The duties of the board of directors of an AG

The board of directors of an AG is not a ceremonial body. The Code of Obligations assigns it a set of duties that cannot be delegated or removed by the articles of association. Anyone who accepts a seat on a board takes on concrete personal responsibility. Let’s look at what it must do, what it can delegate and where its protection ends.

The non-transferable and inalienable duties

Company law lists precisely the powers that always remain with the board of directors, regardless of how much is delegated to the operational management. There are seven of them, and they are worth knowing:

1. The ultimate direction of the company and the issuing of the necessary directives. The board defines the strategy and the course; it does not run day-to-day operations.
2. The determination of the organisation of the company: how it is structured, who does what, what the lines of responsibility are.
3. The organisation of the accounting, of financial control and of financial planning, insofar as this is necessary for management.
4. The appointment and removal of the persons entrusted with management and representation.
5. The ultimate supervision of the persons entrusted with management, in particular to verify compliance with the law, the articles of association, the regulations and the directives.
6. The preparation of the management report, of the remuneration report where required, and the convening and preparation of the general meeting.
7. The filing of an application for a composition moratorium and, in the event of over-indebtedness, notification of the court.

These seven points are the hard core. No provision of the articles of association and no internal regulation can take them away from the board.

Delegating operational management

The board can — and in companies of a certain size should — delegate operational management to one or more members (delegates) or to third parties (managers). But the delegation is valid only on two conditions:

• The articles of association must expressly authorise it.
• The delegation must be governed by written organisational regulations defining the functions, powers and information flows.

Even with full delegation, the board retains ultimate direction and ultimate supervision. Delegating management does not mean delegating the responsibility to oversee those who manage.

The duty of care and the duty of loyalty

Every member of the board is bound by two fundamental duties:

• Care: to act with the diligence that can reasonably be expected of a person in the same position, informing themselves adequately before deciding.
• Loyalty: to pursue the interest of the company, not their own. From this derive the obligations regarding conflicts of interest, which must be disclosed and managed.

The so-called business judgment rule protects business decisions taken in good faith, on an adequately informed basis and without conflicts of interest. But it does not protect those who decide without informing themselves or who ignore clear signs of crisis.

The critical moment: financial distress

It is in difficulty that the board’s duties become decisive. In the event of a capital loss or over-indebtedness, the board must act promptly: assess the situation, adopt restructuring measures and, if necessary, notify the court.

The reform of company law governing the AG has also sharpened the focus on the risk of insolvency (illiquidity): the board must monitor solvency and intervene before it is too late. Delaying notification of the court is one of the most frequent sources of personal liability for directors.

Liability is personal

If the board breaches its duties and this causes damage to the company, the shareholders or the creditors, the members are personally and, as a rule, jointly and severally liable. It is not enough to have been absent from the meeting or not to have dealt with a particular file: the duty of supervision applies to everyone.

This is why accepting a director’s seat requires awareness, information and adequate control tools — not just a title on a business card.

How we work at SIH ONE

We help boards of directors equip themselves with clear organisational regulations, timely financial reporting and liquidity-alert procedures, so that the statutory duties are genuinely overseen and not merely written on paper.

Do you want to structure the governance of your AG on a solid and compliant footing? Discover our legal and tax advisory services and strengthen your board of directors.