What Is the CEO’s Role in Civil Claims Against a Company?

What Is the CEO’s Role in Civil Claims Against a Company?

In civil claims brought against a company, the Chief Executive Officer is generally the company’s primary representative during the dispute resolution process. Under Iranian commercial law principles, the CEO is expected to protect the company’s rights and interests in dealings with third parties and in litigation. This responsibility commonly includes attending court sessions, submitting documentation, preparing written statements, responding to allegations, and coordinating with the company’s legal counsel. If the CEO fails to manage these tasks properly, the company may face adverse judgment, which can ultimately harm shareholders and create risk for the CEO.

The CEO’s responsibilities are not limited to defending claims. When the company is a creditor or its rights have been infringed, the CEO is typically expected to pursue the company’s claims. Failure to do so may be viewed as managerial negligence or a failure to act, and, in certain cases, can serve as the basis for internal accountability. From a governance perspective, ineffective defense or failure to pursue legitimate claims may constitute a breach of managerial duties and trigger scrutiny by the board of directors or corporate inspectors. In significant commercial disputes, the CEO must combine executive judgment with legal awareness and effective coordination with advisers. In many high-value cases, weak handling of litigation strategy and procedure has contributed to unfavorable outcomes for companies. For this reason, the CEO’s approach to managing disputes can materially influence both the company’s position and the CEO’s personal exposure.

Corporate liability vs personal liability of the CEO

A central issue in assessing the CEO’s exposure in corporate disputes is distinguishing between corporate and personal liability. In general, under company law, a company, as a separate legal person, is responsible for its own debts and obligations. This principle typically applies when the CEO acts within lawful authority and within the scope of powers recognized by corporate documents and internal approvals.

However, if the CEO acts with fault, negligence, breach of trust, or abuse of authority, personal liability may arise in addition to the company’s liability. For example, if a CEO knowingly provides false financial information or enters into a contract with the intent to deceive, the company may face consequences, but the CEO may also be personally pursued for damages and other legal outcomes. In civil litigation, proving whether liability rests with the company or personally with the CEO can be decisive. In financial disputes, shareholders or creditors may attempt to sue the CEO directly, provided they can prove misconduct or improper conduct. Courts typically examine records, documents, statements, and the history of decisions to determine whether responsibility should attach to the company, the CEO, or both. In Iranian judicial practice, this distinction is often a key tool for both bringing claims and structuring defenses.

The CEO’s duties toward third parties

In Iranian legal practice, the CEO is often treated as the highest executive authority of a commercial company and may carry significant responsibilities toward third parties. The CEO is commonly regarded as the company’s legal representative in external dealings. As a result, contractual, financial, and formal acts performed by the CEO can bind the company.

The CEO’s responsibility in corporate disputes typically has two dimensions. First, the company may be liable to third parties for acts performed by the CEO within the scope of their authority. Second, the CEO may face personal liability if they exceeded their authority or acted contrary to the law or the company’s interests. For example, if the CEO signs a contract within the scope of lawful authority and the contract creates a debt, the counterparty can generally pursue the company. If the CEO acted outside their authority or in bad faith, they may also face personal exposure. Iranian commercial law provisions, including rules commonly referenced from Article 142 onward in the Commercial Code, address the civil and criminal accountability of managers in various situations. Understanding these principles is important not only for the CEO but also for shareholders, the board, and third parties engaging with the company.

Joint liability for unlawful undertakings

When a CEO creates obligations for the company that are unlawful or contrary to the articles of association or regulatory requirements, liability may arise jointly with the company. In practical terms, this means that although the company may be bound in the transaction, the CEO can also be pursued by an injured party where the CEO’s unlawful conduct caused harm.

This approach reflects a fairness principle in corporate disputes, preventing an individual wrongdoer from hiding behind the company’s separate legal personality. In joint liability claims, a claimant may sue both the company and the CEO and seek recovery from either, depending on the circumstances and the court’s findings. As an example, if the CEO prepares a contract using falsified documentation or knowingly inaccurate information, the company may be a contracting party, but the CEO may be personally responsible for the unlawful conduct and resulting damages. For that reason, adherence to legal limits, transparency, and good faith are essential requirements for any CEO.

The legal impact of the CEO’s signature on financial and contractual documents

One of the most important issues in corporate litigation is the legal effect of the CEO’s signature on financial and contractual documents. In principle, the CEO may sign documents on behalf of the company within the scope of authority granted by the articles of association or board resolutions. If the CEO exceeds that scope, the signature may not bind the company and may instead create personal liability for the CEO.

In disputes involving receivables, checks, promissory notes, purchase and sale agreements, and similar instruments, courts often examine whether the CEO’s signature was valid and authorized. In many cases, the claimant must show that the CEO acted within authority and that the company is bound. If it is proven that the CEO acted beyond authority, the CEO may be held directly responsible.

The CEO should also ensure that the corporate signature is used only for the company’s legitimate interests and never to secure personal obligations or transactions outside the company’s business. Where courts determine that a corporate signature was used for personal purposes, CEOs have, in many cases, been ordered to compensate losses personally. The CEO’s signature, therefore, affects not only the company’s legal position but can also directly shape the CEO’s personal exposure.

