In the modern business environment, the role of a Director is critically important for a company's success and sustainability. A company requires strong and strategic management to ensure profit generation in the long-term perspective. The primary function of a Director is to make sound decisions, manage risks, and safeguard the company's interests.

Role and Responsibilities of the Director

Article 50 of the Law of Georgia on Entrepreneurs stipulates that a Director is obligated to:

✔ Manage the company lawfully and in good faith;

✔ Act in the best interests of the company;

✔ Make rational decisions based on researched and verified data (Business Judgment Rule);

✔ Avoid conflicts of interest and attempts to obtain personal gain at the expense of the company.

If a Director fails to fulfill these obligations, they shall be held personally liable for damages incurred by the company, and their personal assets may be at risk.

Principles of Good Faith and Loyalty

One of the primary duties of a Director is integrity (Good Faith). This implies that all decisions made must serve the company's best interests rather than any individual benefit.

🔹 Assessment of Good Faith: This can be evaluated by the company's success—if the business is growing and financially stable, it indicates that the Director is managing correctly.

🔹 Breach of the Duty of Loyalty: A Director violates this principle if they make decisions that harm the company while deriving personal benefit.

🔹 Self-Dealing: This is one of the most serious legal risks, creating a direct conflict of interest (entering into a transaction with oneself).

🔹 Self-Dealing: This is one of the most serious legal risks, creating a direct conflict of interest (entering into a transaction with oneself).

Control and Liability

Company Directors, Managing Directors, and Executive Officers are subject to oversight—this is essential for maintaining corporate governance standards.

✅ Minority Shareholders holding at least 5% of shares may file a lawsuit against the Director on behalf of the company (Derivative Suit).

✅ Damages: In cases of director negligence or misconduct, a claim for the compensation of damages may be pursued.

✅ Criminal Liability: Acting against the interests of the company may qualify as a criminal offense.

Conclusion

The Director's role is paramount to a company's success. They must be conscientious, responsible, and rational in their decision-making. Strong and ethical governance contributes to the development of not only the company but the entire business environment.

If you wish to learn more about Corporate Governance, Business Law, and Successful Management, contact us for a consultation!