The manager (gérant) of a SARL (French private limited company) cannot set up a competing company while in office. The duty of loyalty and fidelity prohibits this as a matter of principle, on the basis of Article L. 223-22 of the French Commercial Code, regardless of any act of unfair competition. The mere creation of the competing structure therefore constitutes the breach. Compensation, however, still requires the company to prove damage.
The essentials
- The manager of a SARL cannot set up a competing company while in office: the duty of loyalty and fidelity prohibits this as a matter of principle.
- No act of unfair competition need be shown: neither diversion of customers, nor poaching of staff, nor misappropriation of information.
- Article L. 223-22 of the French Commercial Code grounds the manager's liability towards the company they manage.
- A breach does not amount to an automatic award: the company must establish damage and its link with the breach.
- An agreement concluded between the manager and the company without complying with the regulated agreements (conventions réglementées) procedure remains effective, the manager bearing its harmful consequences where damage is established.
What the commercial chamber held
The commercial chamber holds that a SARL manager who sets up a competing company while in office breaches the duty of loyalty, and partially quashes the decision that had ruled out that breach (Com., 17 June 2026, No. 25-13.855). The provision relied on is Article L. 223-22 of the French Commercial Code. The quashing also covers the dismissal of the application for disclosure of the competing company's accounts and extends, by necessary dependence, to the dismissal of the claim for non-pecuniary loss.
A société à responsabilité limitée carries on business as a property dealer. Its capital is held by two individuals and a company, one of the shareholders acting as manager. On 25 September 2018, that manager sets up two companies, one of which carries on a competing property business, without informing the company they manage or the other shareholders. They resign from office on 31 October 2018. A few months earlier, they had themselves acquired a plot of land belonging to the company, without evidencing compliance with the regulated agreements procedure.
The former manager brings proceedings against their fellow shareholder and the two companies, seeking in particular dissolution and payment of damages. The company files counterclaims, including compensation for breach of its non-compete undertaking and, failing that, of the duty of loyalty. The decision under appeal (CA Rennes, 14 January 2025, No. 21/04274) dismisses those claims: the creation of the two companies, without informing the shareholders, does not in itself amount to a breach of the duty of loyalty, no act of unfair competition being otherwise made out.
The commercial chamber rejects that reasoning and states the rule in general terms. The breach requires neither diversion of customers, nor poaching of staff, nor misappropriation of information. The creation of the competing company, while in office, is sufficient in itself. The decision under review states this principle as follows (free translation):
It follows from that provision that the duty of loyalty and fidelity borne by the manager of a SARL prohibits them, as a matter of principle and regardless of any act of unfair competition, from setting up a competing company while in office.
On another point, the commercial chamber approves the lower court judges: the sale of the land to the manager, concluded without complying with the regulated agreements procedure, gives rise to no compensation for want of proven damage. The judges had noted the absence of any significant difference between the price paid and the estimated value, as well as the uncertain nature of a property sale at the estimated price. The loss of chance (perte de chance) of selling at a higher price was therefore not established.
Can a SARL manager set up a competing company?
No: while in office, a SARL manager cannot set up a competing company, even without diverting a single customer. The prohibition arises from the office itself, not from any particular undertaking. It therefore applies from the day of appointment until duties cease.
The duty of loyalty does not depend on any contractual clause. In this case, the lower court judges had annulled the non-compete undertaking given by the manager, for want of limits in time and space. That annulment did not, however, release them. The duty of loyalty and fidelity attaches to the office of manager, as of right, throughout the term of the corporate mandate.
Proof is thereby simplified for the company. A company complaining that its manager has set up a competing structure need not establish an act of unfair competition. Two elements suffice to make out the breach: the creation of a company while in office, and the competing nature of its business. The debate on the diversion of customers or staff then shifts to the assessment of the damage.
The breach does not, however, amount to an automatic award. The manager's liability requires, in principle, damage and a causal link with the breach. The treatment of the sale of the land illustrates this clearly: failure to observe a statutory rule has no compensatory effect where the company evidences no loss. The application for disclosure of the competing company's accounts takes on its full significance from that standpoint.
