In specific situations, directors may face personal liability in The Bahamas when their company is sued. While companies provide substantial protection for directors, there are some circumstances when directors must take financial responsibility. If you are a director of a Bahamian company or international business company, you should be aware of your possible liability risk.

When Do Directors Face Liability?

Directors may face personal liability to the company for:

• Authorizing prohibited loans, purchases of shares, commissions, or dividend payments
• Authorizing the issue of a share for consideration other than money

Shareholders could sue a director on behalf of the company to recover money under these circumstances.

In addition, shareholders may sue directors who violate their fiduciary duties in relation to the company. Directors must act in good faith looking to the best interest of the company and act honestly. They should exercise the care and diligence that a reasonably prudent person would exercise in similar circumstances. Their fiduciary duties include:

• The duty to avoid conflicts of interest;
• The duty not to personally gain or profit from their position;
• The duty to act in good faith in relation to the company;
• The duty to exercise their powers for their proper purpose; and
• The duty not to exceed their powers.

What Happens if Directors Violate Their Fiduciary Duties?

If directors do not uphold their fiduciary duties, the shareholders can pursue legal action to protect the company. The shareholders are the owners of the company, not the directors. The directors cannot do whatever they want with the company's money and resources. If they abuse their positions, they may have to reimburse the company.

Directors can seek legal advice before they make decisions that may be unpopular with shareholders, or if they believe they have conflicts of interest. If you are in this position, seek the advice of a Bahamian lawyer.

To find out more about directors of Bahamian companies and IBCs, visit Gonsalves-Sabola Chambers online or call the office at +1 242 326 6400.