CORPORATE DIRECTOR LIABILITY IN ONTARIO
A corporation is viewed as a separate legal entity from its directors, officers, and shareholders. This means that a corporation can take on debt, own assets, and have liability, enabling a corporation to sue or be sued separately and apart from its directors, officers and shareholders. In certain circumstances set out in federal and Ontario legislation, the actions of directors may expose them to personal liability that would ordinarily be shielded by the corporation. The Canada Business Corporations Act and the Ontario Business Corporations Act impose certain fiduciary duties and obligations on the directors of a corporation. For example, directors of a corporation have a fiduciary duty of loyalty toward the corporation and must act with a duty of care. If a director breaches this duty of loyalty or care, they may be personally liable for the damages that arise. Below we will discuss certain circumstances that may lead to the personal liability of directors. Please note that the list below is not exhaustive and there may be other scenarios that attract personal liability of directors.
DUTY OF CARE
In exercising their duty of care, directors must act with honesty and good faith and exercise the diligence, and skill of a reasonably prudent person in comparable circumstances when carrying out their duties. The duty of care imposes the requirement on directors to remain informed of all activities of the corporation, as ignorance of knowledge does not preclude directors from liability. If a directors’ actions fall below this expected standard of care, they may unintentionally incur liability.
DUTY OF LOYALTY
The duty of loyalty encompasses the duty to avoid conflicts of interest and for directors to always put the best interest of the corporation ahead of their own. The duty to avoid conflicts of interest requires directors to disclose any conflicts of interest they have while carrying out their duties. Failure to disclose a conflict of interest may result in costly litigation between the director and shareholders of the corporation.
DUTY TO PAY EMPLOYEES AND REMIT HST
In addition to the duty of care and fiduciary duty of loyalty, directors may be jointly and severally liable for certain debts and wages owed to employees of the corporation for services performed, up to the prescribed statutory limit. The Income Tax Act and the Excise Tax Act also hold directors personally liable for filing and payment of certain types of taxes.
If you are being offered a position as a director of a corporation, it is highly recommended to consult with an experienced business lawyer to advise you on your liability and applicable statutory duties and obligations. Contact us today and book an initial consultation during which a business lawyer can answer your questions about personal liability incurred by directors of a federal or Ontario corporation.
Disclaimer: The above article does not list all instances of personal liability by directors of a corporation. The information contained in this article is not to be construed as legal advice. The content is drafted and published only for the purpose of providing the public with general information regarding various real estate and business law topics. For legal advice, please Contact us.
About the Author:
Shahriar Jahanshahi is the founder and principal lawyer at Jahanshahi Law Firm with a practice focus on representing business star-ups and investors in the province of Ontario. For further information about Shahriar Jahanshahi, click here.