Legal guide for company directors and CEOs in Slovenia

Because environmental, social and governance (ESG) is such an increasing focal point of good corporate governance, we address ESG duties and responsibilities first. For more general duties and responsibilities of directors and CEOs, please scroll down the page or use the navigator to jump to the relevant section. 

ESG considerations cover a wide range of issues such as human rights, equality and diversity, consumer protection, animal welfare, corporate governance, climate change, etc. In Slovenia, e.g., ESG-related regulations are laid down in a number of laws:

• Companies Act;
• Environmental Protection Act;
• Water Act;
• Consumer Protection Act;
• Animal Protection Act;
• Health and Safety at Work Act;
• Employment Relationships Act;
• Protection Against Discrimination Act;
• Reporting Persons Protection Act. 

Obligations under these laws are mainly addressed to the respective company. However, compliance with such regulations must be ensured by the management. Under the Companies Act, directors of a joint-stock companies and of a private limited companies are responsible for representing the company and conducting all company’s business. 

In terms of ESG requirements, directors, inter alia, need to: 

• identify any ESG issues which need to be addressed in their company (in accordance with applicable law and best practice considerations);
• propose appropriate measures to be taken;
• monitor/ensure the proper implementation of such measures. 

The competent authorities may impose administrative fines on the company and its directors for breach of the above laws. If violations result in sanctions being imposed on the company (e.g. loss or revocation of a licence or concession), the director may be held personally liable to the company.  

ESG-related employee protection regulations are stipulated in a number of laws. Companies and their directors have obligations, inter alia, under:

• Employment Relationships Act;
• Health and Safety at Work Act;
• Protection Against Discrimination Act;
• Reporting Persons Protection Act;
• Social Security Contributions Act;
• Pension and Disability Insurance Act 

In 2023, a draft amendment to the Companies Act was published, that aims to transpose into national legislation the Directive 2022/2381 on ensuring gender balance among directors of listed companies. The draft Companies Act was not yet adopted. The obliged entities under the draft Companies Act are defined as follows: 

• companies whose securities are traded on a regulated market, and which have more than 250 employees and at the same time have a net turnover exceeding EUR 50 million or an asset value exceeding EUR 43 million;
• companies with a majority investment by the Republic of Slovenia or local municipalities, in which the latter entity holds a majority of the capital or a majority of the voting rights and has at least 250 employees and qualifies for the status of a large company under the Companies Act. 

The obliged entities will be required to ensure either at least 40% representation of the less represented gender among the members of the supervisory body or at least 33% representation of the less represented gender among the members of the management and supervisory bodies and executive directors. In the event of the selection of a candidate who is not a person of the less represented sex, the appointment will be nevertheless deemed valid. However, the non-selected candidate will be entitled to compensation under the general rules of civil law and to compensation for discrimination under the law governing protection against discrimination. 

Directors are responsible for complying with and observing the respective provisions and taking appropriate measures to ensure compliance. Compliance with these provisions can be enforced by imposing administrative fines on the company and its directors. 

See the answer to question 2 and question 4 regarding gender balance among directors and ESG reporting information in annual reports. 

The draft Companies Act referred to under question 2 is also implementing into national legislation the CSRD Directive 2022/2464 on corporate sustainability reporting. The draft Companies Act introduces an obligation for certain Companies and their legal representatives to prepare a sustainability report. The content of the report as set out in the draft Companies Act follows the requirements of the CSRD. 

Under the draft Act the obliged entities are large companies and small or medium-sized companies whose securities are traded on a regulated market. In case of groups of companies, the preparation of a consolidated sustainability report is the on the parent companies. The obligation to prepare a report also applies to subsidiaries controlled by a third-country company and branches of a third-country company. 

This guide focuses on the rules relating to limited liability companies (LLCs). It does not address the rules for other forms of company such as joint stock corporations (JSCs) or partnerships. Companies Act provides for a board system only in JSCs but not in LLCs. Although there may be more than one director in an LLC, they do not constitute a board of directors. 

As stated above, LLCs do not have boards in Slovenia. LLCs can have one or more directors who represent the company either with sole or joint power of representation. Usually, the articles of association determine the number of directors. All directors are managing directors and thus have an executive function. 

An additional supervisory board is only mandatory for companies that are public interest entities. The articles of association may provide for an optional supervisory board. The supervisory board has a controlling function, and thus its members are non-executive. 

Any natural person with full legal capacity can be appointed as a director. A director may also be a shareholder of the company and is not required to be a resident or national of Slovenia. It is also not mandatory that the director is employed by the company. 

