Legal Protection for Shareholders Against Losses to Limited Liability Companies Due to the Actions of the Board of Directors

Abstract

This study aims to analyze in depth the legal protection for shareholders against losses in Limited Liability Companies caused by the actions of the Board of Directors, who are often caught in a dilemma between business discretion and fiduciary obligations. In the corporate legal system, the separation between ownership and management functions creates vulnerability for shareholders, especially minorities, to potential abuse of authority and conflicts of interest. Using a normative juridical research method with a statutory and conceptual approach, this study dissects the inconsistency between the ideal norms in Law Number 40 of 2007 concerning Limited Liability Companies and the reality of practice in the field. The research findings show that although the regulation promises personal liability for negligent Directors through the fiduciary duty doctrine, in practice the Business Judgment Rule doctrine is often misused as a shield of absolute legal immunity to cover up managerial errors. By using E. Utrecht's theory of Unlawful Acts as an analytical tool, this study proves that such immunity must be declared void if the Directors' decisions violate the principles of propriety and professional diligence. Furthermore, it was found that the derivative lawsuit mechanism has not been effective due to procedural obstacles such as share ownership thresholds and the heavy burden of litigation costs. Therefore, this study recommends regulatory reform to lower the threshold for filing lawsuits and strengthen jurisprudence to encourage judges to pierce the corporate veil against directors.