I. Service Overview
TB Legal offers legal services for preparing and pursuing a shareholder claim against director where there are reasonable grounds to believe that an act or omission of the company’s director has caused damage to the company itself and the company is not independently pursuing the relevant claim.
Such a dispute differs significantly from an ordinary damages claim.
A company and its shareholders are separate legal persons. Accordingly, damage caused to the company by a director does not automatically constitute personal damage suffered by a shareholder. One of the first questions in a corporate dispute is therefore to determine who owns the claim – the shareholder personally or the company.
Under the current Law of Georgia on Entrepreneurs, a member of the management body is liable to the company for damage caused by a culpable breach of their duties. The law also provides circumstances in which the relevant claim may be pursued by a shareholder.
In the case of a limited liability company, Article 147 applies the relevant rules established for joint-stock companies to claims brought by an LLC shareholder for the benefit of the company.
1. When May This Service Be Required?
The issue may arise where a shareholder has information or reasonable grounds to suspect that the director used company property or financial resources contrary to the company’s interests, entered into a transaction detrimental to the company, acted under a conflict of interest, failed to protect a company claim against a third party, gave preferential treatment to a related person, or otherwise breached duties imposed on the director.
However, not every unsuccessful business decision made by a director gives rise to liability.
For this reason, a shareholder claim against a director requires legal assessment not only of the financial outcome, but also of the director’s decision-making process, the information available to the director, any conflict of interest, the company’s interests, and the causal connection between the alleged breach and the loss.
2. What Does TB Legal’s Service Include?
TB Legal’s service begins with an assessment of the company’s legal and factual position.
The next step is to determine whether the company has a claim against the director, whether the particular shareholder is entitled to pursue that claim, what legal basis may apply, and what result may realistically be achieved through court proceedings.
The service may include an initial legal assessment, analysis of corporate and financial documentation, determination of the legal structure of the claim, necessary pre-litigation steps, preparation of the statement of claim, and court representation.
The specific strategy is determined by the facts of each case.
II. To Whom Is a Director Liable?
A director is a member of the company’s management body and the primary beneficiary of the director’s fiduciary duties is the company itself.
This distinction is extremely important in practice.
If the director’s conduct reduces the company’s assets, causes the company to lose a claim, results in property being sold on disadvantageous terms, or diverts a business opportunity belonging to the company for the benefit of another person, the first issue is generally the damage suffered by the company.
1. Damage to the Company and Personal Damage to a Shareholder Are Not the Same
A deterioration in the company’s financial position may also affect shareholders economically.
For example, a reduction in the value of the company may ultimately reduce the value of a shareholder’s interest.
However, this does not automatically mean that the shareholder can personally claim compensation from the director.
In Case No. ას-457-436-2015, the Supreme Court of Georgia explained that where the director’s breach of duty causes damage to the company, the claim against the director primarily belongs to the company, while in appropriate circumstances a shareholder may be entitled to pursue the company’s claim.
The Court placed particular emphasis on identifying whose loss the shareholder was seeking to recover.
This distinction is one of the reasons why proper formulation of a corporate claim requires professional legal assessment.
2. Purpose of a Claim Against the Director
Where a shareholder acts for the benefit of the company, any successful economic recovery will generally belong to the company rather than directly to the shareholder.
This follows from the nature of a derivative claim.
A shareholder claim against a director should therefore not be regarded as a mechanism for personal financial recovery by one shareholder against the director.
Its purpose is to enforce a claim belonging to the company that the company itself is not pursuing.
III. What Is a Derivative Claim?
In corporate law, a claim pursued by a shareholder for the benefit of the company is commonly referred to as a derivative claim.
Its essential feature is that the shareholder applies to the court in their own name while seeking to enforce a claim belonging to the company for the benefit of the company.
The case law of the Supreme Court of Georgia treats the derivative claim as an important mechanism of corporate accountability of directors.
1. Why Is Such a Mechanism Necessary?
The problem becomes particularly clear where the person authorised to act on behalf of the company is the same director whose liability is in question.
This creates an obvious practical conflict: it is difficult to expect the director to initiate litigation against themselves on behalf of the company.
For this reason, the law allows a shareholder, subject to the relevant conditions, to act in order to protect the company’s interests.
In Case No. ას-73-73-2018, minority shareholders sought compensation from the director for damage caused to the company, for the benefit of the company. The Supreme Court explained that a derivative claim is a mechanism of corporate accountability of directors and that its purpose is to restore loss suffered by the company.
