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Qatar: Directors’ duties in an LLC

Law 5 of 2002 as amended (Companies Law) sets out the statutory duties and liabilities of a manager (equivalent to the term director in other jurisdictions) in a limited liability company (LLC)

Seem Maleh
Law 5 of 2002 as amended (Companies Law) sets out the statutory duties and liabilities of a manager (equivalent to the term director in other jurisdictions) in a limited liability company (LLC).

An LLC's managers are responsible for the management and operation of the company and their names are contained on the company's commercial registration. The shareholders appoint at least one manager to run the company (often from their own numbers) and where there is more than one manager, the company's incorporation documents may provide for a board of managers whose responsibilities are deemed to be the same as directors in joint stock companies.

Under the Companies Law, managers have full authority to manage the company, subject to any limitations set out in the company's articles of association. Their actions are binding on the company so long as the actions are within their capacity.

The statutory duties and responsibilities of all managers are set out in the Companies Law as follows: (a) managing the company; (b) maintaining the register of shareholders and being responsible for the accuracy of its information; (c) preparing the balance sheet and profits and loss account, reporting on company activities and proposals for profit distribution and, within two months of the end of the financial year, delivering such documents to each shareholder and to the Ministry of Economy and Commerce; (d) calling shareholders' meetings at least once a year within four months of the end of the financial year, or upon request of the shareholders holding at least 25% of the share capital, the auditors or the supervisory council (if there is one); (e) calling a shareholders' meeting to reinstate the capital or dissolve the company if it loses half of its capital as a result of business losses, otherwise, the managers will be held personally liable for future liabilities of the company; (f) not competing with the company's business or holding a managerial position in a competing company; and (f) not holding interests in contracts, projects or transactions done for the company other than contracting (construction) and public tenders.

Managers' acts are binding on the company provided they fall within the scope of the manager's authority as stated in the company's articles of association or by virtue of a shareholders' resolution or a relevant power of attorney. In such an event, the manager will bear no personal liability except for any statutory breaches as set out below. There have been various court cases in Qatar where the Court of Cassation has upheld this general principle. However, in one such case, the Court of Cassation also imposed personal liability on the manager for failure to follow statutory duties. As such, managers should always remain vigilant while managing the company.

The main liabilities of a manager are set out in the Companies Law as follows: (a) to compensate the company, shareholders and others for damage arising from cheating, abuse of power, breaching the Companies Law or Articles of Association; or errors in management; (b) to compensate the company for competing with the company's business; and, (c) to be personally liable for any future liabilities of a company that has lost half its capital and the manger has failed to call a shareholders' meeting to address such issue.

It should also be noted that the Companies Law provides for imprisonment (up to two years) and a fine (up to QR100,000 or $27,500) for any manager who: discloses the company's secrets or intentionally attempts to damage its business; intentionally hinders or prevents the notification or holding of a shareholders' meeting; or, makes false statements in the company reports or intentionally omits any statement that the official managers are committed to report on.

While the role of a manager is not equivalent to that of a director in other jurisdictions, as the manager is not appointed to exercise independent oversight of the company (that responsibility remaining with the shareholders), the role can be perhaps be likened to a combination of certain aspects of a director and a chief executive officer in other jurisdictions. Whilst a right of indemnity may be available against the company, a manager will still be liable to the authorities and third parties in respect of any of the statutory duties.

Seem Maleh

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