Companies Act 19,550 · Article 274 — Directors' liability

Liability of the directors of a stock corporation (Art. 274 LGS)

Article 274 of the General Companies Law establishes that the directors of a stock corporation are liable on an unlimited and joint and several basis to the company, the shareholders, and third parties for the poor performance of their office — measured by the standard set out in Article 59 —, for violating the law, the bylaws, or regulations, and for any damage caused by fraud, abuse of authority, or gross negligence. A director may be exempted if he recorded his objection.

Source: Act 19,550

What article 274

Article 274 governs the liability of the directors of a stock corporation: its scope (unlimited and joint and several), its sources, the possibility of apportioning it according to assigned functions, and the grounds for exemption.

Official text · Act 19,550, art. 274

Directors are liable, on an unlimited and joint and several basis, to the company, the shareholders, and third parties, for the poor performance of their office, according to the standard set out in Article 59, as well as for violation of the law, the bylaws, or regulations and for any other damage caused by fraud, abuse of authority, or gross negligence.

Without prejudice to the provisions of the preceding paragraph, liability will be attributed on the basis of individual conduct when functions have been assigned personally in accordance with the bylaws, regulations, or a shareholders' meeting resolution. The meeting's resolution and the appointment of the persons who are to perform those functions must be recorded in the Public Registry of Commerce as a requirement for the application of this paragraph.

Exemption from liability. A director who took part in the deliberation or resolution, or who was aware of it, is exempt from liability if he places a written record of his objection and gives notice to the supervisory board before his liability is reported to the board of directors, the supervisory board, the shareholders' meeting, the competent authority, or before legal action is brought.

Source: Law 19,550, Art. 274 — InfoLEG (updated official text)

Commentary

The standard of conduct refers back to Article 59 (the loyalty and diligence of a prudent businessman). Liability is, in principle, joint and several among all directors; but it may be individualized if functions were assigned personally by the bylaws, regulations, or a shareholders' meeting resolution recorded in the Registry.

The law offers a concrete route to exemption: a director who does not share a decision must place a written record of his objection and give timely notice to the supervisory board. Silence or absence does not exempt him; a documented objection does. It is the most practical defense available to a diligent director.

Distinctions often confused

Joint and several liability is not the same as Individualized liability. As a rule, all directors are jointly and severally liable; individual attribution applies only if personal functions were assigned by the bylaws, regulations, or a duly recorded shareholders' meeting resolution.

Exemption through objection (Art. 274) is not the same as Extinction of liability (Art. 275). Exemption prevents liability from arising for the director who objected; extinction under Art. 275 operates afterward, through approval of management or resignation/settlement, subject to limits.

Practical impact

For a director, the best protection is preventive: taking part while informed, giving reasons for decisions, and — when dissenting — placing a written record of the objection and notifying the supervisory board. For the company or the injured shareholder, Art. 274 is the basis for the liability action.

Frequently asked questions

How are the directors of a stock corporation liable?

On an unlimited and joint and several basis to the company, the shareholders, and third parties, for poor performance, violation of the law or the bylaws, and for damage caused by fraud, abuse of authority, or gross negligence.

How can a director be exempted from liability?

By placing a written record of his objection and giving notice to the supervisory board before his liability is reported or legal action is brought.

Is liability always joint and several?

As a rule yes, but it may be individualized if personal functions were assigned by the bylaws, regulations, or a shareholders' meeting resolution recorded in the Registry.

This page is informational and does not constitute legal advice nor replace professional consultation. It quotes the official text of the rule; for its application to a specific case, consult a licensed professional.

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