2. A Shareholder Does Not Automatically Replace the Company
Despite the availability of this mechanism, any shareholder cannot substitute for the company in every circumstance.
The current law establishes specific conditions for recognising a shareholder as the proper claimant, and the court also assesses whether pursuing the claim is consistent with the company’s best interests.
Before initiating a derivative claim, it is therefore necessary to verify both the substantive claim against the director and the legal prerequisites allowing the shareholder to pursue it.
IV. Breach of the Director’s Duty of Care
Under the current Law on Entrepreneurs, a director is required to conduct the company’s affairs lawfully and with the care expected from a conscientious business manager.
A director is not required to ensure that every business decision is successful.
Business inherently involves risk, and an incorrect commercial forecast does not itself create director liability.
1. An Unsuccessful Business Decision Is Not Always a Breach
A director may be entitled to make even a high-risk decision where, at the time of making it, the director was appropriately informed, acted in the interests of the company, acted independently, and was free from conflicts of interest.
Article 52 of the current law reflects this principle through the concept of freedom of entrepreneurial decision-making.
Accordingly, a shareholder claim against a director cannot be based solely on the fact that a transaction later proved unprofitable or that the company’s expectations were not realised.
2. Where Is the Boundary of Liability?
This is one of the most difficult issues in disputes concerning director liability.
It may be necessary to determine what information was available to the director, whether the director had a personal interest, whether another person exercised influence over the decision, whether obvious risks were properly considered, and whether the decision was genuinely made in the company’s best interests.
Supreme Court case law has repeatedly emphasised that the Business Judgment Rule protects a director only where the relevant conditions for that protection are satisfied.
Correctly identifying the boundary in a particular case requires a combined analysis of the legal framework and the underlying facts.
V. The Director’s Duty of Loyalty and Conflicts of Interest
Another important area of director liability concerns the duty of loyalty.
A director must act in the interests of the company rather than for their own benefit or the benefit of a related person.
Problems may arise particularly in transactions with related companies, cases involving personal benefit, competing activity, or use of a business opportunity belonging to the company.
1. The Director and Related Businesses
A transaction between the company and a business connected with the director is not necessarily unlawful in itself.
However, the terms of the transaction, the director’s personal interest, the economic consequences for the company, and compliance with relevant corporate procedures may become decisive.
The existence of a related party is therefore a starting point for analysis, not automatic evidence of liability.
2. Use of a Corporate Opportunity
The current law specifically prohibits a member of the management body from using a business opportunity connected with the company’s activities for personal benefit or for the benefit of another person without the required consent.
Where such a breach occurs, the law provides specific proprietary remedies for the company.
Whether a particular opportunity genuinely belonged to the company, how the director obtained access to it, and what benefit was received must nevertheless be assessed individually.
VI. A Director Acting on a Shareholders’ Meeting Resolution
In corporate disputes, a director will often argue that the disputed action was not their personal decision and that they were simply implementing a resolution of the Shareholders’ Meeting.
This circumstance is relevant, but it does not automatically exclude liability in every case.
The current law establishes relevant rules and also recognises circumstances where a director cannot avoid liability merely by referring to a resolution adopted by the shareholders.
1. Instructions from a Controlling Shareholder
Particular risks arise where a director is connected with the controlling shareholder or effectively acts according to that shareholder’s instructions.
The director’s duty remains to protect the interests of the company.
In Case No. ას-73-73-2018, the Supreme Court also addressed this issue and stated that a director should not become a mechanical executor of the will of a dominant shareholder where the relevant action conflicts with the company’s interests.
This issue has also been developed in later case law concerning directors’ fiduciary liability.
2. Separate Assessment of the Shareholders’ Resolution and the Director’s Conduct
In a particular case, both the Shareholders’ Meeting resolution and the director’s subsequent conduct may be disputed.
These are not the same claim and should not be conflated.
Where necessary, the validity of the Shareholders’ Meeting resolution should be assessed separately from the director’s potential liability.
VII. Loss or Failure to Protect a Company Claim
Damage caused to a company by a director is not limited to a direct disposal of assets or transfer of money.
Loss may also arise where a claim belonging to the company is not properly enforced or where the director’s conduct results in the company losing the ability to exercise that claim.
1. Abandoning a Court Claim
An important example is the Supreme Court of Georgia’s Case No. ას-687-658-2016.
