Canada: Due Diligence Before & After Becoming A Director

Directors owe certain duties to the corporation when they take on the role and responsibility of sitting on a board. Every director should be aware of these duties and should act in accordance with these if they wish to avoid potential liability.

  1. Directors have a duty to behave in an honest and fair manner by sharing important information and preventing harm to their corporation.
  2. Directors owe a duty of loyalty to the corporation and their fiduciary obligations lay first and foremost to their organizations.
  3. Directors face potential liability if they do not attend meetings and fail to dissent within seven days of receiving the minutes.
  4. Directors must be adequately prepared for board meetings and must be sufficiently informed of material information to make effective and accurate decisions.
  5. A director should insist on access to all relevant information to be considered by the board.
  6. Directors have a right to inspect corporate records and other documents related to the corporation.
  7. Directors should not support a course of action if there is any doubt that a proposed course of action is inconsistent with a director's fiduciary duties. Seek independent legal advice as soon as possible to clarify the issue.
  8. Directors cannot shirk their responsibilities by leaving everything to others. Reliance on co-directors and officers should not be unquestioning.
  9. Directors should not rely blindly on management or on subordinates if they have failed to act where they knew or ought to have known that something was not right.
  10. Directors should consult with a lawyer if he or she is uncertain about the exercise of his or her duties or responsibilities.

Due Diligence Before Becoming a Director

While it is impossible to be aware of every obligation and liability imposed upon a director, a potential director can limit his or her potential liability by conducting comprehensive due diligence and recording the results prior to becoming a director.

Outlined below are some of the steps that a potential director should take in conducting his or her due diligence. The considerations will vary from organization to organization, depending on its make-up.

  1. Consider why you want to be a director.
  2. Determine whether the organization is financially strong and stable.
  3. Request and receive a written job description detailing specific responsibilities expected of a director and what committees you may be requested to sit on.
  4. Find out what the organization's selection criteria are for directors.
  5. Speak to other directors to get their perspective on the organization.
  6. Find out what materials are usually circulated to directors before meetings and if they are sent on a timely basis.
  7. Find out how much time will have to be devoted to the position.
  8. Ascertain the organization's policy for appointing the chair of the board and the role of the chair.
  9. Find out if the organization pays for the services of independent outside advisers such as lawyers and accountants when it is deemed necessary.
  10. Request and take the opportunity to review board and committee minutes for the past two or three years.
  11. Find out if there is an orientation program for new directors.
  12. Ask whether the organization has guidelines and procedures to deal with conflicts on the board.
  13. Request and receive a report on the current areas of concern for directors.
  14. Request and receive from the organization's solicitors details of any outstanding and pending litigation or regulatory proceedings against the organization and/or its officers and directors.
  15. Ascertain if there are formal policies for compliance with regulatory requirements.
  16. Make sure the Act that governs the organization allows the indemnification of directors.
  17. Obtain a contractual indemnity from the organization and from the person (be it a friend or client) who appointed you.
  18. Ascertain whether directors' and officers' insurance coverage is available to the direc-tors and determine its limits and exclusions.
  19. Ensure that investments made by the organization comply with relevant legislation, especially for charitable corporations.

Due Diligence While Serving as a Director

Directors who carry out their responsibilities in a diligent way are unlikely to incur personal liability. The director has to establish that he or she was diligent in making the decision that he or she made. To this end, there are a number of things a director could and should do.

  1. Attend as many meetings of the board or any committee as possible.
  2. Read the material sent to directors before a meeting.
  3. Take accurate notes at board meetings and review minutes to ensure accuracy.
  4. Make sure concerns, if any, are set out in the minutes of the meeting.
  5. Consult independent experts where necessary.
  6. Be thoroughly familiar with operations of the organization.
  7. Maintain familiarity with the financial status of the organization.
  8. Determine from management that there are systems in place to monitor financial variations that should be drawn to the attention of management and the board.

What the Organization can do to Protect Directors

In many cases, the organization can take measures to protect its directors from liability. While this is not an exhaustive list, it provides some useful ways in which organizations can take an active role in protecting its directors.

  1. The organization should appoint a staff person to be the "point person" in the organization to answer questions of board members so there is consistency in answers.
  2. There should be a policy that candidates have some financial literacy.
  3. Ensure that directors are adequately prepared for meetings.
  4. Ensure via the Chair that there is ample time for discussion of each issue at a board or committee meeting.
  5. Restrict directors to membership on no more than a set number of other boards.
  6. Organizations should ensure that appropriate directors and officers insurance is available to the directors.
  7. Establish a Code of Conduct for Directors and ensure that directors abide by the established rules.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Ira Stuchberry
In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.