Personal Board Liability: Avoid Costly Pitfalls

The Law is Crystal Clear on Negligence

The foundation for board liability lies in the Limited Liability Companies Act's requirement that board members must act with due care. The key word is negligence; you don't need malicious intent to be held personally liable. It's enough that you haven't acted with the professionalism and caution expected of a board member. This implies an active duty to be informed, supervise, and always act in the company's best interest.

Believing you are safe because you are 'acting in good faith' is simply no longer enough.

The Most Common Traps Are Often the Simplest

The risk of personal liability often materializes in three classic scenarios. The first is a lack of financial control, where the board continues operations long after equity is lost. The second is passivity and a lack of supervision of the CEO, where one fails to ask critical questions. The third, and perhaps most common, is inadequate documentation, making it impossible to prove that a sound judgment was made.

These pitfalls can be avoided with structure and awareness.

Fact Box: The Duty of Care in Practice:

• Be active: You have a duty to familiarize yourself with the issues, ask critical questions, and participate actively in discussions.
• Supervise: You have an independent responsibility to oversee the daily management and the company's organization.
• Document: You must be able to prove you have acted with due care through good and comprehensive board minutes.

Risk Can Be Reduced with Simple Steps

Minimizing personal risk is not about avoiding difficult decisions, but about ensuring they are made professionally. This starts with demanding good and timely information before meetings and being an active participant who dares to challenge assumptions. Most importantly, ensure that discussions and the basis for decisions are properly recorded in the minutes. Ultimately, a professional board tool is the best defense against chaos and risk.

Systematic work replaces uncertainty with security.

'What you can't document you've done to avoid a loss, has, in practice, not happened.'

Don't wait for the next crisis: secure your board today. It takes two minutes to create a legally secure, digital board minute in 21st. The platform is free to use, so you have no excuse not to secure your documentation.