What the decision confirms and what remains open
The decision endorses a demanding conception of the manager's duty of loyalty, without settling the question of the extent of compensation. The principle is stated in terms detached from the facts of the case, which gives it general scope. The court to which the case is remitted will have to assess the damage claimed by the company, as well as the application for disclosure of the competing structure's accounts.
Two points remain open as matters stand after this decision of 17 June 2026. The rule targets the creation of a competing company while in office: the decision does not rule on projects launched after the mandate ends. Nor does it define the threshold from which two businesses must be regarded as competing, a question of fact left to the assessment of the lower court judges.
The rejection of the ground of complaint relating to regulated agreements confirms, for its part, a settled reading of the provision. The manager bears the consequences of the contract that are harmful to the company, but that burden gives rise to compensation only if damage is proven. Where the price applied falls within the valuation range adopted, loss of chance may be ruled out.
What precautions for the manager and for the company?
A manager contemplating a competing business cannot launch it during the term of office, and a company bringing proceedings must prepare to demonstrate its damage. The two requirements mirror each other: the breach is easy to establish, compensation is not. Building the case therefore turns on the figures.
For the executive, the chronology becomes decisive. The date of incorporation of the structure, the date of resignation and the date on which the cessation of duties takes effect should be documented precisely. The declared corporate purpose is not enough: it is the business actually carried on that allows competition to be assessed. Informing the shareholders does not neutralise the breach, since the decision under review makes the prohibition subject to no condition of secrecy.
For the company, the claim benefits from being supported by accounting evidence. The transactions carried out by the competing structure during the period of management, the corresponding margins and the business lost make up the material for the assessment. Disclosure of the competing company's accounts may be sought to that end, as shown by the treatment of that application in the case under review.
The checks before setting up a parallel structure
- Check whether the manager's mandate is still running on the date the new company is incorporated, that date being the point of comparison adopted.
- Compare the business actually carried on by the two structures, rather than the declared corporate purposes alone.
- Do not rely on the nullity of a non-compete clause: the manager's duty of loyalty subsists independently of any contractual undertaking.
- For the claimant company, gather the documents quantifying the loss suffered, failing which an established breach will attract no compensation.
- Deal separately with agreements concluded between the manager and the company: their irregularity gives rise to compensation only if damage is proven.
Frequently Asked Questions
Must a company prove diversion of customers to sue a manager who set up a competing company?
No. Under the decision of 17 June 2026, the duty of loyalty and fidelity prohibits a SARL manager from setting up a competing company while in office, regardless of any act of unfair competition. The company therefore need not show diversion of customers, poaching of staff or misappropriation of information. Those factors remain useful to quantify the damage, which the company must still prove.
Can an executive launch a competing business once they have resigned?
The rule laid down by the decision under review targets the creation of a competing company while the person is in office as manager. It does not settle the position of projects set up after the mandate ends. Once duties cease, freedom to conduct a business applies in principle, subject to a valid non-compete clause and to acts of unfair competition, which remain actionable. The exact timing of the resignation then becomes central to the debate.
Must a manager who buys an asset belonging to the company always compensate it?
No. An agreement between the manager and the company concluded without complying with the regulated agreements procedure remains effective, the manager bearing the consequences of the contract that are harmful to the company. Damage must still exist. In the case decided on 17 June 2026, the price paid was close to the estimated value and a property sale at the estimated price remained uncertain: no loss of chance of selling at a higher price was found.
Does the nullity of a non-compete clause release an executive entirely?
No. Nullity of the clause removes only the contractual undertaking. The executive remains bound, in principle, by a duty of loyalty attached to the office, which exists independently of any stipulation. A company cannot assume it has no remedy because its clause was annulled for want of limits in time or space. Conversely, an executive cannot infer from that nullity a complete freedom of action during the term of office.
How can a company quantify the damage caused by its executive's competing business?
Quantification rests on concrete accounting evidence. The company gathers the transactions carried out by the competing structure during the period of management, the related margins and the business it establishes it has lost. A fall in turnover alone often proves insufficient if other causes may explain it. In principle, compensation requires certain damage and a causal link with the breach: a breach established without proven loss attracts no compensation.