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Liabilities of a Director Before Shareholder(s) and the Company

Liabilities of a Director Before Shareholder(s) and the Company

Liabilities of a Director Before Shareholder(s) and the Company

31.08.2023

The authority of a director
A director has an important role in the company’s management and day-to-day operations. The director is the sole position who is able to act on behalf of the company without any additional requirements or documents.
Empowering the management authority to the director leads to many liabilities against both the shareholder and the company. Azerbaijani law imposes some duties and obligations on the director to make him/her to avoid abusing his/her authority, which is classified as the “fiduciary duty of the director”.
The fiduciary duties of the director
In accordance with the legislation, the director of the company has the following duties:
  • to act faithfully in a professional manner and logically;
  • to be loyal to the interests of the legal entity and all of its participants;
  • to consider the interests of the legal entity over his own interests;
  • to be careful and fair and impartial in the course of decision-making.
Moreover, if the shareholder who is the owner of more than 10% of shares of the company, has substantial doubts with respect to breach of the fiduciary duty of the director, he/she is able to request from the director all documents or information that are available in the company and are related thereto in order to review. In this case, the director shall submit the respective information and documents within 5 (five) business days.
In the event that the director breaches his/her fiduciary duties and damages the company, the law sets out appropriate measure that may be taken against the director at the shareholder’s discretion. In that event, the director may be removed from his/her position by the decision of the general meeting of the company.
Furthermore, the shareholders may specify the administrative rights and duties of the director in the charter of the company to avoid any uncertainties.
Recommendation
Supervision and control should be carried out by the shareholders over the activities of the director from time to time by using legal mechanisms as specified herein. Otherwise, the company may face substantial financial damages. In addition, while drafting the company charter the authorities, rights and duties of the director, as well as, control and supervision mechanisms of the shareholders should be set out in the charter in detail to prevent possible damages to the company by the director.
About the author: Imamverdi Novruzlu is a lawyer with over 2 years of experience in the area of law. He graduated from the «Faculty of Law» at the Academy of the State Customs Committee of the Republic of Azerbaijan with a bachelor's degree in 2020.
He specializes in dispute resolution, corporate, contracts, intellectual property and especially customs law. Currently, he is a lawyer at Legalize Law Firm. For more information about the author please see the following link: