Liability of the CEO of a company in Turkmenistan

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

Pursuant to Article 4 of the Law of Turkmenistan “On Entrepreneurial Activities”, entrepreneurial activity may be carried out by a manager of an enterprise hired under a contract, provided that the owner of the enterprise’s property or an authorized body (person) has delegated the relevant powers to such manager. This provision confirms that the CEO manages the enterprise not as an owner, but on the basis of delegated authority and an executed contract.

Article 8 of the Law of Turkmenistan “On Entrepreneurial Activities” provides that an entrepreneur conducting activity on the basis of a contract shall bear liability to the owner of the property for the obligations of the enterprise managed by him in the manner and under the terms and conditions stipulated in the contract concluded between them. It follows from this provision that the CEO’s liability towards the owner is determined by the contract and applicable legislation.

At the same time, the meaning of the provisions of the Law of Turkmenistan “On Enterprises” indicates that the CEO constitutes the executive body of the enterprise, acts on behalf of the enterprise and in its interests, and performs day-to-day management of its operations. Therefore, when analyzing the issue of personal liability, it is necessary to clearly distinguish between:

1. the liability of the legal entity as an independent subject of civil law; and
2. the liability of the CEO as an individual.

In accordance with Article 48 of the Civil Code of Turkmenistan, a legal entity is independently liable for its obligations with all property belonging to it. The participants (founders) of the legal entity, as well as its officers, shall not be liable for the obligations of the legal entity unless otherwise provided by law. This provision establishes the general principle of separate proprietary liability of a legal entity.

Accordingly, as a general rule, the CEO does not bear personal liability for the obligations of the enterprise to third parties solely by virtue of holding such a position. The obligations are borne by the legal entity itself.

However, legislation provides certain specific rules applicable to individual enterprises. Pursuant to Article 26 of the Law of Turkmenistan “On Enterprises”, management of an individual enterprise is carried out by its owner. The owner of an individual enterprise is entitled to transfer, under an agreement (contract), the authority to conduct the affairs of the enterprise to another person (manager, executive director). Nevertheless, the transfer of managerial powers does not constitute a transfer of ownership of the enterprise’s property. Since an individual enterprise is not separated from its owner to the same extent as other organizational and legal forms, the owner of an individual enterprise bears personal liability for the obligations of such enterprise in accordance with the law.

Therefore, if the owner of an individual enterprise simultaneously performs the functions of its manager, such person bears personal liability as the owner for the obligations of the enterprise. If management is delegated to a hired manager under a contract, such manager shall bear liability to the owner within the scope and under the conditions of the contract (Article 8 of the Law “On Entrepreneurial Activities”), however, as a general rule, shall not be liable with his personal property towards the creditors of the enterprise unless there are grounds for imposing independent civil, administrative, or criminal liability.

Thus, the legislation of Turkmenistan establishes the principle of separate liability of a legal entity for its obligations (Article 48 of the Civil Code of Turkmenistan). At the same time, the CEO acting on the basis of delegated authority (Article 4 of the Law “On Entrepreneurial Activities”) bears personal liability towards the owner within the scope of the executed contract (Article 8 of the said Law) and may be held liable where fault and other statutory grounds are established, but does not bear personal liability for the company’s obligations towards third parties.

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

The CEO may incur civil liability under the general provisions of the Civil Code relating to compensation for damages, losses, and harm. Under Article 14 of the Civil Code of Turkmenistan, a person whose right has been violated is entitled to claim full compensation for losses incurred. Losses are understood as actual damage (loss or damage of property, expenses incurred or to be incurred). Articles 429–433 of the Civil Code of Turkmenistan establish the general principle that a person who causes harm is obliged to restore the position that would have existed had the harm not been caused. Accordingly, if the CEO, through culpable actions or omissions, causes losses to the enterprise or third parties, the CEO may be held civilly liable in the form of compensation for damages.

