The liability of the company’s board members in accordance with Companies Law No. 1 of 2016 AD for damages resulting from acts of fraud or abuse of authority, and any violation of the law and the company’s regulations, and for errors in management

3 min 29 sec February 18, 2026 (Edited) الترجمة العربية

Written by

Mohamed Tawfik

Senior Associate

m.tawfik@tamimi.com

It is legally established, in accordance with Article 188 of Companies Law No. 1 of 2016, which states that:

“Every shareholder, whether physical or juristic, may appoint representatives to act on his behalf in the board of directors of the company in proportion to the shares owned by him. These representatives shall have the same rights and obligations of the elected members.The shareholder shall be liable for the acts of his representatives towards the company, creditors and shareholders”.

It is legally stipulated, in accordance with Article (201) of the Companies Law mentioned above, that:

“The chairman of the board of directors and its members shall be liable towards the company, shareholders and third parties for all acts of fraud and abuse of power, and for any violation of the Law or the Memorandum of the company or mismanagement etc.”

Article (202) of the same law also stipulates that:

“The liability stipulated in the preceding article shall be either personal liability incurred by a specific member or joint liability between all members of the board of directors… etc.”

Article No. 204 of the same law also stipulates that:

“Every shareholder may, individually, file a liability action on behalf of the company in case of any default by the company, and in this case, the company must be litigated to be given compensation; if applicable.

The shareholder may file a personal claim for compensation if he has sustained damage from the mistake; any clause in the Memorandum of the Company to the contrary shall be void”.

The foregoing makes it clear that the chairman and members of the company’s board of directors are legally responsible – before the company, shareholders, and third parties – for any acts they commit that constitute a violation of the provisions of the law or the company’s articles of association, and for errors in management.

Their liability in this context is personal; accordingly, any party harmed by such acts is entitled to seek compensation from them for the resulting damages.

This responsibility applies to all members of the board of directors, regardless of their title, whether chairman of the board, elected member, or a member representing a legal entity shareholder in the company, as the legislator has equalized the rights and obligations of elected members and shareholder members. No member is exempt from this responsibility unless they prove that they did not participate in the fraudulent acts of the board of directors.

This is evident from the explicit text in Article 188 of the aforementioned Companies Law, which made the shareholder responsible for the actions of the member representing them in the management. This is another additional guarantee for the benefit of the company, its creditors, and its shareholders, so that if this representative makes a mistake in management, the shareholder who appointed them will be jointly responsible with them for the errors committed by this member. This does not mean that responsibility transfers from the board member and becomes limited to the shareholder represented by this member, nor does the latter become exempt from responsibility because they receive orders from the shareholder, as that member can resign from representing this shareholder if the latter asks them to commit an error or fraud in management that harms the company in which they are a shareholder. Even if the shareholder who appointed them obligated them to a general policy to be pursued in the company’s management, the member must implement this policy within a correct legal framework that achieves the interests of the rest of the other shareholders, because in the end, they are responsible for managing the company as an entity that includes all shareholders, and not just for the interests of the shareholder member they represent.

If the representative member deviates from that framework and commits illegal acts that constitute an error in management or a violation of the law or the company’s articles of association, they shall be jointly liable with the legal entity shareholder they represent for those acts and for compensation for the damages resulting therefrom to the company in which they are a shareholder, its creditors, and its shareholders. Only the member who proves non-participation in the fraudulent acts of the board of directors is exempt from that responsibility.