8.2 Legal personality and liability

For most legal entities, the aforementioned separation of powers is put in place by a formal distinction between onwnership and control. This distinction is related to the fact that a legal entity is unable to act by itself. Actually participating in a legal system requires the help of people. Company law makes sure that legal persons can participate in legal transactions through natural persons by assigning tasks, responsibilities and powers to the various bodies. The separation of ownership and control can be traced back to companies with a multitude of shareholders, where efficiency demanded that management be outsourced to a separate body. For that reason, the management of the company as well as its participation in the legal system have been assigned to the board of directors. In order to maintain control of their investment, the shareholders jointly have the power to directly or indirectly influence the company’s policy, whereas the board of directors is tasked with protecting the interests of all those involved with the company. In this way shareholders retain a say in the company and the board of directors is required to ensure a balanced representation of the interests of both shareholders and other persons involved, such as employees and creditors.

In the absence of this dichotomy, the effective representation of interests may be jeopardised. This is undesirable, since the limitation of liability encourages risk-taking and, therefore, the interests of others than the shareholder are in need of protection. The justification for the limitation of liability is blurred in the absence of the aforementioned dichotomy. An autonomous board of directors is, in principle, capable of ensuring that not only the interests of shareholders are served, but also the interests of others involved in the company. The two-tier structure provides for a balanced distribution of powers in order to ensure that the plurality of interests can be represented in a proportionate manner and requires the natural persons acting on behalf of the company to use their powers in a responsible manner.

However, this does not automatically encourage directors to protect the interests of others involved with the company. The legal personality granted to companies offers directors protection against liability. Director’s liability aims to create further protection of interests by sanctioning mismanagement with an obligation to pay compensation for incurred damages. When assessing the liability of directors, shareholders or limited partners, it is always relevant to what extent there has been control over the damaging action, or at least the possibility of preventing the particular action that led to the damage. This indicates an awareness of the personal responsibility of natural persons who participate in legal transactions under the protection of legal personality or limited liability. Statutory rules on liability in relation to the de facto management of companies are intended to express this responsibility by providing de facto management with a normative and compensating framework.