A limited liability company (sp. z o.o.) is one of the most commonly chosen legal forms for conducting business in Poland. As a member of the management board, a manager not only has a range of powers but also obligations that, if neglected, may result in civil and criminal liability. In this article, we will take a detailed look at what the liability of a management board member in a limited liability company involves, how they can defend themselves in the event of claims, and what steps they can take to protect themselves from potential legal consequences.
1. Liability of Management Board Members in a Limited Liability Company
The management board of a limited liability company plays a crucial role in directing the company's operations. Board members are liable for actions taken within their roles, particularly for managing the company’s assets. This liability may take various forms, including civil, criminal, and administrative liability.
a) Civil Liability
The management board is liable for damages caused to the company as a result of failing to perform or improperly performing their duties. According to the provisions of the Polish Commercial Companies Code (KSH), board members are personally liable for damages caused to the company due to their actions.
Board members may be held liable in cases such as:
Violation of duties arising from the law or the company’s articles of association.
Failure to exercise due diligence in managing the company’s assets, such as making improper financial decisions.
Actions that harm the company's creditors, such as leading to insolvency.
b) Criminal Liability
Board members can also face criminal liability, particularly in cases where their actions lead to economic crimes, including:
Financial fraud.
Tax offenses (e.g., evading tax payments).
Intentionally causing the company’s insolvency.
Penalties for such crimes may include fines, imprisonment, or other sanctions, depending on the nature of the offence.
c) Administrative Liability
In certain situations, board members may also be held administratively liable, for example, for violations of environmental protection regulations, labor laws, or health and safety rules. Administrative liability may result in penalties such as fines or other sanctions.
2. How Can a Board Member Defend Themselves?
Despite the broad scope of liability, management board members have several means of defense in case of claims. Below are the most important ones:
a) Evidence of Proper Performance of Duties
If claims are brought by the company or third parties, a board member may demonstrate that they made every effort to perform their duties in accordance with the law and the company’s articles of association. They can show that decisions were well-considered, based on thorough analysis, and aligned with the company’s interests.
b) Joint Liability for Collective Decisions
The liability of board members is often collective, meaning that decisions made by the board are attributed to the entire group rather than a single individual. In practice, this means that a defence can be based on the collective nature of the decision-making process, demonstrating that the responsibility does not rest solely on one board member.
c) Lack of Fault or Intent
Board members can defend themselves by proving that they did not act negligently or with intent to cause harm. Civil liability typically does not cover situations where a board member acted improperly but without fault or intent.
3. How Can a Board Member Secure Themselves Against Liability?
There are several ways for board members to safeguard themselves against liability and reduce the risk of claims:
a) Directors and Officers (D&O) Insurance
One of the most effective ways to protect against financial consequences is to purchase Directors and Officers (D&O) liability insurance. This insurance covers civil liability for mistakes made during the performance of duties, including claims related to decisions that may harm the company or third parties.
b) Properly Structured Agreement with the Company
Board members can protect themselves by carefully drafting their agreement with the company, clearly defining the scope of their duties, responsibilities, and decision-making procedures. Such agreements can include provisions limiting liability for actions performed in good faith and in the company’s best interest.
c) Documenting Decisions
To minimize liability risks, board members should meticulously document all decisions and actions, especially those affecting the company’s financial position. Meeting minutes, resolutions, and records of legal consultations can serve as critical evidence in the event of disputes.
d) Consulting Legal and Financial Advisors
The management board should regularly seek advice from professional legal and financial advisors to ensure compliance with applicable laws and optimize the company’s decision-making processes. Consulting experts helps avoid unintentional breaches of regulations or mistakes in judgment.
Conclusion
The liability of management board members in a limited liability company is extensive, encompassing civil, criminal, and administrative dimensions. Board members must prioritize well-informed decision-making, adherence to legal requirements, and the protection of the company’s interests to avoid liability. Nevertheless, there are effective strategies to defend against claims, such as maintaining comprehensive documentation or obtaining appropriate insurance. Proactive measures, including securing D&O insurance, drafting well-structured agreements, and consulting experts, are essential for mitigating risks and safeguarding against potential liabilities.
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