Pursuant to Article 259 of the Labor Code of Turkmenistan, the head of an enterprise is an individual performing the functions of the executive body. Under Article 260 of the Labor Code, the CEO’s rights and obligations are determined by legislation, constituent documents, and the employment agreement. By virtue of Article 262 of the Labor Code of Turkmenistan, the CEO bears material liability for direct actual damage caused to the enterprise. In cases stipulated by law, the CEO is obliged to compensate for damage resulting from culpable actions. Therefore, in the event of non-performance or improper performance of duties established by law, the charter, or the employment agreement, and where damage has occurred, the enterprise is entitled to seek compensation.

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

The Code of Administrative Offences expressly provides that officials, including persons exercising organizational and administrative functions within companies, may be held administratively liable for administrative offences related to failure to perform or improper performance of official duties.

Article 30 of the Code of Administrative Offences of Turkmenistan provides:

Officials shall be subject to administrative liability for administrative offences related to failure to perform or improper performance of official duties.

Financial sanctions imposed on a legal entity and enforcement measures applied to it may serve as grounds for administrative liability of the officials of such a legal entity, where provided for by the Special Part of the Code.

Examples of potential administrative offences (typical for officials in the business environment) include:

• conducting activity without mandatory permits or registrations;
• violations of tax, labor, sanitary, fire safety, migration, or other regulatory requirements;
• failure to comply with orders or prescriptions of state authorities, etc.

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

A CEO may be held criminally liable in Turkmenistan in the same cases as any other individual, provided that the CEO’s actions or omissions contain the elements of a criminal offence.

A) General conditions

Criminal liability arises only for acts recognized as crimes under the criminal law of Turkmenistan, provided that guilt (intent or negligence) and harmful consequences are established.

B) Specific examples

• Monopolistic conduct and anti-competitive behavior — a CEO may be held personally criminally liable for monopolistic actions, restriction of competition, and similar conduct.
• Abuse of authority/powers — criminal provisions concerning abuse of official position may apply to a CEO where the CEO’s actions infringe the rights of others or harm state interests.
• Corruption-related offences — receiving or giving bribes in commercial organizations may constitute a criminal offence.
• Violations of entrepreneurial activity legislation — for example, conducting illegal business activity without registration and generating large-scale income may constitute a criminal offence.

The Criminal Code of Turkmenistan provides that only individuals may be held criminally liable (meaning that liability may apply to the CEO personally, whereas a company as a legal entity is not subject to criminal liability).

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

Under the legislation of Turkmenistan, delegation of authority is not an unconditional basis for releasing the CEO from liability, since the CEO remains responsible for the overall management and legality of the enterprise’s activities. In particular, Article 4 of the Law of Turkmenistan “On Entrepreneurial Activities” allows business activity to be carried out on the basis of delegated authority; however, this does not exclude the CEO’s general obligation to act in good faith and reasonably in the interests of the enterprise. The Civil Code of Turkmenistan establishes principles of liability for causing harm, while the Labor Code defines the scope of the CEO’s material liability for damage arising, including as a result of managerial errors.

Accordingly, the CEO may be held liable for the actions of subordinates where the damage resulted from the CEO’s culpable failure to exercise proper supervision or from poor organization of work, as well as where authority was exceeded or unlawfully delegated (for example, where powers were delegated that fall within the exclusive responsibilities of the CEO). Liability may also arise where the CEO knew, or based on the CEO’s duties should have known, of violations but failed to take reasonable measures to prevent them, or where the actions of subordinates are directly causally linked to the CEO’s management decisions or omissions.

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

Under Article 54(2) of the Civil Code of Turkmenistan, a person acting on behalf of a legal entity must act in good faith and reasonably in the interests of the legal entity. This provision establishes a behavioral standard rather than a liability safe harbor. Compliance with good faith and reasonableness is relevant to the evaluation of conduct but does not create immunity from responsibility.

Furthermore, Article 62 of the Law of Turkmenistan “On Enterprises” provides that officials of an enterprise bear liability established by Turkmen legislation for violations of applicable laws. Consequently, a CEO may incur liability for unlawful actions or omissions even where the underlying business decision was commercially rational or taken with honest intentions.

At the same time, evidence that a CEO acted diligently, relied on appropriate information, and pursued the company’s interests may still be legally relevant when courts evaluate fault, causation, and damages. However, such factors operate within the general framework of civil liability rather than as a standalone immunity doctrine.

