I. About This Article
A company director is one of the most important figures in an entrepreneurial company. The director or management body manages the company’s day-to-day activities, makes business decisions, represents the company in relations with third parties and is responsible for protecting the company’s interests.
A company director has both management and representative authority, as well as fiduciary duties to the company. Breach of these duties may result in personal liability.
The Law of Georgia on Entrepreneurs requires an entrepreneurial company to have a management body, whose authority and decision-making rules are determined by law and the company charter. In capital-type companies, including limited liability companies and joint stock companies, this function is usually performed by a director or board of directors.
In practice, disputes involving company directors often arise when a company has not properly regulated the director’s authority, the charter defines decision-making rules unclearly, no service agreement has been concluded, the competence of the director and shareholders is not properly separated, or the director acts in a conflict of interest.
This article will help you understand who a company director is, how a director is appointed and removed, what a service agreement is, what representative authority the director has and what fiduciary duties the director owes to the company.
The article also discusses director liability risks, the business judgment rule, duties in case of insolvency, conflicts of interest, prohibition of use of corporate opportunities, non-compete obligations and the institution of procuration.
For more information about director liability, see our blog: Director’s Liability to the Company – Misappropriation of Company Funds by a Director.
II. Who Is a Person Authorized to Manage an Entrepreneurial Company?
A person authorized to manage an entrepreneurial company is a person who carries out management and representation of the company in accordance with the law and the charter.
In partnership-type companies, such as general partnerships and limited partnerships, management authority is generally exercised by the partners themselves. In capital-type companies, including limited liability companies, joint stock companies and cooperatives, a separate body exists for performing management functions — a director or board of directors.
A company may have one or several persons authorized for management. If there are several managers, their authority may be defined through different models: joint management, individual management or a mixed model.
Therefore, the status of a director should not be assessed only by the title of the position. It is important to examine how the director’s authority is specifically defined in the charter, the registry and the company’s internal documents.
An entrepreneurial company must have a management body in order to ensure the performance of management activities.
The management body is the structure that makes management decisions, ensures the company’s daily operations, performs duties defined by law and the charter and represents the company in relations with third parties.
The authority of the management body, as well as the procedure for adopting decisions, is determined by law and the company charter. For this reason, clear regulation of director authority in the charter is one of the most important issues of corporate governance.
III. Single Director or Collegial Management Body?
A company may have one director or a collegial management body.
Where there is one person authorized for management, the director independently exercises management authority, unless otherwise provided by the charter or law.
If the management body consists of several members, it acts as a collegial management body. The charter may define its name, for example, board of directors, directorate, management board or another similar designation.
A collegial management body usually makes decisions at meetings. A meeting has a quorum if the majority of its members are present. A decision is adopted by a majority of votes of the members present, unless the charter establishes a higher requirement.
In the case of a collegial body, it is particularly important that the charter clearly define the procedure for convening meetings, quorum, voting rules, the role of the chairperson and what happens in case of a tie vote.
IV. How Is a Director Appointed and Removed?
A person authorized to manage an entrepreneurial company is appointed and removed by the general meeting, unless the appointment falls within the authority of the supervisory board.
This means that the appointment and removal of a director usually falls within the control of shareholders. However, if the company has a supervisory board and, under law or the charter, appointment of the director falls within its competence, the decision is made by the supervisory board.
The general meeting or supervisory board is entitled to remove the director at any time without indicating a specific ground. This is an important feature of entrepreneurial law and distinguishes the director’s corporate position from ordinary employment relations.
The person authorized for management also has the right to resign from the position, but must comply with the procedure defined by law or the service agreement.
V. For What Term Is a Director Appointed?
A person authorized for management of an entrepreneurial company is appointed for a term of no more than 3 years, unless otherwise provided by a special law. Reappointment is also possible.
If, after expiry of this term, appointment of the management person for a new term or registration of a change of the person authorized for management and representation is not carried out in accordance with the law, the authority of the registered management person is deemed to continue for an indefinite period.
This rule is practically important because companies often fail to monitor expiry of the director’s term. As a result, uncertainty may arise. However, the law protects the stability of civil circulation and, under certain conditions, recognizes continuation of the director’s authority.
