Liability of a Board Member in an Estonian OÜ
In Estonia, a private limited company (OÜ) is a separate legal entity, meaning the company is generally liable for its own obligations. However, the liability of a board member is not absolute. According to § 187 of the Commercial Code (Äriseadustik), a member of the management board must perform their duties with the due diligence of a prudent entrepreneur.
When does personal liability arise?
A board member may be held liable with their personal assets if they violate duties arising from the law or the articles of association. Key grounds for liability include:
- Causing Damage: If a board member causes damage to the company through intentional or negligent actions, they are jointly and severally liable for the damage caused (§ 187 subsection 2 of the Commercial Code).
- Failure to File for Bankruptcy: If the company becomes permanently insolvent, the board member is legally obligated to file for bankruptcy immediately. Failure to do so makes the board member liable for damages incurred by creditors.
- Tax Liabilities: Under the Taxation Act, the tax authority may hold a board member personally liable for tax debts if it is proven that the member intentionally or through gross negligence failed to ensure the payment of taxes.
How to Mitigate Risks?
Liability is based on fault. If a board member can prove they acted in good faith and in the best interests of the company, they may avoid personal liability. It is crucial to document all major decisions and seek professional advice when facing complex corporate challenges.
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