A Director's Duties and Personal Liability in a Georgian LLC

The partners of a Georgian limited liability company are, as a rule, not liable for its debts; the Law's exception is abuse of the limited-liability form. Its director is in a different position. The Law of Georgia on Entrepreneurs, in force since 2022, makes a director answer to the company personally for damage caused by a culpable breach of duty, and it does not allow the charter or the partners to remove that liability in advance where the breach was intentional. The same Law gives an honest director a real defence: a business decision taken on adequate information, in the company's interest, independently and without a conflict of interest is protected even when it loses money. This article concerns the country of Georgia and the LLC; joint-stock companies and regulated firms carry more.

What the Law on Entrepreneurs expects of a director

The Law calls the director a manager. An LLC is managed and represented by one or more of them, appointed and removed by the partners. The relationship is a service agreement, which the Law places outside labour law: the partners may remove a director at any time without giving a reason, and an agreement that says otherwise is void. If the agreement is silent on pay, the director is presumed to act without remuneration. Two rules shape the risk. The director must follow the partners' lawful decisions, and the director's power to represent the company cannot be limited as against third parties: where a director ignores an internal limit that the other side did not know about, the company is bound and the director answers for it.

• Care: run the business lawfully, decide on information, and keep a record that shows both.
• Loyalty: act in the company's interest, not a partner's or your own. A contract between the company and a partner or a person related to a partner must be on terms that independent parties would accept.
• No competition: without the company's consent a director may not carry on the same activity or manage another company in the same field. Consent is treated as given if the partners knew of the activity at the appointment and did not object, and the service agreement may keep the ban alive for up to three years after the director leaves.
• No taking of opportunities: a business opportunity in the company's field that the director learned of through the office belongs to the company first, during the office and for up to three years after it.
• Large transactions: a transaction worth more than 50% of the book value of the company's assets, or a lower threshold in the charter, needs the general meeting's approval.
• Dividends: the director proposes a distribution together with a statement that the company will be able to meet its matured obligations during the following calendar year.
• Accounts and the register: directors are jointly responsible for preparing and submitting the financial statements, and the person with management powers is responsible for submitting registrable data to the registry.

The business judgment rule protects decisions, not neglect

A court does not ask whether the decision turned out well. It asks how it was made. The defence needs four things at the time of the decision: sufficient and reliable information, the company's interest, independence, and no conflict of interest or outside influence. It is not available for a decision that breaks the law or the charter, and it does not help a director who decided nothing and let a deadline, a licence or a filing lapse. A second defence sits beside it: a director who carries out a decision of the general meeting is not liable for the result, unless the director gave the meeting wrong information or knew the decision would cause damage and did not warn the partners. Both are proved with paper: the figures, the advice, the minute.

Conflicts of interest in an LLC need a written procedure

The Law writes its detailed procedure for conflicted transactions, with disclosure, prior approval and no vote for the interested person, in the chapter on joint-stock companies. Whether it binds an LLC is not settled by the text: an LLC with several directors is sent to the joint-stock rules on company bodies, which suggests it does, and a sole director is not. A similar result follows in any case from rules that do apply. A conflicted decision loses the business judgment defence. A partner cannot vote on a transaction between the company and themselves. Dealings with a partner or a related person must be at arm's length. A careful LLC charter therefore copies the procedure: written disclosure, the partners' approval before signature, a minute.

The general meeting may waive or settle the company's claim against a director, unless partners holding at least 10% of the votes object, and the director concerned does not vote on it. A waiver does not cancel a creditor's claim for damage where the Law's rule on abuse of control applies. Liability for a deliberate breach cannot be excluded in advance by the charter or the service agreement. Claims under the Law are generally time-barred after five years, at the time of writing.

When the company is insolvent the deadline is three weeks

If the company is insolvent or threatened with insolvency, the director must file for insolvency proceedings without culpable delay and no later than three weeks from the moment insolvency occurred. The Law on Entrepreneurs and the Law on Rehabilitation and the Collective Satisfaction of Creditors' Claims both say so, and the second adds that failure results in criminal liability; the Criminal Code has the matching offence. A company is insolvent when it cannot cover its matured liabilities, and the clock starts when the director knew or ought to have known it. For the purpose of a filing the insolvency law also presumes insolvency in listed situations, among them liabilities that exceed assets, an entry in the Registry of Debtors and a tax enforcement measure in place for at least 30 days. Voluntary liquidation, which our article on closing a company describes, is for a company that can pay its debts. A director who sees that it cannot should stop distributions, treat creditors evenly, convene the partners and take advice inside the three weeks.

Tax and criminal exposure, in general terms

Tax is the company's liability, and so, on our reading of the Tax Code, are the penalties for filing and paying late. The director signs the returns and is the person the Revenue Service addresses. Criminal law is personal by nature: offences such as tax evasion or fraud, and the failure to file for insolvency in time, are answered by the individuals who decided and signed. The Criminal Code and the Tax Code set the elements and the sanctions; this article does not.

A resignation takes effect for third parties through the registry

1. 1

   Read the service agreement for the notice period and the addressee. Without a different term, the Law lets a director leave on at least one month's written notice to the partners' meeting, which the director convenes. Give the notice in a form that can be proved later.

2. 2

   The partners are to elect a new director within one month. The change is then filed with the Public Registry on the partners' decision and the new director's consent.

3. 3

   Hand over in writing: accounting records, bank and portal access, seals, contracts and pending deadlines, in a signed act.

4. 4

   Check the extract. Until the register changes, third parties are entitled to treat the registered director as the director, and a term that has simply run out does not remove the name: the registered director's term is treated as continuing.

5. 5

   If the partners do nothing, do not wait. Take advice on asking the registry to record the end of the mandate, and keep evidence of every step.

6. 6

   Remember what survives: liability for the period in office, the ban on taking the company's opportunities, and any non-compete the service agreement extends.

A nominee director carries the whole liability

The Law on Entrepreneurs has no category of nominee director. The person on the register is the director, with every duty in this article, and the register is public: banks, counterparties and courts act on the name. An indemnity from the real owner is a private contract, worth what the owner is worth on the day it is called on, and it binds neither the company's creditors nor a prosecutor. Anyone asked to lend their name should price the role as what it is: full responsibility for a business they do not control.

What this article does not answer

It does not cover joint-stock companies, supervisory boards, or the fit-and-proper rules that regulators apply to directors of banks, payment firms and other licensed companies. It does not address what a foreign director's home country makes of the role: managing a company from abroad can raise questions about the company's own tax residence and the director's position, and those are for an adviser there. We advise directors and partners on the Law on Entrepreneurs, draft the documents and keep the register current; court representation is referred to an advocate.