The Civil Code of Azerbaijan mandates that a legal entity shall have, at least, one legal representative acting as an executive director.
Duties and Powers. Persons acting on behalf of a company and persons who are represented at the management bodies (board of directors or executive body) of a company shall (i) act in an honest, professional and reasonable manner, (ii) be loyal to the interests of a legal entity and its shareholders, (iii) favor the interests of the legal entity over those of his/her own (iv) demonstrate prudency and (v) be fair and unbiased in making decisions during performance of his/her duties for the benefit of the legal entity he/she is representing.
Executive director acts on behalf of the company without a power of attorney, runs day-to-day management of the company and represents the company before the third parties, including courts.
The board of directors is a body supervising the activity of the management body of the company.
Liability and Indemnification of Directors and officers. In case of a breach of the duties stated above, persons acting on behalf of a company and persons who are represented at the management bodies (board of directors or executive body) of a company should compensate the company, at the request of shareholders, who owns at least 5% share in the charter capital of the company, for all damages caused to the company.
Members of management bodies, who do not fulfil or improperly perform their statutory duties are liable for damages caused to the legal entity or the shareholder in the following specific cases:
- paying bonuses to the members of the management bodies of a legal entity when the legal entity operates with losses or paying a disproportionate amount of bonuses which is incomparable with the legal entity’s profit;
- disposal or use of property of a legal entity with significantly lower prices and conditions than the market prices/conditions;
- entering into contracts with related parties by violating the law or jeopardizing the interests of the legal entity;
- purchase of goods (works, services) by the legal entity on the basis of contracts with significantly higher prices than their real value;
- embezzlement or waste of assets of a legal entity for the purpose of misappropriation of tangible or intangible assets and rights thereto for himself, for related parties or for other persons; and
- entering into agreements unfairly detrimental to the interests of the company’s shareholders.
According to the Civil Code, if any of the circumstances stated above occurs, the members of management bodies, who caused damages to the legal entity, may be dismissed from office by a decision of the general meeting of shareholders. In addition, such person may still be held liable for the damages caused to the legal entity, and badly affected parties to the transactions concluded by such person shall have a right to file a lawsuit in court to declare such transactions as null and void.
This article was prepared as general information by the attorneys of Baku Attorneys & Consultants (BAC), a full-service Azerbaijani law firm. BAC provides cutting-edge legal solutions for businesses in Azerbaijan. Please, feel free to reach us via the contact page for any questions.