If you are serving as a director or officer of a private
corporation, you should bear in mind your duties and your potential
Summary of directors' and officers'
Directors and officers have two main duties: a duty of loyalty
to the corporation and a duty of care.
The duty of loyalty imposes positive obligations and a
responsibility to avoid certain situations. Directors and officers
must act honestly, in good faith, and in the best interests of the
corporation. They cannot put personal interests ahead of the
interests of the corporation. For example, by profiting personally
from any dealings of the corporation or intercepting an economic
opportunity of the corporation.
They also cannot use their positions at the corporation to
develop or promote a competing business. When conflicts of interest
arise, they must be disclosed promptly and fully. This duty of
loyalty is not just limited to officers and directors but extends
to all employees.
The duty of care requires directors and officers to exercise the
same skill, diligence and care that a reasonably prudent person
would exercise in similar circumstances. This is an objective
standard. It may not be sufficient that a director or officer
simply does his or her best.
Directors' and officers'
Directors and officers can be personally liable for their
decisions. Such liability is imposed by corporate and other
For example, the Ontario Business Corporations Act
(OBCA) and the Canada Business Corporations Act (CBCA)
provide that directors may be liable if they approve the following
transactions while the corporation is insolvent (or if it would
become insolvent after any of the following):
acquires its own shares or warrants (subject to
pays a commission on the purchase of corporation shares;
pays a dividend; or
pays under an indemnity contrary to the statute.
If such action(s) occur, then those directors who voted for the
action(s) will be jointly and severally liable for amounts paid and
not otherwise recovered by the corporation.
Directors are also jointly and severally liable to employees of
the corporation for up to 6 months of unpaid wages and 12 months of
accrued vacation pay, if the corporation cannot satisfy a legal
judgment for such amounts (i.e. because the corporation is
Directors can also be personally liable if the corporation does
not deduct and remit income tax, employment insurance, or Canada
Pension Plan contributions from employees' salaries, or if the
corporation fails to remit Harmonized Sales Tax. With regard to
liability for unremitted taxes, a due diligence defence does
To mitigate against the risk of personal liability, directors
and officers should:
1. Review the articles and by-laws of the corporation.
2. Ensure that the personal indemnification agreement with the
corporation is up-to-date.
3. Ensure that the corporation maintains sufficient insurance
for directors and officers.
4. Insist on legal opinions where appropriate.
5. Insist on written professional opinions from specialists on
whose advice the board or management is expected to act.
In particular, directors should also:
6. Attend all meetings.
7. Insist on receiving, before each meeting, all documents and
reports on which there will be a vote.
8. Read all of the materials prior to each meeting.
9. Review with care all minutes of meetings and ensure the
minutes clearly demonstrate the decision making process of the
10. Insist on the recording of any disclosure made, or any
refraining from voting or dissenting.
11. Send a letter to the corporation if your disclosure, your
refraining from voting, or your dissent is not recorded in the
12. Keep your own notes of impressions of the meetings, and
retain all minutes and other important documents.
13. Vote against any payment if there is any question of
insolvency or breach of employment law.
14. If you are concerned that payments are not being made, make
enquiries of management as to the status of payments for which you
may be liable, either in writing or at board meetings (if you
enquire at a meeting, have the answers recorded in the
While officers do not usually meet and vote with the same
formality as a board of directors, officers can and should take
similar safeguards when performing their duties.
Directors and officers play a vital role in the success of a
company. With their responsibilities come significant potential
liabilities. However, if directors and officers are active and
vigilant in carrying out their duties they can reduce their
potential personal liability and make an enduring contribution to
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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