Liability of Authorized Officers of a Company

In this article, we provide a brief overview of the responsibilities and liabilities of authorized officers of a company.

First, let's look at how authorized officers of a company are defined under Mongolian law. Article 84 of the Company Law regulates the “Authorized officers of a company” and their duties.

An authorized company officer is defined as a person who directly or indirectly participates in making decisions of the company and concluding contracts and transactions, such as:

• a member of the board of directors;

• a member of the executive management team;

• an executive director;

• a chief financial officer;

• a general accountant;

• a general specialist; and

• a secretary of the board of directors.[1]

  
  

In addition, a company may include a list of authorized officers in its charter according to its specifics.[2]

An authorized company officer, according to Article 84 of the Company Law, has the following duties.[3] These include:

1. to act within the scope of authority defined by a law, the company's charter and regulations;

2. to follow the principle of respecting the company’s interests, and to completely execute its duties specified in this law and a company's charter;

3. to make decision in compliance with the interest of a company;

4. to avoid the conflict of interest when making decision and to notify about the conflict of interest when one arises;

5. not to receive gifts or remuneration when implementing its duties/functions; and

6. not to disclose information included in the confidential information of a company to others, or use such information for the purpose of its personal interest.

   
   

The law stipulates that if an authorized officer of a company fails to fulfill their duties, they must compensate the company for the losses caused.

In terms of liability, a governing person of a company shall compensate any damage incurred to a company or its shareholders or creditors due to the following illegal acts or omissions: 4] These include:

1. to use the name of a company for personal interest;

2. to deliberately provide shareholders or creditors with false information;

3. to fail to fulfill its obligation to provide information;

4. to fail to keep the documents of a company in accordance with applicable regulations;

5. to fail to provide the company’s annual financial and operational reports, the names of the company’s affiliated parties, the type and number of shares held by them, and other information specified in the rules and regulations of the Financial Regulatory Commission and the securities trading organization to the authorized parties, or providing such information after the deadline.

   
   

Also, an authorized officer of a company may be held liable for any damage caused to the company through their own fault, regardless of whether liability specified in the relevant law has been imposed.[5]

Therefore, on the above grounds, the company, shareholders, and creditors have the right to claim any damage caused to the company due to the wrongful actions of an authorized officer of the company. If this obligation is repeatedly breached, a member of the board of directors or the executive management of the company (except for a member who voted against the decision of the board of directors that caused the damage or who was not present when the decision was made) may file a lawsuit in court.

Source:

[1] Article 84, Section 84.1 of the Company Law;

[2] Article 84, Section 84.2 of the Company Law;

[3] Article 84, Section 84.4 of the Company Law;

[4] Article 85, Section 85.2 of the Company Law;

[5] Article 85, Section 85.3 of the Company Law.

Disclaimer: This article is intended for general informational purposes only and have been prepared in accordance with the laws in effect at the time of writing. For legal advice, please consult a professional attorney.