Certain Issues Related to the Duty of a Company Director to Act Reasonably

Abstract

This paper examines the legal framework governing the liability of directors in corporate entities, with a particular focus on the balance between managerial accountability and entrepreneurial freedom. It explores the conditions under which a managing director may be held personally liable under Section 43 of the German GmbH Act and comparable provisions in other jurisdictions, notably Russian corporate law. The analysis emphasizes that liability is not intended to shift the inherent business risks of corporate operations onto directors, particularly where such risks are a natural and desirable part of competitive strategy. Drawing on the business judgment rule, the study highlights that directors are protected from liability when decisions are made in good faith, on the basis of adequate information, and with a genuine belief that the decision serves the company’s best interests. The research also identifies three essential elements for liability: a breach of duty, the occurrence of damage, and a causal link between the two. Comparative insights illustrate that both German and Russian legal systems recognize the necessity of allowing room for commercially reasonable decisions, even if they ultimately lead to economic failure. This approach aims to prevent excessive judicial intervention in corporate governance and to maintain an environment where directors can act decisively without undue fear of personal financial consequences. The paper concludes that an optimal liability regime must strike a balance between deterring negligent or reckless conduct and preserving the freedom required for effective and innovative corporate management.