It is advisable for a company to monitor the director’s term, reappointment, removal and registration of changes in the registry in a systematic manner.
VI. What Is a Service Agreement with a Director?
After appointment of a director, a service agreement is concluded between the company and the director.
A service agreement defines the director’s remuneration, form and frequency of payment, service privileges, rights and obligations, as well as obligations that may remain in force after termination of the agreement.
If the director’s remuneration is not indicated in the service agreement, it is presumed that the director performs the function without remuneration.
The service agreement is not subject to registration in the Registry of Entrepreneurs and Non-Entrepreneurial Legal Entities. It is an internal legal document of the company. However, in case of a dispute, it may have decisive importance.
VII. Does Labour Law Apply to a Director?
As a rule, labour law provisions do not apply to a service agreement concluded with a director.
This means that the director’s official status is not an ordinary employment relationship. The director is a member of the company’s management body and is subject to a special corporate law regime.
Removal of the management person from office automatically results in termination of the service agreement concluded with that person, unless otherwise provided by the agreement.
Therefore, the company and the director should define in advance in the service agreement issues such as remuneration, termination procedure, non-compete obligations, confidentiality, use of corporate opportunities and post-office obligations.
VIII. What Does the Director’s Representative Authority Mean?
A company director, as a member of the management body, represents the company in relations with third parties.
Representative authority means that the director may enter into transactions on behalf of the company, represent the company before courts and administrative authorities, conduct commercial relations and perform legal actions connected with the functioning of the company.
According to the practice of the Supreme Court of Georgia, a director, as a person authorized for management and representation, has a duty to assist a shareholder or partner in exercising rights provided by law.
Proper definition of representative authority is important both for the company’s internal management and for safe relations with third parties.
IX. How Do Restrictions on Director Authority Affect Relations with Third Parties?
The director’s authority may be restricted by the charter, shareholder decision or internal company document. For example, it may be provided that a transaction above a certain value requires approval of the shareholders’ meeting.
However, the effect of such restriction in relations with third parties is not always simple.
The practice of the Supreme Court of Georgia emphasizes the importance of protecting a good-faith counterparty. In the interests of civil circulation, a good-faith third party should generally not be required to examine the company’s internal procedures in detail and determine whether the director had internal permission to enter into a specific transaction.
The mere fact that the charter is publicly available or that a restriction may be indicated in the registry does not always mean that the counterparty actually knew about the restriction on the director’s authority.
However, if it is proven that the counterparty actually knew about the director’s limited authority, or was a former director of the company and knew the internal restrictions, such a transaction may become disputed.
X. Why Is Registration of the Director in the Entrepreneurial Registry Important?
Registration of the company director in the Entrepreneurial Registry serves to inform third parties.
Counterparties, banks, public authorities and other persons can use the registry to obtain information on who is authorized for management and representation of the company.
The registry entry is important for the stability of civil circulation. It allows third parties to quickly verify the company representative and the person’s publicly registered status.
At the same time, Supreme Court practice indicates that the registry extract alone does not always exhaust all internal restrictions on the authority of a company director. Therefore, in high-value or strategic transactions, it is advisable to check the company charter, shareholder decisions and relevant approvals.
XI. What Is General Commercial Power of Attorney / Procuration?
A general commercial power of attorney, or procuration, is a special representative authority connected with the performance of entrepreneurial activity.
Management persons may issue general commercial power of attorney in writing. It may be granted to one or several persons. It may also be determined whether they represent the entrepreneur individually or jointly.
Procuration authorizes the general commercial representative to carry out before courts and in other relations all activities and legal actions connected with the functioning of the enterprise.
However, the holder of procuration has authority to sell or encumber real estate only if this authority is granted specifically.
The holder of general commercial power of attorney must be registered in the registry. Procuration may be revoked at any time, and cancellation of the entrepreneur’s registration results in termination of procuration.
XII. What Fiduciary Duties Does a Director Have?
A company director owes fiduciary duties to the company. This means that the director must act in the interests of the company, in good faith, reasonably and with regard to the company’s economic interests.
