Liability of the CEO of a company in Mongolia

1) Can a CEO of a private company be personally liable for the acts/omission and / or obligations of the company?

Under Article 83.1 of the Company Law of Mongolia, the company’s CEO is authorized, within the powers granted under the agreement concluded with the shareholders, to manage the company’s day-to-day operations and to represent the company without a power of attorney when entering into contracts and transactions. As the CEO performs these functions on the basis of an employment relationship, he/she is generally not personally liable for the company’s debts, obligations, or contractual breaches arising from actions unrelated to the CEO’s conduct. Instead, the company itself bears responsibility for its acts, omissions, and obligations, and any liability is typically enforced against the company’s property.

2) In which cases may a CEO incur civil liability in connection with performance or a failure to perform his duties?

Under the Company Law of Mongolia, the CEO, as an authorized official, must manage the company’s day-to-day operations within the scope of legal and charter authority, act in the company’s best interests, make reasonable decisions, avoid conflicts of interest, refrain from accepting improper benefits, and maintain confidentiality of sensitive information (Article 84.4 of Company Law).

A CEO may incur civil liability and compensate damages with their own assets if he/she fails to perform or repeatedly violate these duties and thereby cause harm to the company, shareholders, or creditors (Articles 84.6 and 85.2 of Company Law). This includes cases where the CEO:

• uses the company’s name for personal interests;
• intentionally provides false information to shareholders or creditors;
• fails to fulfill disclosure obligations;
• does not properly keep corporate documents; or
• delays or refuses to provide legally required information to entitled persons.

The duty of confidentiality also remains in force for three years after termination of employment.

3) What violations may trigger administrative liability of a CEO as a company official?

Pursuant to Articles 84.6, 84.7, and 85.2–85.4 of the Company Law of Mongolia, the CEO, as an authorized company official, bears personal liability where, through an unlawful act or omission or through a breach of statutory duties, he/she causes damage to the company or to other entitled persons. In such cases, the CEO is obliged to compensate the resulting losses with his or her own assets.

Furthermore, under Article 84.7 of the Company Law, shareholders are entitled to bring a claim before the court against the CEO in order to recover damages incurred by the company as a result of the CEO’s failure to properly perform his or her duties.

4) Under what circumstances may a CEO face criminal liability?

The company’s CEO engages in conduct that constitutes a criminal offence as defined by law, the CEO may be held personally subject to criminal responsibility.

This may include, for instance, acts such as misappropriation or embezzlement of corporate funds, fraudulent appropriation of assets, or the preparation and use of falsified documentation for the purpose of evading tax obligations on behalf of a legal entity.

5) Can a CEO be held liable for the actions of subordinates, in particular, if he delegates a part of his authorities?

Yes. CEO may still be held liable for the actions of subordinates even where part of his or her authority has been delegated.

Under the Company Law of Mongolia, the CEO, as an authorized company official, remains responsible for ensuring that delegated powers are exercised lawfully and in the best interests of the company. Delegation does not relieve the CEO of the statutory duties set out in Article 84.4 of Company Law, including the duty to act reasonably, avoid conflicts of interest, and properly manage company affairs.

Accordingly, if a subordinate’s unlawful act or omission occurs as a result of the CEO’s failure to properly supervise, control, or fulfill disclosure and record-keeping obligations, and such conduct causes damage to the company, shareholders, or creditors, the CEO shall be required to compensate the loss with his or her own assets (Articles 84.6 and 85.2 of Company Law).

6) Does the business judgment rule apply to a CEO?

Company Law incorporates the fundamental principle that an authorized company official must exercise due care and attention in the course of decision-making and ensure that any decision is properly substantiated.

The scope and content of these duties are predominantly determined through judicial interpretation. In this regard, courts take into account whether the CEO acted honestly and in good faith, without any conflict of interest, and with the capacity to act in the best interests of the company, as well as whether any errors made in the decision-making process were unintentional rather than deliberate.

Therefore, where the CEO acts in good faith, free from conflicts of interest, and on a reasonable and informed basis, liability should not arise solely because the decision subsequently results in a loss.

7) Can a CEO be held liable for his actions or omission after termination of their office?

A CEO may remain subject to liability for losses caused to the company through acts or omissions committed during the performance of official duties, notwithstanding that such losses may only be discovered after the CEO’s removal from office. Likewise, shareholders or other injured parties may bring claims for compensation against the CEO even after the termination of the CEO’s appointment.

8) Can a CEO’s liability be limited by an employment contract, articles of association or internal corporate documents?

A CEO’s powers and the scope or limits of liability may be defined in the employment contract, the company’s charter, or internal regulations (Article 83.7 of Company Law). However, statutory duties and personal liability for damages caused by breach or unlawful acts cannot be fully excluded, as the CEO remains personally liable under Articles 84.6 and 85.4 of Company Law.

9) Is a CEO liable for failure to comply with the tax, accounting and other reporting requirements?

Yes. Under Mongolian law, the CEO is responsible not only for managing the company’s daily operations but also for ensuring the accuracy of the company’s accounting records and financial statements (Article 95.4 of Company Law). If the CEO fails to fulfill these statutory reporting and compliance duties or violates the Company Law, he or she may be subject to liability under the Law on Violations or the Criminal Code (Article 100.1 of Company Law).

10) What practical steps can a CEO take to mitigate the risks of his criminal, administrative and civil liability?

A CEO can mitigate the risks of criminal, administrative, and civil liability by strictly acting within the scope of authority, prioritizing the company’s best interests, and making reasonable, well-documented decisions in compliance with statutory duties. Practical measures include avoiding conflicts of interest, ensuring timely and accurate reporting and disclosure, properly maintaining corporate records, and implementing effective internal controls and supervision.

Author: Dashiisuren Khadbaatar