Limits of the CEO’s authority under the articles of association

The CEO’s authority is typically defined in the company’s articles of association and may cover executive, financial, contractual, and legal matters. The CEO must operate within these limits. If the CEO exceeds authority, personal responsibility may follow. As a result, courts often examine whether a disputed act was within the CEO’s authorized powers. Exposure tends to increase when the CEO signs major contracts, transfers assets, or creates significant financial obligations without required board approval or in contravention of the articles of association.

A further point is that the articles of association are registered with the Companies Registration Office, which allows third parties to become aware of limits on authority. For this reason, a CEO’s defense that the counterparty was unaware of authority limits may not be persuasive when public registration exists. Familiarity with the articles of association and compliance with both the text and purpose of internal governance rules is therefore essential for any CEO who intends to manage risk properly.

Criminal exposure of the CEO for corporate misconduct

Alongside civil liability, a CEO may also face criminal exposure. When a CEO’s conduct constitutes a criminal offence under the Islamic Penal Code or relevant commercial rules, the CEO may be prosecuted personally, regardless of the company’s legal personality. Conduct that may trigger criminal consequences can include document forgery, breach of trust, embezzlement, using company accounts for personal benefit, or issuing false reports.

Iranian judicial practice includes cases in which CEOs have been prosecuted for issuing bad checks, unauthorized withdrawals, or signing harmful contracts. In such situations, the company may be treated as the injured party, while the CEO becomes the accused. Where a CEO’s conduct involves a criminal act, reliance on the company’s separate legal personality does not provide protection. Compliance, transparency, and avoidance of high-risk behavior are therefore critical safeguards.

The role of the board of directors in addressing CEO misconduct

In joint stock company structures, the board of directors supervises the CEO’s performance. If the CEO exceeds authority or commits misconduct, the board is expected to intervene. This intervention can include removal, suspension, reporting to the statutory inspector, or initiating legal action.

If the board fails to exercise its oversight duties, it may also face exposure, depending on the facts. Where the board performs its supervisory role properly, the CEO is more likely to be held individually responsible for unauthorized acts. In litigation, it is common to see allegations that a CEO acted without informing the board and caused losses. In such circumstances, personal liability may attach to the CEO. The board’s role in this context is dual. It functions as a supervisory authority and may also support the CEO when actions are lawful and properly authorized. A transparent and consistent relationship between the board and the CEO can reduce disputes and future legal risk.

CEO liability in limited liability companies

In limited liability companies, governance may appear simpler, but legal risk can be more complex. Unlike joint stock companies, the CEO or manager in a limited liability company may also be a partner, creating potential conflicts of interest and layered responsibilities.

Iranian commercial law generally recognizes that managers of limited liability companies may be liable for losses resulting from their fault or negligence. If the CEO or manager commits misconduct in contracting, managing accounts, or performing obligations, partners or creditors may sue. Courts typically consider the degree of fault, the scope of authority, and whether partners were aware of and approved relevant actions.

In some cases, courts may find that the company’s separate personality and the manager’s personal conduct are closely intertwined, and responsibility may be attributed more directly to the manager. For that reason, CEOs in limited liability companies should maintain clear documentation, formal approvals, and accurate records to support their decisions and defend against potential claims.

Practical limits on a CEO’s defenses

In certain disputes, the CEO may be named personally as a defendant or accused. In those cases, not every defense is legally effective. For example, if the CEO signed the board minutes approving a decision that later harmed the company, it may be difficult to argue in court that the CEO lacked knowledge or opposition. Defenses must be supported by evidence, consistent with the law, and based on acceptable proof. A general claim that an action was taken in the company’s interest is usually insufficient. Courts examine whether the act was authorized, lawful, and whether it caused harm.

Iranian commercial law also holds that a CEO cannot avoid liability for a clear legal breach by claiming good faith. For instance, if a CEO sells significant company assets without the approvals required by corporate governance rules, the breach itself may remain decisive even if the CEO argues that the transaction was intended to benefit the company. The best protection is proactive compliance, proper documentation, and adherence to approval requirements.

Changing the CEO and its effect on corporate disputes

A common question in corporate disputes is whether replacing the CEO affects ongoing claims. In principle, changing the CEO does not eliminate liability for past conduct. Responsibility generally attaches to the time of the act, not the time a claim is filed or heard. If a former CEO entered into a transaction contrary to the company’s interests and was later removed, the new CEO is not personally responsible for the former CEO’s conduct, but the former CEO may still be pursued.

At the same time, if the new CEO discovers prior misconduct, there may be an internal duty to report the matter to the board and shareholders, depending on the company’s governance structure. Failure to act after discovery may expose the new CEO in certain circumstances. For that reason, the CEO’s responsibility can remain relevant even after the end of the term.

Practical legal recommendations to reduce CEO exposure

Several practical steps can reduce the legal risks associated with CEO duties:

• ensure transparency by documenting executive actions in minutes, contracts, and official correspondence.
• Maintain ongoing legal support to assess risk and structure decisions appropriately.
• avoid high-risk actions, such as major asset transfers or significant financial commitments, without board approval.
• follow ethical and legal standards, including fiduciary duties and proper stewardship of company resources.
• Stay informed about legal and regulatory developments affecting company operations.

By following these principles, a CEO can reduce exposure in corporate disputes and help prevent civil and criminal consequences.

Frequently Asked Questions About the CEO’s Role in Civil Claims Against a Company