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

Under the laws of Turkmenistan, a CEO remains liable for actions or omissions committed during their tenure, even after their removal or resignation. This liability is subject to the following statutory limitation periods:

1. Civil Liability

A CEO bears personal responsibility for damages caused to the company or third parties. Pursuant to the Civil Code of Turkmenistan, the following limitation periods apply:

• General limitation period: 10 years.
• Contractual claims: 3 to 6 years (depending on the nature of the obligation).
• Non-contractual (Tort) claims: 3 years.

2. Administrative Liability

Termination of office does not grant immunity from administrative prosecution. Under Article 56 of the Code of Administrative Offences, penalties may be imposed within:

• General period: 2 months from the date of the offense.
• Continuing violations: 2 months from the date of discovery.

3. Criminal Liability

Criminal prosecution is independent of the individual's employment status. Per Article 73 of the Criminal Code, the statute of limitations depends on the severity of the offense:

Minor offenses: 2 years.
Medium gravity: 6 years.
Serious offenses: 10 years.
Especially serious offenses: 15 years.

Limitation periods for criminal and civil matters are generally calculated from the date the act was committed or, in cases of fraud or concealment, from the date the violation was (or should have been) discovered.

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

Under Turkmenistan law, certain categories of liability arise directly from mandatory statutory provisions, including the Labor Code of Turkmenistan and the Criminal Code of Turkmenistan. Liabilities established by statute are mandatory in nature and cannot be waived, excluded, or limited by agreement of the parties.

In particular, the Labor Code of Turkmenistan establishes the material liability of the head of an organization for damages caused to the employer. The Code provides that the head of a company bears liability for direct actual damage inflicted on the employer, reflecting the heightened responsibility of executive management.

Consequently, neither an employment contract, nor the company’s articles of association, nor internal corporate documents may validly restrict or eliminate liabilities imposed by law. Any contractual provision purporting to limit statutory liability would be legally ineffective to the extent of such conflict with mandatory legal norms.

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

The Law of Turkmenistan “On Enterprises” directly imposes compliance obligations on enterprises with the tax, accounting and other reporting requirements . Articles 35 and 36 of the Law provide that:

• Enterprises must maintain accounting and statistical records and submit reports in accordance with Turkmenistan legislation;
• Enterprises bear full responsibility for financial discipline, including settlement, credit, and cash operations.

Although these duties are formally imposed on the legal entity, under Turkmen law such obligations are implemented through the actions of the enterprise’s management bodies. Accordingly, the CEO, as the head of the enterprise, is the person functionally responsible for organizing compliance.

Failure to ensure proper accounting and reporting therefore creates potential exposure for the CEO where violations constitute breaches of law or result in damage.

The Code of Administrative Offences of Turkmenistan contains multiple provisions under which responsible officials (including company executives) may be held liable and be sanctioned.

Where non-compliance involves concealment, falsification, or causes significant damage, criminal liability also may arise. For example, Article 279 of the Criminal Code of Turkmenistan criminalizes illegal actions in bankruptcy, such as:

• Concealment or destruction of accounting or financial records;
• Falsification of bookkeeping documents;
• Unlawful disposal or concealment of assets during insolvency situations.

If such conduct causes large-scale damage, penalties may include fines or correctional labour.

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

Practical steps to mitigate the liability risks of a CEO:

1) Legal compliance

• Maintain accounting and tax records strictly in accordance with statutory requirements.
• Ensure compliance with all licensing, permitting, regulatory standards, and reporting obligations.

2) Corporate governance documentation

• Clearly define and document the CEO’s powers and responsibilities in the charter and employment agreement, including internal procedures for decision-making and reporting.

3) Internal control and compliance mechanisms

• Implement internal audit and compliance systems, including regular review of tax and financial reporting.
• Appoint responsible officers for specific functions to prevent excessive concentration of risk on a single individual.

4) Officers’ liability insurance

• Where feasible, obtain officers’ liability insurance.

5) Legal and financial advisory support

• Engage legal and financial advisors to assess risks associated with key management decisions.
  Maintain written documentation substantiating the rationale for management decisions to support a good-faith defense in potential disputes.

Author: Ikbal Said Alauddin, Lachin Amandurdyyeva, Gulenar Akmyradova