Judgment of the Supreme Court of Justice of 17 June 2014

Annulment of corporate resolution – Amendment to articles of association –  Non compete clause – Exclusion of a partner 

In this judgment, the Supreme Court of Justice was requested to rule on the lawfulness of a resolution adopted by the general meeting of a private limited liability company (quota company) to make an amendment to the by-laws whereby the partners are not allowed to pursue, on their own or someone else’s account, an activity competing with that of the company, as well as be engaged or be a part of companies with the same object and/or activity of the one pursued by the company. The partner in breach of the provisions of this clause of the by-laws would be subject to exclusion, without being entitled to receive the value of his or her share and would be obliged to compensate the company any damages the latter might sustain.

The Supreme Court of Justice considered that, although in private limited liability companies only the managers are subject to a non-compete obligation, nothing precludes the establishment of a similar prohibition for the partners, providing that the breach of such rule may be grounds for exclusion. For the Supreme Court of Justice such non-compete obligation for the partners is a corollary of their duty of loyalty to the company and the inclusion thereof in the by-laws of the company is totally lawful in light of the principle of private autonomy.

In this connection, the Supreme Court of Justice upheld the decision appealed against and only considered invalid the part of such decision providing for the elimination of the right to the amortisation of the share’s value, since, both in the exclusion by contract or by the court, provision is made for the amortization of the share pursuant to Articles 241 and 242 of the Companies Code (Código das Sociedades Comerciais).