The case concerned claims pursued by a shareholder for the benefit of the company against a director, including actions connected with the company’s judicial claim.
A significant part of the Court’s reasoning concerned the director’s use of the company’s procedural rights and the consequences that such conduct could have caused for the company.
The case also demonstrates that assessing director liability may require more than reviewing one isolated transaction. A broader examination of the company’s financial and legal relationships may be necessary.
2. Economic Consequences of a Lost Claim
In such cases, the analysis must consider not only what the director did, but also whether the company genuinely had an enforceable claim and what economic consequences resulted from its loss or improper handling.
Proving these issues may require assessment of both legal and financial documentation.
VIII. What Must Be Distinguished Before Preparing the Claim?
A shareholder claim against a director requires particularly careful identification of the legal nature of the claim.
The most important distinction is between a claim belonging to the company and a personal claim belonging to the shareholder.
1. The Company’s Claim
Where the director breaches a fiduciary duty and the company suffers damage as a result, the principal claim belongs to the company.
A shareholder pursuing that claim must rely on the special corporate mechanism permitting them to act for the benefit of the company.
2. The Shareholder’s Personal Claim
It is also possible that a director’s conduct directly and separately infringes a personal right belonging to a shareholder.
Such a situation requires a different legal assessment from a derivative claim.
Confusing these two categories may lead to selection of the wrong defendant, the wrong remedy, or the wrong legal basis.
The Supreme Court’s Case No. ას-457-436-2015 demonstrates the practical importance of this distinction.
IX. Why Is Evidence Important?
In a dispute against a director, a general suspicion that “something improper is happening in the company” is not sufficient.
Corporate disputes frequently require interconnected analysis of financial statements, banking and accounting records, contracts, Shareholders’ Meeting minutes, transactions with related companies, and decisions taken by the director.
1. Obtaining Information as a Shareholder
In some cases, the first difficulty is that the shareholder does not have full access to the company’s documentation.
Article 146 of the current law gives an LLC shareholder the right to receive information concerning the company’s activities and to review business documentation, although the scope of a particular information request and the legality of any refusal require separate analysis.
A shareholder claim against a director may therefore require not only preparing the final claim, but first obtaining relevant information through appropriate legal mechanisms.
2. Importance of Financial Analysis
In director liability disputes, the existence and amount of loss may not be established through legal documents alone.
It may be necessary to assess the company’s financial position, expenses, transactions with related parties, or other economic data.
TB Legal determines the materials required to develop the legal position according to the particular circumstances of the case.
X. Director Liability and the Business Judgment Rule
One of the key issues in litigation against a director is the Business Judgment Rule – the principle protecting entrepreneurial decision-making.
Its purpose is to prevent courts from holding a director liable merely because a business decision made in good faith ultimately proved unsuccessful.
1. Why Does This Matter to the Shareholder Bringing the Claim?
Where the dispute concerns a business decision made by the director, the success of the claim may depend on whether the conditions for applying the director’s legal protection can be challenged.
This is often factually complex.
Supreme Court case law distinguishes the analysis applicable to alleged breach of the duty of care from that applicable to alleged breach of the duty of loyalty.
2. The Court Is Not the Company’s Business Manager
The purpose of legal review is not for the court to decide, in place of the director, which commercial decision would have been “better”.
The central question is whether the director complied with the legal standard required by the office.
A properly prepared claim should therefore not rely solely on demonstrating an adverse financial result.
XI. Minority Shareholders and Director Liability
A derivative claim may be particularly important for a minority shareholder.
A minority shareholder may not have sufficient voting power to replace the director or ensure that the Shareholders’ Meeting initiates legal action against the director.
At the same time, where the director’s conduct harms the company, the economic consequences may ultimately affect all shareholders.
1. Minority Status Does Not Mean Absence of Legal Remedies
Lack of controlling influence over the company does not mean that a shareholder has no legal mechanism for protecting the company’s interests.
Article 147 of the current law expressly recognises the possibility of an LLC shareholder pursuing a claim for the benefit of the company.
The Supreme Court’s Case No. ას-73-73-2018 also concerned a claim pursued by minority shareholders for the benefit of the company.
2. The Company’s Interest Remains Primary
At the same time, the derivative mechanism is not an alternative means for a minority shareholder to manage the company.
The principal issue before the court must remain the company’s claim and the company’s interest.
Personal conflict between shareholders is therefore not, by itself, sufficient grounds for pursuing a corporate claim against the director.
