The civil liability of a member of the management board primarily lies in the liability to the company arising from the professional relationship of the member of the management board.
Obligations
The obligations of a member of the management board of a company may arise from legislation, the articles of association of the company, the decisions of the general meeting, and other agreements between the parties. The obligations of a member of the management board are divided into primary and specific obligations. The primary obligations of a member of the management board are managing and representing the company.
The specific obligations of a member of the management board are, first and foremost, providing information as well as preparing and submitting reports to superior bodies, incl. preparing annual reports, informing shareholders, arranging accounting, submitting a bankruptcy petition on time, calling and preparing the meetings of shareholders, and filling in and submitting tax returns. The specificities of the obligations arising from the professional relationship of a member of the management board of a public limited company are related to the management board’s additional reporting obligation to the supervisory board.
The management board of a private limited company is obligated to maintain a list of shareholders if the shares of the private limited company are not registered in the Estonian Central Register of Securities (EVK). If the shares are registered in the EVK, the management board is obligated to ensure the submission of correct data. The management board of a public limited company is not obligated to maintain a list of shareholders; instead, they must ensure the submission of correct data to the person maintaining the share register.
Standards for the fulfilment of obligations
The diligence obligation of a member of the management board of a company means that the member of the management board must act in good faith and in the interests of the company; they must also be sufficiently informed to make decisions and must not take unjustified risks on behalf of the company. When establishing a diligence standard for a member of the management board of a legal person, it should be taken into consideration that for different types of legal persons, the diligence standard of this member of the management board might differ in content to a certain extent. In addition, this standard may differ based on the area and scope of activity of the legal person. However, all members of the management board of a legal person have a minimum diligence standard that must be met by everyone. The diligence obligation of a member of the management board is an objective standard of behaviour which allows assessing whether the member of the management board has fulfilled both primary and specific obligations, incl. made business decisions, in accordance with requirements.
The loyalty obligation means, inter alia, the obligation to avoid conflicts of interest and not place personal interests above those of the company. The diligence obligation of a member of the management board also includes the obligation to make informed decisions, i.e. to ask for additional information and explanations from experts, when necessary. The loyalty obligation of a member of the management board includes the restriction on the right to vote, the restriction on the right of representation, prohibition on competition, and the obligation to preserve business secrets.
Liability
The liability of a member of the management board primarily lies in the obligation to compensate for damage. A distinction is made between the liability of a member to the company, the liability of a member to third persons (incl. the company’s creditors), and, in the case of a private limited company, the liability of members of the management board to the company’s shareholders. A member of the management board may refute their liability if they prove that their activities conformed to due diligence requirements. The liability of a member of the management board may be established on a general basis as well as on special bases.
The special configurations of the liability of a member of the management board of a private limited company include the incorrect assessment of a non-monetary contribution, the liability of the management board in the establishment of the private limited company, payments made after the insolvency of the private limited company becomes apparent, liability arising from breaching the prohibition on competition, and incurring losses in connection with a merger, division, or transformation.
The special bases of the liability of a member of the management board of a public limited company include the liability in the establishment of the public limited company, liability for causing unlawful disbursements, liability for breaching obligations along with an unlawful influencing party of management bodies, liability arising from breaching the prohibition on competition, and liability for incurring losses in connection with a merger, division, or transformation.