Under Article 50 of the Law of Georgia on Entrepreneurs, a person authorized for management must conduct the affairs of the entrepreneurial company lawfully and with the diligence of a prudent manager acting in good faith.
This means that the company director must act as an ordinary, reasonable person would act in similar circumstances, believing that the action is economically most favourable for the company.
Fiduciary duties include the duty of care, duty of loyalty, avoidance of conflicts of interest, prohibition of unauthorized use of corporate opportunities and compliance with non-compete obligations.
XIII. What Does the Diligence of a Prudent Manager Acting in Good Faith Mean?
The diligence of a prudent manager acting in good faith is the standard of conduct for a director.
A company director must manage the company’s affairs not only formally lawfully, but also reasonably, on an informed basis, in the company’s interests and with the level of prudence expected from a responsible management person.
This standard is especially important when the company director makes financially significant decisions, enters into high-value transactions, takes a loan, provides security, sells company assets or acts in circumstances where insolvency risk exists.
The diligence of a prudent manager acting in good faith does not mean that the company director is liable for every business decision if the outcome is unfavourable. However, the director is obliged to make decisions on the basis of sufficient and reliable information, without conflicts of interest and in the interests of the company.
XIV. When Is a Company Director Liable for Damage Caused to the Company?
A company director is liable to the company for damage caused by culpable breach of fiduciary duties.
If the company director breaches the duties of good faith, care or loyalty and causes damage to the company, the issue of personal liability may arise.
It is not permitted to restrict the director’s liability by the charter or shareholder decision where the duty has been breached intentionally.
For example, director liability may arise if the director uses authority against the company’s interests, enters into an obviously harmful transaction, hides important information from shareholders, uses a corporate opportunity for personal benefit, violates the non-compete obligation or fails to apply for insolvency proceedings in time.
For more information about director liability, see our blog: Director’s Liability to the Company – Misappropriation of Company Funds by a Director.
XV. What Is the Business Judgment Rule?
The business judgment rule protects a director where the director made a decision in good faith, on an informed basis and in the company’s interests, but the result later turned out to be commercially unsuccessful.
The duty of care is not considered breached, and the company director is not required to compensate damage caused to the company by an entrepreneurial decision, if the director could reasonably assume that the decision was made on the basis of sufficient and reliable information, in the company’s interests, independently and without conflict of interest or influence from others.
This rule is important because risk is natural in business. A company director should not be liable only because a business decision later proved unsuccessful.
However, the business judgment rule does not protect a director if the decision was made in breach of law or the charter, under a conflict of interest, on the basis of insufficient information or contrary to the company’s interests.
XVI. What Duties Does a Director Have in Case of Insolvency Risk?
If the company is insolvent or faces a threat of insolvency, the director has special duties.
The management person must file for insolvency without culpable delay, but no later than 3 weeks from the moment the company becomes insolvent, in accordance with the procedure established by the Law of Georgia on Rehabilitation and Collective Satisfaction of Creditors.
If the company director delays this process and this causes damage to the company, creditors or other persons, the issue of civil or other liability may arise.
In circumstances of insolvency risk, the director’s actions require particular caution. At this stage, the director can no longer make decisions only under the logic of ordinary business risk. The interests of creditors, statutory deadlines and the legal regime of insolvency must also be taken into account.
XVII. What Is a Conflict of Interest and Prohibition of Use of Corporate Opportunity?
A company director may not, without the company’s prior consent, use for personal benefit or for the benefit of another person a business opportunity connected with the company’s field of activity that became available to the director because of the official position or while performing duties.
Such an opportunity may be a new client, project, investment opportunity, contract, market or other commercial idea that could reasonably have been of interest to the company.
This obligation may remain in force after removal of the company director from office for a period of no more than 3 years, unless the service agreement provides for a shorter period.
Management of conflicts of interest is especially important in small and medium-sized companies, where the company director is often also a shareholder or is connected with other businesses.
XVIII. What Does a Non-Compete Obligation for a Company Director Mean?
A director may not, without the company’s consent, carry out the same activity as the company or be a management person of another entrepreneurial company operating in the same field.
