Eternal Loyalty? The Duty of Loyalty of Partners in Limited Liability Companies

Eternal Loyalty? The Duty of Loyalty of Partners in Limited Liability Companies
Partners in limited liability companies (GmbHs) have a duty of loyalty both to the company itself and to the other partners. Loyalty is generally understood to be the duty to mutual loyal behaviour, the duty to promote the company objective and the duty to refrain from any activity that may be damaging to the company.
The extent of the duty of loyalty depends on the structure of the company: Companies with a strong personalist focus and a small circle of partners will have a  much more far reaching duty of loyalty than companies that are more capitalistically orientated and have a large number of partners. Furthermore, in some cases the extent of the duty of loyalty increases with the growing scope of influence of a partner.

 The „state“ of the company also has to be considered when assessing the extent of the duty of loyalty: a company that is in a state of liquidation will have a reduced scope of duty of loyalty, since here satisfying the company creditors and distributing the remaining company assets is paramount.

The duty of loyalty towards the „GmbH“

The partners duty of loyalty towards the company has, as a consequence, an obligaltion of the partners to respect the interests and concerns of the company when exercising their rights and to promote the company objective. Any activity that potentially may be damaging to the company is to be refrained form. However, in principle, the duty to loyalty does not always require putting the interests of the company above a partner’s own interests. This means it should definitely be considered that „self-serving“ rights, that primarily serve the interests of the partner (right of termination or dissolution and liquidation, property rights, etc.) may, in certain cases , be exercised against the interests of the company. The limit is set by „unreasonably exercising“ these „self-serving“ rights, or respectively „excessive negative impact“ on the company. This may be seen as a violation of the duty of loyalty.

An article in the Tyrolean Business Magazine „eco.nova“ by lawyers Sivia Moser and Barbara Egger-Russe reports on the subject in detail: Ewige Treue? (PDF)

Foto: ©Blickfang (Julia Türtscher)
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