The liability of management board members towards the company
Members of the management board in commercial companies — both in limited liability companies, joint-stock companies, and simple joint-stock companies — may incur liability for damages towards the company.
The purpose of the provisions governing this liability is to limit the risk of management board members acting in their own interest rather than in the company’s interest, thereby reducing the so-called agency costs arising from the relationship between shareholders (principals) and the management board (agents).
The legal basis for the liability of a management board member of a limited liability company for damage caused to the company is Article 293 §1 of the Commercial Companies Code (CCC). Analogous rules regarding management board members of a joint-stock company are set out in Article 483 CCC, and in the case of a simple joint-stock company — in Article 300¹²⁵ CCC.
Legal basis for liability
According to Article 293 §1 CCC: “A member of the management board, supervisory board, audit committee or a liquidator shall be liable to the company for any damage caused by an act or omission contrary to law or the provisions of the company’s articles of association, unless they are not at fault.”
From the above, the following prerequisites for liability can be identified:
1. An act or omission contrary to law or the articles of association (unlawfulness);
2. Fault (culpability);
3. Causing damage.
Example: The president of the management board, acting on behalf of company X, sells a company patent to another company with which he is affiliated, at a significantly reduced price — e.g. PLN 50,000 instead of PLN 500,000. Will he be liable?
Condition of an act or omission contrary to law or the company’s articles
The liability of a management board member in a commercial company may arise regardless of whether the damage was caused by their act or omission. In the example above, if the president of the management board concluded a contract for the sale of a patent at a grossly undervalued price, this constitutes a direct act giving rise to potential liability under Article 293 §1 CCC. However, liability may also arise from omission. For example: if the president knew that the company — acting through its proxy — was selling a patent for a price far below its market value, yet took no steps to prevent the transaction, he may also be liable to the company.
Liability for damages arises when legal provisions or the articles of association are breached.
In the context of the liability of a management board member, a breach of law means a violation of any binding legal provisions — regardless of whether they are contained in the Commercial Companies Code, the Penal Code, or tax law. An example of such a breach may also include performing duties towards the company carelessly or disloyally. The duty of due diligence and loyalty is expressly regulated in Article 209¹ §1 CCC, which states that a management board member must perform their duties with due diligence and loyalty towards the company. Before this provision came into force, this duty was derived from the general rule on managing the company’s affairs contained in Article 201 §1 of the (CCC).
In the earlier example, the president of the management board failed to exercise due diligence by selling the patent at a grossly undervalued price and breached his duty of loyalty, likely acting in his own interest or in the interest of an affiliated company. Such behaviour (potentially) fulfils the condition of unlawfulness and may result in liability for damages towards the company.
Additionally, if the company’s articles require that certain actions of the management board — such as disposal of company assets exceeding PLN 50,000 — be approved in advance by the shareholders’ meeting or the supervisory board, the president performing such an act without the necessary consent violates the company’s articles of association.
Fault (culpability)
A management board member’s liability towards the company may arise from either intentional fault or negligence. Intentional fault occurs when a management board member deliberately acts to the detriment of the company or accepts that damage will occur. Negligent fault consists in the failure to exercise due diligence — the standard expected of a professional manager. In this context, the failure to exercise due diligence is assessed both as an element of unlawfulness and as an independent condition of fault. The key question, therefore, is whether the management board member’s conduct deviated from the standard of a “reasonable manager,” such as someone managing another commercial company.
In the discussed example of selling a patent at an undervalued price, two situations may be distinguished.
The first is the deliberate underpricing of the patent, with full awareness of its market value — which indicates intentional fault. The second is an unintentional underpricing resulting from ignorance of the asset’s value. In this case, the president of the management board failed to exercise due diligence, as a professional manager should verify the transaction terms and prevent the deal from proceeding if the price deviates from market value.
Damage
The final condition for liability under Article 293 §1 CCC is the occurrence of damage. Damage refers to any financial loss suffered by the company — whether as a reduction of its assets or as lost expected profits.
In the discussed case, the company’s damage could amount to PLN 450,000 (the difference between the market price and the actual sale price of the asset).
Potential exclusion of liability
According to Article 293 §3 of the Commercial Companies Code (and Article 483 §3 CCC for joint-stock companies), a management board member does not breach the duty of diligence arising from the professional nature of their activities if they acted loyally towards the company, within the limits of justified business risk, and relied on information, analyses, and opinions that should reasonably have been considered under the circumstances. This means that if a management board member made decisions professionally, in the company’s best interest, and based on available data, their actions will not be regarded as a breach of the duty of due diligence. Consequently, this may serve as grounds for the exclusion of liability for damages.
In the discussed example, the president of the management board, by conducting a transaction with an affiliated company, acted under a conflict of interest. He did not demonstrate loyalty towards the company nor did he act within the bounds of justified business risk. Therefore, he is unlikely to benefit from the exclusion of liability provided for in Article 293 §3 CCC.
Summary
The liability of management board members towards the company constitutes one of the fundamental pillars of commercial law. Its purpose is to protect the interests of the company and its shareholders against the effects of dishonest, unprofessional, or unlawful management. When all the conditions of liability — unlawfulness, fault, and damage — are met, and none of the exclusion criteria specified in Article 293 §3 of the Commercial Companies Code (or Article 483 §3 CCC for joint-stock companies) apply, a management board member may be held liable for damages towards the company.