Companies Act stipulates that a director may not be a person: 

• who is already a member of a supervisory body of the same company
• who has been finally convicted in Slovenia or in other countries of a criminal offence against the economy, against labour relations and social security, against legal transactions, against property, against environment, space and natural resources,
• against whom a security measure prohibiting the pursuit of a profession has been passed against in Slovenia or in other countries, or
• who, has been a member of the management or the supervisory body of a company, in Slovenia or in other countries, against which bankruptcy proceedings were instituted, pronounced liable to repay damage to the creditors in accordance with the law regulating the financial operations of companies. 

A director must provide a written statement about the non-existence of such circumstances that would prevent his/her appointment, and the director’s signed statement needs to be notarised. 

It is up to the shareholders to decide on the appointment procedure of a director. Shareholders may regulate the appointment procedure in the company’s articles of association. If there are no provisions in the articles of association, the shareholders must appoint a director by a shareholders’ resolution passed by a majority of all shareholders present and voting at the shareholders’ meeting.

If the company has a supervisory board, this body is responsible for appointing a director. (The articles of association may however provide otherwise.) 

A director may also be appointed in the articles of association, although this is not very practical as with each change of director, the articles of association would need to be amended as well. 

A director is usually appointed for an indefinite term. If the appointment is made for a defined term, it cannot be shorter than 2 years. The same person may be reappointed several times. 

The appointment of the first director has to take place prior to the entry of a new company into the court register. Each director must be entered into the court register (however, registration itself is not a prerequisite for the validity of his/her appointment or the right to represent the company – it is thus only declaratory). The application form must be submitted to the court register together with documentation proving the eligibility requirements. A decision on the appointment of the director and his/her written consent to the appointment should also be enclosed with the application form. If a director is a foreign national, his/her Slovenian tax number has to be provided in the application form.

If a director is appointed for a fixed period of time, his/her mandate ends with the expiry of the appointment period. There is no automatic renewal of the mandate or transformation of the fixed term into an indefinite term. Reappointment as a director is however possible. 

A director may be removed before the end of his/her term. Generally, the shareholders’ meeting can remove a director at any time without giving a reason for the removal. However, the articles of association can provide that a director can only be recalled for specific reasons. The articles can also provide the supervisory board or a shareholder with the right to recall a director. If a company has a supervisory board and the articles do not provide otherwise, the supervisory board has a right to recall a director. 

Contracts regulating the relationship between a company and a director usually stipulate that in case of unjustified removal, the director is entitled to a severance payment. If no such provision exists and the removal is unjustified, a director can claim damages according to general legal principles. 

A director is a legal representative of a company. His/her powers to represent the company derive directly from the legislation. A director may carry out all legal activities on behalf of the company at his/her own responsibility. Any limitation thereof has no legal effect against third parties except a joint representation regime. 

A company may have one or more directors. Each of the directors represents the company independently, unless (in the case of two or more directors) the articles or a shareholders’ resolution provide for joint representation. In the latter case, one director represents the company with one other director. The articles may also provide that only certain directors represent the company jointly and others independently. Joint representation must be entered into the court register and is, if entered, enforceable towards third parties. 

Apart from joint representation, no other restrictions of the director’s authority and representation are enforceable against third parties. Thus, any other restrictions on the director’s authority imposed either by the articles or by a shareholders’ resolution do not have any effect against third parties. A director may be held liable by the company if he/she seeks to circumvent these restrictions. A director has full authority to manage the company. Such authority may be internally restricted by the articles or by a shareholders’ resolution. In many cases the articles will provide that certain actions are subject to prior shareholder approval or approval by the supervisory board. However, neither the supervisory board nor the shareholders’ meeting may interfere with the director’s authority to decide on the daily business of the company. 

As stated above, Companies Act does not provide for a board system. Although there may be more than one director, they do not constitute a board of directors. Each of them solely represents the company and validly concludes contracts in the name and to the account of the company unless joint representation is required as stated above. 

All directors have the same rights and duties, and decisions are not made by a majority of votes.

The articles of association, shareholders’ resolution, resolution of the supervisory board or internal guidelines may allocate certain duties to one or more directors. However, such distribution of responsibilities does not affect the overall responsibility of each director for the company’s business as a whole. 

The shareholders’ meeting may give binding instructions to the directors, unless otherwise provided in the articles. Non-compliance with such instructions may lead to the recall of the director and potentially also to a claim for damages. 

Appointment to the position of director does not create a contractual relationship between the director and the company or entitle a director to remuneration. 