This is the main content of the non-compete obligation. Its purpose is to prevent the director from using company resources, information, clients or commercial opportunities for the benefit of a competitor or the director’s own parallel business.
Under the service agreement concluded with the director, this obligation may remain in force after removal from office, but for no more than 3 years.
In case of breach of the non-compete obligation, the company may claim damages, agreed penalty or, in certain cases, transfer to the company of the benefit received by the director.
XIX. What Civil and Criminal Law Risks May a Company Director Face?
Director liability may be civil, corporate and, in certain cases, criminal.
Civil liability may arise if the company suffers damage as a result of breach of fiduciary duties by the director. In such a case, the company or a person authorized by law may claim compensation for damage.
At the corporate level, the director may face removal from office, termination of the service agreement, consequences of breach of non-compete or confidentiality obligations and other internal legal mechanisms.
Criminal law risks may arise in cases such as failure to file for insolvency, use of management authority against the lawful interests of the company for personal or third-party benefit, or negligent failure to perform duties causing significant damage.
XX. What Should a Company Consider Before Appointing a Director?
Before appointing a director, a company should assess not only the candidate’s professional experience, but also the legal framework of the director’s authority.
First, the charter should clearly define whether the director acts individually or jointly with other directors, what types of transactions require approval of shareholders or the supervisory board and how decisions are made.
Second, a service agreement should be prepared to regulate remuneration, rights, obligations, confidentiality, non-compete obligations, corporate opportunities, resignation and the consequences of termination.
Third, the company should define internal control mechanisms, including financial limits, signing rules, need for shareholder approval, reporting and provision of information.
Fourth, conflict of interest risks should be assessed, especially if the director is connected with other businesses or has a commercial interest in the same market.
Fifth, appointment of the director and any change in authority should be registered with the Entrepreneurial Registry in a timely manner.
For more information about legal organization of a company, see our blog: Legal Structuring of a Company – How to Reduce Business Legal Risks.
For legal support in preparing corporate and contractual documentation, see our service page: Corporate Law Services in Georgia.
XXI. How TB Legal Can Help
TB Legal assists businesses with appointment and removal of directors, preparation of service agreements, definition of director authority, update of charters, assessment of representation risks, management of conflicts of interest and disputes related to director liability.
Our approach is based not only on preparation of formal documents, but also on assessment of the company’s real management model, shareholder relations, director authority, risks and court practice.
If you need to properly regulate director authority, prepare a service agreement, review the charter or assess legal risks related to director liability, it is important to obtain qualified legal advice before making a decision.
XXII. Conclusion
A company director is not merely a representative or signatory. A director is a member of the management body of an entrepreneurial company, with important duties related to company management, representation and protection of the company’s interests.
The status of a director includes both broad authority and strict responsibility. A director must act in good faith, reasonably, on the basis of sufficient information, without conflicts of interest and in line with the company’s economic interests.
For a company, it is important that director authority, term of appointment, service agreement, representation restrictions, non-compete obligations and fiduciary duties are clearly regulated in advance. This legal structure reduces the risks of internal corporate disputes, issues with third-party transactions and director liability.
Contact TB Legal if you want to organize the legal structure of your company’s management body, prepare director-related documentation or assess director liability risks. We will help you develop the right legal model.
XXIII. Sources Used
This article is based on the following sources:
- Law of Georgia on Entrepreneurs.
- Guidance documents of the National Agency of Public Registry.
- Instruction on the Public Registry.
- Supreme Court of Georgia, case No. AS-1183-2025, 18 December 2025, Tbilisi.
- Supreme Court of Georgia, case No. AS-1412-1332-2017, 14 November 2018, Tbilisi.
- TB Legal’s practical experience in corporate law.
Disclaimer
This article has been prepared for general informational purposes only and does not constitute individual legal advice or a legal opinion. The issues discussed in this article may be assessed differently depending on the specific facts, protected interest, severity of damage, conduct of the parties, evidence and applicable legal basis.
Before making a decision in a specific matter, it is recommended to obtain individual legal advice from a qualified lawyer.
