The Standard of Directors' Duties in Georgian Law
The codified standard of directors' duties in the current Georgian corpus is established by the Securities Market Law: the triad of good faith, prudent-person care and best interest, together with the connected conflict-of-interest regime and income transparency, belongs precisely to that law. At the same time, the general director regime for private companies is governed by the current Entrepreneurs Law; this page names the mandatory standard for accountable enterprises and notes that for other companies it remains a persuasive analogue.
The Triad of Duties
Members of the governing body of an accountable enterprise must, in exercising their rights and duties, act in good faith, exercise the care of an ordinary prudent person in a like position under like circumstances, and act in the belief that their action is in the best interests of the enterprise and the holders of its securities. These elements together form Georgia's business-judgment baseline: good faith excludes the primacy of self-interest, the care standard sets a qualified expectation, and the best-interest test fixes the direction of the decision. Members who supported a decision resulting in a breach of these duties bear joint liability for the damage — abstaining with a negative vote does not absolve.
Reliance and Its Limits
In determining the grounds and scope of liability, account is taken that a member may rely on reports and conclusions, including financial ones, prepared by an auditor, legal adviser, employee or another person who, in the member's good-faith view, is a professional in the relevant matter. At the same time, an action is not considered in good faith where the member has, or is obliged to have, information that makes such reliance unjustifiable. A holder of the enterprise's securities, in turn, has the right to bring a claim for breach of these duties.
The Conflict-of-Interest Regime
A high-risk zone of a director's decisions is the conflict of interest. A transaction falls under a special regime where the interested person is a governing-body member or a shareholder holding 20% or more of the total votes; the only exception is a transaction between the enterprise and its 100% subsidiary or 100% shareholder. The interested person must immediately notify the supervisory board in writing of the fact, nature and volume of the interest, and is prohibited from voting. A transaction worth 10% or more of the enterprise's assets is examined by an auditor or certified accountant; one exceeding 50% is approved only by the general meeting. Upon approval, the enterprise immediately notifies the National Bank and publishes the information within 5 days. The consequences of violation: compensation of damage and return of the personal benefit, joint liability of governing members, and a court claim for invalidation of the transaction within 18 months of its conclusion — a right also held by a shareholder owning 5% or more of the votes.
Income Transparency
The third layer of the standard is informational: a shareholder has the right to receive information on the salaries and other incomes received from the enterprise by directors and members of the board and supervisory board, but is prohibited from disclosing it to third parties. The enterprise need not supply the information separately if it is in the last annual or semi-annual report accessible to shareholders. Such is the Georgian director model: strict care, transparent conflict control and accountability before the holders.
The structure of the dispute is tied to the same standard: in a damages claim the enterprise substantiates the breach of duty, the causal link and the amount of damage, and each step rests on the standards described above — good faith is the object of the generalization, the care standard measures conduct, and the best-interests test assesses the direction of the decision. Joint and several liability, in turn, denies the individual member the comfort of abstention: participation in a decision is itself conduct with legal consequences.
The internal logic of the conflict-of-interest regime is likewise a four-step architecture: notification — voting ban — verification — approval. Each step performs its own function: notification creates informedness, the voting ban breaks the conflict of interest, the audit confirms the value, and the form of approval links the level of the decision to its magnitude. A violation should therefore be attacked at whichever step it arose — the system of sanctions protects precisely this architecture.
Frequently Asked Questions
Below we summarise the questions that arise most often in practice on this topic.
What does the duty standard require?
Good-faith action, prudent-person care and the belief that the decision serves the best interests of the enterprise and its holders.
May one rely on an auditor?
Yes — reliance on a professional's conclusions is admissible unless the member has information undermining it.
Which transactions fall under the conflict regime?
Those involving a governing-body member or a holder of 20% or more of the votes; the 10% threshold triggers the auditor's examination, exceeding 50% — the general meeting.
Who can challenge a violated transaction?
Within 18 months of its conclusion — a governing-body member, a shareholder holding 5% or more, or a group of shareholders.
Which transaction is approved only by the general meeting?
One whose value exceeds 50% of the value of the enterprise's assets; a transaction between 10% and 50% is verified by an auditor or a certified accountant.
How We Help on Legal.ge
Our team will help you internalize the duties of governing persons, write conflict-of-interest procedures, build the approval contours of transactions and assess liability risks. Contact us on Legal.ge — we will plan your enterprise's governance model on the exact standards of the law.