The company and the director usually enter into a management contract or employment contract. A management contract is a type of service agreement specifying the director’s duties and remuneration, as well as other aspects of the relationship between the company and the director such as benefits, confidentiality, or non-compete and termination provisions. 

A director may also regulate his/her relationship with the company in an employment contract. Many aspects of the relationship are then regulated by the rules of labour law. The Employment Relationships Act specifically stipulates which elements of the relationship between the director and the company may be regulated differently from the statutory provisions (for example, rules regarding remuneration, working times, breaks and rests during a working day and week, conditions and limitations of a fixed-term contract, disciplinary responsibility, and termination of the employment contract). 

Removal of the director does not automatically terminate the contract but may be a termination reason or may constitute a breach of contract, if the contract or the articles provide termination reasons, and these reasons are not met. Termination of the contract would also not necessarily terminate the directorship. However, the contract can provide that it terminates upon notice of the director’s recall from his/her position. 

A director must carry out his/her duties in the best interest of the company and with the diligence of a good businessperson. He/she is bound by professional confidentiality and must avoid any conflict between his/her own interests and those of the company. In the event of a conflict of interest, a director must within three working days declare this in writing to the supervisory board (if existent) or shareholders’ meeting. 

A director may not participate as a director in a limited liability company, a member in a partnership, a shareholder in a private limited or unlimited company, a member of a management or supervisory board of another company, a private entrepreneur, a procurator of another company or an employee of another company, if the activity of such company or the private entrepreneur could present competition to the first company where such director operates. 

The articles may regulate when a director may participate in another company that engages in the same business activities as the company of which he/she is a director. 

Additionally, the articles may provide that the ban on competition continues even after the director no longer holds his/her position. Such a prohibition may last up to 2 years, except when a director has been recalled by a shareholders’ meeting. In the latter case the prohibition may not last longer than 6 months. 

If the director breaches the ban on competition, the company may bring a claim for damages. The company may also require the director to surrender to the company any business concluded for his/her own account or require him/her to transfer any benefits from such business to the company. 

The company is also restricted from entering into following transactions with the director or his/her family members:

• transactions with a director or his/her close family members (as defined in the companies Act);
• transactions with a director or his/her family members by a subsidiary of the company;
• transactions carried out by the company or a subsidiary thereof with a company or other legal entity in which the director or a member of his/her family has direct or indirect control or joint control;
• transactions with a company in which a director or his/her family member holds office as a member of the management or supervisory body or as an executive director or is a shareholder, if the company is a partnership;
• transactions with other legal entities in which a director or his/her family member is a legal representative or a member of the supervisory body.

Such contracts require prior approval of the supervisory board (if existent) or shareholders’ meeting. There are some exceptions for affiliated companies. 

The consent of the supervisory board (if existent) or shareholders’ meeting is required irrespective of the value of the transaction. Consent is not required if the transaction is carried out in the ordinary course of the company's business and on normal market terms, unless the articles of association provide otherwise. 

The above does not apply to companies whose securities are not traded on a regulated market if directors and their family members are also sole shareholders. 

A director must manage the company and act on behalf of the company in line with its business purpose, best interests and in accordance with instructions given by the shareholders and the current legislation. A director must act with the diligence of a conscientious and fair manager. Under the rules on financial operations, insolvency proceedings and compulsory dissolution, a director must act with a higher standard of diligence, as stated below. 

A director is generally responsible for the operative management of the company. Many of the director’s duties are regulated by law, while some additional duties may be included in the management contract, employment contract or any other contract regulating the relationship between the company and the director. Breach, neglect, or omission of his/her statutory or contractual duties will constitute a valid reason for the removal of the director. 

Directors’ duties include, inter alia, the following activities:

• to enter the establishment of the company into the court register and to enter changes to the entered data;
• to convene a shareholders’ meeting;
• to prepare and execute the decisions of the shareholders’ meeting;
• to set up financial statements and disclose financial statements to shareholders and to the public;
• to execute a decision of the shareholders to decrease the company’s share capital, and
• to bring an action against a shareholder, who has not paid in his subscribed contribution(s). 

Additionally, some of the director’s duties refer to the financial management of the company. Directors must ensure that the company is operating in accordance with the financial operations, insolvency proceedings and compulsory dissolution laws and the rules of corporate finance. Directors have to act with the diligence of corporate finance professionals and endeavour to ensure that the company is always short- and long-term solvent. 