XII. Can a Claim Also Be Brought Against a Former Director?
Removal from office does not mean that potential liability for conduct carried out while serving as director disappears.
Where damage to the company resulted from actions taken during the person’s term as director, potential liability remains subject to separate legal assessment.
1. Appointment of a New Director Does Not Terminate Previous Legal Relationships
Appointing a new director may be an important corporate step, but it does not automatically extinguish the company’s proprietary claims arising from previous management.
The legal position of current and former directors must therefore be distinguished.
2. Conduct of Several Members of Management
Where damage results from acts or omissions of several members of management, liability may become more complex.
The current law also specifically regulates liability of multiple members of management toward the company.
XIII. Shareholders’ Meeting Resolutions and Waiver of Claims
The existence of a company claim against a director does not necessarily mean that previous corporate resolutions are irrelevant.
Under certain conditions, the current law allows the Shareholders’ Meeting to decide on waiver or settlement of a damages claim against a director while also providing certain mechanisms protecting minority shareholders.
1. Reviewing Previous Corporate Resolutions
When assessing the case, it may therefore be important to determine whether the company has already adopted any resolution concerning the director’s potential liability.
It may also be necessary to establish what information shareholders had when adopting that resolution.
2. One Dispute May Involve Several Corporate Issues
In some cases, the dispute may simultaneously involve both director liability and the validity of a Shareholders’ Meeting resolution.
In such circumstances, correctly determining the sequence and relationship of the claims becomes particularly important.
XIV. Why Is Reading a General Article About Director Liability Not Enough?
General material on director liability may explain the substantive legal duties owed by directors and the circumstances in which liability toward the company may arise.
A shareholder claim against a director, however, presents a different issue.
The central questions are not only:
“Did the director breach a duty?”
They also include:
Who owns the relevant claim?
Is the shareholder entitled to pursue it?
What remedy is being sought?
Is that remedy consistent with the company’s interests?
And how should the particular dispute be legally structured?
These questions cannot be answered solely through general information.
XV. How Does TB Legal Provide the Service?
When preparing a shareholder claim against a director, TB Legal first assesses the legal position within the company rather than focusing solely on the complaint of one shareholder.
1. Initial Legal Assessment
The company’s ownership and management structure, the director’s authority, the nature of the disputed conduct, and the identity of the person who actually suffered the alleged loss are assessed.
This stage is essential for distinguishing a shareholder’s personal claim from a claim belonging to the company.
2. Review of Documentation
The next stage involves analysis of the relevant corporate, contractual, and financial documentation.
Where complete information is unavailable, the legal possibilities for obtaining it are assessed separately.
3. Determining the Claim and Strategy
Once the legal nature of the claim is established, the prerequisites for pursuing it through the shareholder and the possible legal consequences are assessed.
At this stage, it is determined whether a derivative claim is the appropriate legal mechanism or whether another type of claim should be considered.
4. Court Representation
Where litigation is initiated, TB Legal prepares the relevant procedural documentation and represents the client before the court.
The structure of the case, sequence of evidence, and other procedural decisions are determined individually.
XVI. Why Is Specialised Legal Support Important?
A shareholder claim against a director is one of the more complex forms of corporate litigation because the shareholder is often seeking to enforce a claim that belongs not directly to the shareholder, but to the company.
The assessment must therefore cover the director’s fiduciary duties, damage suffered by the company, the shareholder’s procedural standing, the Business Judgment Rule, existing corporate resolutions, and the company’s genuine economic interests.
Supreme Court case law also demonstrates that incorrect legal characterisation of the claim may significantly alter the course of the dispute.
In Case No. ას-457-436-2015, distinguishing the shareholder’s personal loss from the company’s loss was decisive. In Case No. ას-687-658-2016, the Court considered the shareholder’s claim for the benefit of the company and the director’s conduct within a broader corporate context. In Case No. ას-73-73-2018, the derivative claim was expressly treated as a mechanism of corporate accountability of directors.
For this reason, where concerns arise regarding a director’s conduct, it is advisable first to determine the correct legal structure of the claim and only then select the appropriate form of court action.
TB Legal’s corporate law practice includes legal assessment of director liability, shareholder disputes, and protection of company interests.
If you are a shareholder and have reasonable grounds to believe that the director’s conduct has caused damage to the company while the company itself is not pursuing the relevant claim, TB Legal can provide an individual legal assessment of the case.
