The Legal Framework of a Governance Manual
Whether a governance manual remains a paper document or becomes a working system, its foundation lies in the law on entrepreneurs. Under Article 35, the organs of an enterprise are the general meeting, the managing organ and — where provided by law or charter — the supervisory board; organs and their members act only within the competence defined by law or charter. A manual describes precisely the allocation of these competences.
Every company must have a managing organ to ensure leadership. The charter determines its form: sole management by one person, joint or several management by several leading persons, or joint management by all; absent a charter provision, all leading persons exercise management jointly.
The law also refines the forms: in a solidarity company the right to manage belongs to every partner; in a kommandit company — to the personally liable partners (complementars), unless the partners appoint another person; in a limited-liability company, a joint-stock company and a cooperative — to the leading person or persons. A manual reflects this choice and aligns the internal rules with it.
The Supervisory Board
The supervisory board controls the activity of the managing organ, but the managing organ’s functions cannot be transferred to it, save as provided by law. Its meeting is quorate with a majority of members present, and decisions are taken by a majority of votes unless the charter requires a greater number.
State participation triggers special rules: where the state or an autonomous republic holds more than 50 percent of the votes, a supervisory board may be created by government decision, and the appointment and dismissal of the leading person must be agreed with the shareholder holding more than 50 percent of the votes. A public servant without a conflict of interest may represent the state on the board.
The Duty of Care and Its Boundary
The leading person must manage the company’s affairs lawfully and with the diligence of a conscientious manager: caring as an ordinary, prudent person would in similar conditions, in the belief that the action is economically most advantageous for the company. They are liable to the company for damage caused by culpable non-performance, and limiting liability for intentional non-performance by charter or decision is impermissible.
Where the value of a transaction exceeds 50 percent of the balance-sheet value of the company’s assets or a smaller charter-set amount, the general meeting must approve it. The duty of care is not breached and no damage is compensated where the decision was made on the basis of sufficient and reliable information, independently and free of conflicts, in the company’s interests — this is the business-judgment rule.
The right to claim compensation of the damage belongs to the managing organ, another leading person and the supervisory board, and in cases provided by law and in the established manner — to each partner. The leading person is released from liability where he executes a decision of the general meeting — except where he contributed to the adoption of that decision by supplying incorrect information, or knew that it would cause damage but did not inform the meeting.
Corporate Opportunity and Conflicts of Interest
The leading person may not, without the company’s prior consent, exploit a business opportunity that became accessible in the performance of duties and could have been the object of the company’s interest. The prohibition remains for no more than 3 years after dismissal. On breach, the company may claim damages or transfer of the benefit received.
In a joint-stock company the conflict rules are precise: the leading person immediately notifies the general meeting or supervisory board in writing of a transaction in which they are interested. An interested person is one who is the other party, holds 50 percent or more of the other party’s shares, is its leading person, or receives a benefit unrelated to shareholding or membership. Such a transaction is approved in advance by the supervisory board or, absent one, by the general meeting; the interested person may not vote. A single-partner company and transactions with a 100-percent subsidiary are exempt.
Further safeguards exist: where a majority of the supervisory board's members are interested persons, the transaction is approved by the general meeting; the approval decision must indicate the nature and scope of the interest and the other material terms of the transaction; and where the counterparty knew of the conflict and of the absence of consent, the company has the right to avoid the contract. On breach of these rules the company claims both damages and the agreed penalty, except where the transaction would in essence have been concluded on the same terms without the conflict.
Frequently Asked Questions
Below are the most frequent questions about governance manuals.
Which organs exist?
The general meeting, the managing organ and — where provided by law or charter — the supervisory board.
Are several management forms possible?
Yes: sole, joint, several, or joint by all leading persons — the charter decides.
Which transaction needs the meeting’s approval?
One exceeding 50 percent of the balance-sheet value of assets or a smaller charter-set amount.
How long does the corporate-opportunity prohibition last?
No more than 3 years after dismissal; a shorter term may be set by contract.
Who approves an interested transaction?
The supervisory board or, absent one, the general meeting; the interested person may not vote.
How We Help on Legal.ge
The lawyers of Legal.ge help you draft a governance manual that maps the law’s competence model onto your structure: we allocate powers, embed the charter forms of the organs, and build the conflict-of-interest procedure. Contact us — a working manual is the cheapest form of dispute prevention.