Articles 101 and 102 TFEU refer to the notion of undertaking but do not define it. According to the case law, an undertaking is characterized by its economic autonomy: an entity is an undertaking under Article 101 of the Treaty when it carries out an economic activity and operates independently on the market. Any activity consisting in offering goods or services on a given market is an economic activity.

Competition law applies regardless of the public or private law status of the parties involved: sovereign immunity cannot be invoked by the public entity in question if the conduct criticized is related to the supply of products or services in a market. On the other hand, when implementing the prerogatives of a public authority, a State, a public body or a local authority are not undertakings within the meaning of competition law. The same applies to social security bodies whose purpose is not economic, but which perform a function of an exclusively social nature, carry out an activity based on the principle of national solidarity, without any profit motive and pay out statutory benefits independent of the amount of contributions. On the other hand, a non-profit organization, managing a retirement insurance scheme intended to supplement the compulsory basic scheme, or a pension fund, which itself determines the amount of contributions and benefits and operates according to the principle of capitalization, is an undertaking within the meaning of competition law. The attribution of the status of undertaking “carrying on an economic activity” to a non-profit organization depends on the circumstances of its designation and the margin for negotiation it has had with regard to the terms of its commitment.

Further, Article 106(1) TFEU provides that Member States may not enact or maintain in force any measure contrary to the rules of the Treaty in the case of public undertakings and undertakings granted special or exclusive rights. State measures must, inter alia, comply with the principle of non-discrimination (Article 18 TFEU), as well as the competition rules set out in Articles 101 to 109. The legal form of such measures is irrelevant if they are the expression of the particular influence exercised by the State on public undertakings or holders of special or exclusive rights. They may result from a law or a decree or a regulatory provision, or even the presence of a representative of the State in deliberative bodies. There is no official definition of the concept of public undertaking. However, following its terms, Article 106 concerns undertakings in respect of which the State has a special responsibility. The absence of a distinct legal personality from that of the State does not prevent the entity from being held to be a public undertaking. The granting of exclusive rights to an undertaking presupposes that it has been subject to a different treatment than other operators, giving it a competitive advantage over them. In order for an infringement of Article 106(1) TFEU applied in combination with Article 102 to be constituted, a state measure must distort competition by creating an inequality of opportunity between economic operators and an abuse of a dominant position must be identified. It is sufficient that an actual or potential abuse is likely to result from the state measure in question. While the mere creation of a dominant position by the grant of exclusive rights, within the meaning of Article 106(1) TFEU, is not, as such, incompatible with Article 102, a Member State infringes the prohibitions laid down in those two provisions where the undertaking in question is led, by the mere exercise of the exclusive rights conferred on it, to exploit its dominant position in an abusive manner or where those rights are liable to create a situation in which that undertaking is led to commit such abuses. A national regulation conferring exclusive rights on an undertaking is incompatible with Article 106 TFEU when it will unavoidably lead to a conflict of interests or if it leads to an inequality of opportunity to its advantage or creates a situation in which that undertaking is manifestly not in a position to satisfy the demand prevailing on the market for certain activities, even if that inability is not structural. Similarly, it must not allow an undertaking with exclusive rights to apply discriminatory conditions or to monopolize a market neighboring the one on which it holds a dominant position.

The principle of prohibition laid down in paragraph 1 of  Article 106 is tempered by paragraph 2, which partially removes certain public undertakings from the scope of application of competition law. These are undertakings entrusted with the operation of services of general economic interest or having the character of a revenue-producing monopoly for “the performance, in law or in fact, of the particular tasks assigned to them”. The undertaking must manage a service of economic and general interest by virtue of an act of public authority. The act of investiture of the undertaking need not necessarily be of a legislative or regulatory nature, as long as it emanates from the public authority. A public service concession may suffice, but not the mere holding of exclusive rights. To render the Treaty rules inapplicable to an undertaking entrusted with the operation of a service of general economic interest, the application of said rules must lead to the inability, in law or in fact, for that undertaking to perform the specific tasks entrusted to it. The concept of service of general economic interest refers to an activity which exhibits special characteristics as compared with that of other economic activities. Only those obligations, linked to the subject-matter of the service of general economic interest in question and designed to make a direct contribution to satisfying that interest, justify derogation from the rules of competition. The undertaking does not, however, have to prove that the application of the rules of competition would have the effect of threatening its economic viability. The Member State which bears the burden of proof that the conditions of Article 106(2) have been fulfilled is not required to prove, positively, that no other conceivable measure could enable those tasks to be performed under the same conditions. The restriction must be proportionate to the desired objective and allow the undertaking to perform its task without compromising the economic equilibrium. An undertaking entrusted with the operation of a service of general economic interest can thus impose the payment of a tax on private operators as long as the proceeds do not exceed the amount necessary to offset any losses which may be incurred in the operation of the service by the undertaking responsible and as long as it is also subject to the same tax when it provides the same service. However, an undertaking may not reserve an exclusive right to itself only on commercial grounds. The derogation does not apply either if the development of trade is affected to such an extent by the practices adopted by the undertakings entrusted with the operation of a service of general economic interest, as would be contrary to the interests of the Union.