TSG Guide to Director’s Liability

Limitations of Director’s Powers

The director shall act within the limits of the powers conferred upon him by (i) company regulations or (ii) decisions of competent authorities.

Limitations of director’s powers may not be enforced by the company against a third party, except in case of joint signatures1.

The director shall be held liable for any damage he may cause to the company by exceeding his powers, except in cases where he acted in accordance with a decision of a competent body or if his actions were subsequently approved by such body2.

If a director violates the duty to act within the limits of his powers, he shall be held criminally liable and face either a fine or a prison sentence of up to one (1) year. If the damage caused to the company exceeds 10 million RSD (ca. 83,000 EUR3), the offender shall be liable to a prison sentence of 6 months to 5 years, as well as a fine. Furthermore, the offender may be barred from holding an office or pursuing a vocation, in accordance with the Criminal Code4.

Director as contract signatory on behalf of both parties

The director may not act as a counterparty to a contract and enter into a contract with the company in his name and for his account, or in his name and for the account of another person, or in the name and for the account of another person, without a special authorisation to that effect. Such authorisation is granted by the general assembly (ltd. / inc.), unless otherwise provided for in the articles of association or the memorandum of association5.

Duty of Care (Business Judgment Rule)

The director has the duty to carry out his tasks in good faith, with due care of a prudent businessman and in reasonable belief that his actions are in the best interest of the company.

The due care of a prudent businessman, that a director is required to exercise, is the level of care which a reasonably diligent person would use if they had the knowledge, skills and experience that might reasonably be expected of a person carrying out the functions of a director in a company.

Furthermore, if such person has specialist knowledge, skills or experience, such knowledge, skills or experience are also taken into account when evaluating the level of care. The director may also base his actions on the expert opinion and information which he reasonably believes to have been given in good faith.

A company may file a lawsuit against the director for any damage caused through a breach of the duty of care. In case that the director proves that he acted with due care of a prudent businessman, in accordance with the above rules, he shall not be held liable for any damage the company may have suffered as a result of his actions. The burden of proof lies with the director6.

Duty to disclose any personal interest

The concept of personal interest is broadly defined. A personal interest is deemed to exist in case of:

1. transactions between the company and the director;

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Translation: Vojislava Katić

Ljubica Tomić

Attorney at Law | Managing Partner

TSG Lawyers