No Escape Through the Subsidiary: How Far Does a Non-Compete Clause in the Articles of Association Reach?

Higher Regional Court of Hamm (OLG Hamm), Judgment of 15 July 2026 – 8 U 66/26

At a Glance

The OLG Hamm has held that a non-compete obligation contained in a company's articles of association, where it also captures indirect competition, may be extended under the principle of good faith (Section 242 German Civil Code (BGB)) to a wholly owned subsidiary of a shareholder, provided that the two entities are economically identical. Such a clause is valid in any event where it is tied to the company's actual field of activity rather than to the broader corporate purpose set out in the articles.

An authorising resolution of the shareholders under Section 46 No. 8 of the German Limited Liability Companies Act (GmbHG) must be obtained even in interim injunction proceedings as soon as a shareholders' meeting can realistically be convened. Companies should therefore review their non-compete clauses to ensure that affiliated entities are covered and that the scope is defined by reference to actual activities, and they should address any resolution requirements before commencing interim proceedings.

Background

Non-compete obligations set out in the articles of association are common well beyond the joint venture context. A recurring question is whether they also take effect where it is not the shareholder itself but a subsidiary controlled by it that enters into competition. This was the scenario the OLG Hamm had to assess in interim injunction proceedings.

A German limited liability company (GmbH) active in electronic products for the lighting industry had, alongside its founding shareholder, a Chinese company holding a 30 per cent stake. The articles of association prohibited any direct or indirect competition within the company's field of activity. It was not the shareholder itself but its wholly owned subsidiary, sharing the same managing director, registered office and e-mail address, that solicited the GmbH's European customers after the business relationship had been terminated.

The Court's Key Findings

At the heart of the decision is the court's finding that, as a matter of interpretation, the non-compete obligation can extend to a wholly owned subsidiary even though the latter is not a shareholder. The express inclusion of indirect competition was decisive. Where there is substantial economic identity, reciprocal influence and an equivalent risk to the purpose of the clause, the obligation is attributable to the subsidiary under Section 242 BGB. Otherwise, the obligation could be circumvented simply by interposing a controlled entity. The court relied on settled case law of the Federal Court of Justice (BGH) and, in support, on the principle under EU law that a parent company is presumed to exercise decisive influence over its subsidiary.

The clause was also sufficiently certain in personal, temporal and substantive terms because it was tied to the actual field of activity and the market served rather than to the broadly framed corporate purpose in the articles. On that basis it remained within the limits set by the constitutional guarantee of occupational freedom (Article 12(1) German Basic Law (GG)) and by the prohibition of immoral transactions (Section 138 BGB). The mere fact that the Chinese company held only a minority stake did not stand in the way, as it exercised considerable factual influence through unanimity requirements and in its capacity as principal supplier. The court left open whether the clause infringed the prohibition of anti-competitive agreements (Section 1 German Act against Restraints of Competition (GWB) and Article 101 of the Treaty on the Functioning of the European Union (TFEU)), noting that an appreciable effect on the market is unlikely in the case of a smaller GmbH and that the clause merely gives concrete expression to the shareholder's duty of loyalty in any event.

In procedural terms, the GmbH's claim against its own shareholder failed for want of an authorising resolution under Section 46 No. 8 GmbHG, which the court treats as a substantive precondition of the claim. In interim proceedings such a resolution is dispensable only for as long as convening a shareholders' meeting is incompatible with the urgency of the matter. Where the proceedings extend over a longer period, as here through to the appeal stage, the resolution must be obtained. No resolution was required in respect of the subsidiary, which is not a shareholder. It was precisely the extension of the obligation to the subsidiary that afforded the GmbH effective legal protection.

The co-claimant founding shareholder failed with his own claims, as the losses to his profit participation and bonus were merely reflexive in nature. A derivative action (actio pro socio) was subsidiary to the claim brought by the company itself.

Practical Relevance for Businesses

For drafting purposes, the wording “directly or indirectly” was the decisive basis for extending the obligation to the subsidiary. While the prevailing view in the legal literature suggests that a supplementary interpretation of the contract would lead to the same result, the safer course is to include affiliated entities and future shareholdings expressly and to provide for precise attribution criteria. Shareholders with a group structure cannot evade their non-compete obligation by acting through a controlled entity.

Tying the obligation to the actual field of activity gives it substantive and geographic contours and reduces the risk of invalidity. Clauses that take the broad corporate purpose as their starting point, by contrast, are open to challenge.

In procedural terms, the authorising resolution under Section 46 No. 8 GmbHG should be prepared at an early stage and passed at the latest once it becomes apparent that proceedings will run for some time. It is not the case that such a resolution is required only in the main proceedings. Because the court must examine it of its own motion and the objection cannot be precluded as out of time, it provides the defence with an effective objection.

The cross-border dimension can likewise be managed. The place of performance of a non-compete obligation contained in the articles of association is the company's registered office. This establishes both the international jurisdiction of the German courts and the applicability of German law, including as against shareholders domiciled outside the European Union.

Conclusion and Outlook

The OLG Hamm strengthens the enforceability of non-compete obligations contained in the articles of association within group structures. The economic unity of parent and subsidiary supports an extension of the obligation under Section 242 BGB, and formal attempts at circumvention come to nothing. Procedural success, however, turns on careful observance of Section 46 No. 8 GmbHG.

Existing clauses should be reviewed to ensure that affiliated entities are covered and that the scope is defined by reference to actual activities. It remains to be seen whether the extension approach will become settled at the level of the Federal Court of Justice and whether it can be applied to shareholdings below 100 per cent. Businesses with joint ventures and cross-border shareholdings would be well advised to follow this development closely.