Ali Al Rashdi, Farah Al Qubtan

For businesses and investors operating in Oman, maintaining trust among partners and ensuring compliance with legal regulations are essential for sustainable growth. Oman’s Commercial Companies Law (CCL) promulgated by Royal Decree 18/2019 addresses these concerns through specific provisions designed to prevent conflicts of interest and safeguard companies’ competitive positions. One of the most significant provisions in this regard is Article 29, which sets clear restrictions on partners engaging in competing activities. Understanding the scope of these restrictions, their exceptions, and consequences of non-compliance is crucial for anyone involved in business partnerships.

Understanding the Restriction

Article 29 of the CCL prohibits partners in a commercial company from conducting any activities similar to the company’s business. This restriction applies when such activities are undertaken for the partner’s own benefit or for the benefit of third parties. The provision reflects the principle that partners must act in the best interests of the company and avoid engaging in activities that could divert opportunities or harm the company’s competitive position.

However, the law provides a degree of flexibility by allowing partners to engage in such activities if they obtain the prior consent of all partners. This requirement ensures transparency and mutual agreement among partners before any potentially competing activity is carried out. For example, if a partner in a construction company wishes to start a similar business, the partner must first secure the approval of all other partners in the company. Failing to do so would be a violation of Article 29 and could expose the partner to legal consequences.

Exceptions to the Rule

While Article 29 sets out a general restriction, it includes notable exceptions to accommodate specific types of companies. Partners in joint ventures, known as “Sharakah Muhassa,” are not subject to this restriction. Joint ventures are typically informal and lack a legal identity, meaning that partners in such arrangements are not bound by the same rules that govern formal companies.

Another key exception applies to shareholders in joint stock companies. Given the nature of joint stock companies, where ownership is spread among numerous shareholders, it is impractical to restrict individual shareholders from engaging in similar business activities. Unlike shareholders in other types of companies, shareholders in joint stock companies generally do not play a direct role in managing the company’s operations. This structural difference makes the restriction unnecessary in their case.

Consequences of Non-Compliance

Whereas the previous CCL, promulgated by Royal Decree 4/74, clearly outlined the consequences for partners engaging in competing business activities, the current CCL does not explicitly address this point. The previous stance was that if a partner engages in these business activities without obtaining the required consent, any profits derived from such activities must be returned to the company. This prevents the violating partner from benefiting at the expense of the company and its other partners. In addition to forfeiting profits, the violating partner may also be held liable for any damages caused to the company as a result of their actions. The company, or any interested party, has the right to seek compensation for financial losses arising from the breach. Furthermore, any contracts or agreements made in connection with the unauthorized competing activities may be declared void, further amplifying the risks associated with non-compliance.

It is important to note, however, that the current CCL still upholds these same implications regarding situations of conflicts of interest. For example, a partner’s use of the assets or property of the company for his own interest or for the interest of a third party or if said partner has directly or indirectly concluded any agreement with the company for their own account or for the account of one of his relatives. 

There is ambiguity when it comes to the question of whether these consequences extend to partners involved in competing business activities. Therefore, the question remains whether a partner violating Article 29 would face the same consequences as under the previous law or if new consequences are in place. 

Conclusion

Article 29 of Oman’s Commercial Companies Law serves as a critical safeguard to protect companies from unfair competition and ensure that partners act in the company’s best interests. By restricting partners from engaging in similar business activities without prior consent, the law aims to maintain trust and fairness among business partners. However, while the provisions under Article 29 are clear, the ambiguity in the current CCL regarding the consequences of non-compliance creates uncertainty. Businesses and partners must therefore exercise caution and seek legal clarity to avoid disputes and potential liabilities. 

At Bait Al Qanoon, we are dedicated to helping you navigate the complexities of Oman’s corporate laws. Whether you are establishing a new company, managing existing partnerships, or addressing concerns of non-compliance, our Corporate Team provides tailored advice to keep your business protected and thriving. Contact us today to learn how we can support your business’s success.