Duties related to the financial management of the company require directors to, inter alia, submit a financial restructuring plan to the shareholders or supervisory board (if existent) when the company becomes insolvent, initiate court insolvency proceedings in due time, and to submit financial statements and reports (annual, quarterly) to the shareholders’ meeting and the supervisory board (if existent) and to competent national agencies/bodies. 

Furthermore, the director must ensure that the company meets its obligations under public law – in particular with regard to, but not limited to, employment, tax and social security laws. 

Primarily the director’s duties are owed to the company itself and not to its shareholders. 

Directors must always act with professional due diligence. Further, once a company’s insolvency is established internally, the Financial Operations, Insolvency Proceedings and Compulsory Winding-Up Act should be strictly followed to avoid or limit any damages towards the company’s creditors. 

Directors must continuously monitor developments that could jeopardise the continued existence of the company. If the Directors recognise such development, they must take financial restructuring measures aimed at eliminating the threatened insolvency and must report immediately to the shareholders’ meeting and the supervisory board (if existent). If the measures to be taken are not or not entirely within the competence of directors, directors must take appropriate action to be considered by the shareholders’ meeting and the supervisory board (if existent). 

If the company is threatened with insolvency, directors and other bodies of the company must:

• avoid any conduct which would result in unequal treatment of creditors who are in the same position in relation to the company, unless such conduct is taken with a view to preventing the insolvency;
• take into account in their decisions the interests of creditors, equity holders and other stakeholders whose interests may be affected;
• avoid any conduct which jeopardises or diminishes the assets of the company or otherwise jeopardises the viability of the company. 

If the company becomes insolvent, directors must, inter alia (but not limited to), maintain the solvency of the company and manage the business risks, as well as adhere strictly to the equal treatment of all creditors. Further, non-essential payments must be suspended. 

As soon as directors are aware that a company is in financial difficulty, they should seek external advice. 

A director is liable to the company for damage arising as a consequence of a breach of his/her duties, unless he/she demonstrates that he/she fulfilled his/her duties fairly and conscientiously and that he/she has acted with professional due diligence. In case of breach of duty by two or more directors, they are jointly and severally liable.

A compensation claim by the company against the directors may also be pursued by creditors of the company if the company is unable to repay them. 

The directors and members of the supervisory board (if existent) are jointly and severally liable to the company for damage arising as a consequence of a violation of their tasks, according to the rules of the Financial Operations, Insolvency Proceedings and Compulsory Winding-Up Act, unless they demonstrate that they fulfilled their duties with the diligence of corporate finance professionals and the corporate governance rules. In practice, in the case of private limited companies, the main threat of legal action against directors for breach of duty is likely to emerge only in the event of the company’s insolvency.

Directors are liable for the fulfilment of the tax and social security obligations of the company, in the same manner as described in the previous paragraph. 

Directors may also be held criminally liable in cases of wilfully incorrect statements, including financial statements, statements to shareholders or the supervisory board (if existent) or filings with the court register, as well as being liable to fines and other penalties for breaches of various statutory duties and offences (for example, under various health and employee protection provisions). 

Directors and/or members of a supervisory body do not have to reimburse the company for damage if the act that caused the damage to the company was based on a lawful resolution passed by the shareholders’ meeting. 

The liability of directors cannot be excluded on the basis that an act was approved by the supervisory body (if existent). 

The company may only refuse compensation claims, or offset them 3 years after the claims arose, provided that the consent of the shareholders’ meeting is obtained and provided no written objection is made by a minority shareholders holding at least one tenth of the subscribed capital. 

A single director is liable to the creditors for damage (if their claims were not repaid fully in the insolvency procedure) arising as a consequence of violation of his/her tasks under the rules on financial operations, insolvency proceedings and compulsory dissolution (particularly if certain duties, before or after the insolvency procedure started, were not fulfilled or not fulfilled in due time) only to the amount of twice his/her yearly income (remuneration) in the year of such violation, but not less than EUR 20,000 (small company), EUR 50,000 (medium-sized company) or EUR 150,000 (large company). The liability is unlimited in the case of gross negligence or a wilful breach. 

Further, a director is not liable towards the company or its creditors if he/she can prove that damages occurred due to the actions of other people which the director could not have prevented, eliminated, or avoided even if he/she had acted with professional due diligence. 

A company is permitted to purchase directors’ and officers’ insurance cover on behalf of its directors. If the company concludes such a policy, a deductible of at least 10% of the loss, but not more than 1.5 times of directors’ and officers’ fixed annual remuneration, must be set. Usually, this deductible is covered by a separate policy concluded in the name of directors’ and officers’.