Ontario Director's and Officers' Liabilities

The following sets out the general personal liability of a Corporate director or officer, but is only intended as a general guide and as such, if you have any questions concerning the information herewith, do not hesitate to contact your private legal counsel.

Directors and officers bear some personal liability for their involvement with the Corporation. As corporate legislation in Canada commonly mandates, directors manage or supervise the management of the business and affairs of the Corporation. These powers can be restricted by shareholders, in whole or in part, by a unanimous shareholder agreement. However, in the absence of such an agreement, management of the business of the Corporation falls on the shoulders of directors and not shareholders.

The following are the general duties of a director, as required by statute and common law: Making, amending and repealing by-laws; authorizing the issue of securities and shares; appointing officers of the corporation; approving the corporation's financial statements; calling for a conducting directors' and shareholders' meetings; declaring and paying all dividends; delegating responsibilities; passing all resolutions.

In exercising the above duties, directors and officers need to follow specific standards which are as follows:

A director's duty is to the Corporation and its members. As such, directors must act honestly and in good faith with the best interests of the Corporation when exercising powers and duties. Directors and officers must place their own personal interests after those of the corporation and cannot use their position in order to personally profit from any given situation. Furthermore, it is the interest of the corporation as a whole that is of utmost importance, not any one particular shareholder or group of shareholders.

As well, directors and officers need exercise their duties with skill, care and diligence, as would any reasonable person in the same circumstance. They may rely on financial statements, reports, and professional advice from lawyers, accountants and appraisers in order to fulfill their duties.

They are responsible for certain specific liabilities of the corporation which include:

• joint and several personal liability to the employees of the corporation for debts not exceeding six months' wages and up to 12 months' vacation pay;
• to the federal and provincial governments for failure to make appropriate filings after having deduced, withheld or collected under tax law;
• failure to deduct, withhold or collect under tax law altogether.

You may be held personally liable in cases where the Minister cannot recover amounts from the corporation or when the corporation goes bankrupt. Before sending you a notice of assessment the Minister must ensure that the corporation has gone bankrupt and obtain a judgement against the corporation that remains unpaid because seizure of the corporation's property does not allow the Minister to recover the full amount owing.

You may not be held personally liable if it has been at least two years since you were a director of a corporation, and if you can provide the required documentation to substantiate this fact.

Although a director or officer who incurs personal liability may be able to claim indemnity from the corporation, director's liability insurance may be recommended.