmbHG is not required for this. The remaining shareholder may represent the company even without such a resolution.

To avoid disputes over the scope of competitive activities, non-competition clauses should be clearly regulated in contracts. In the absence of such contractual provisions, a non-compete obligation generally exists only as part of the fiduciary duties under corporate law, and this usually affects controlling shareholders. Such shareholders should always carefully consider whether they may exploit business opportunities of the company for their own benefit. It is therefore advisable to establish clear distinctions of permitted activities at an early stage. Non-compete obligations must not unreasonably restrict shareholders in their professional activities; their scope must therefore be limited to what is strictly necessary in terms of scope, territory and duration.