Area of Law: Business Law
Answer # 226
Liability of directors, officers, and shareholdersRegion: Ontario Answer # 226
One of the main benefits of the corporate form of business is that the shareholders, directors and officers of a corporation are not usually held personally responsible for the debts and obligations of the corporation. However, if a shareholder, officer, or director has personally guaranteed a loan or debt, he or she will be held personally responsible for it.
Both directors and officers have a responsibility to exercise due diligence when managing the corporation, including the duty to:
- act reasonably, in good faith and in the company’s best interest
- place the interest of the organization before their own
- act within the scope of applicable bylaws.
In addition, there are other situations in which the directors of a corporation can be held personally responsible.
Under the legislation, directors are liable for:
- corporate income tax,
- GST and HST on its sales,
- payroll remittances, including the employer’s portion of CPP and Employment Insurance, and
- environmental issues.
Often, directors and officers buy ‘directors and officers liability insurance’ (D&O) to protect themselves in case any of these types of situations arise. In comparison, shareholders are not responsible for these statutory obligations.
In addition, directors may be liable to the shareholders or to the corporation, if a loss was suffered by them as a result of the director’s actions.
You should be careful if you have been asked to be a director for a corporation, or if you are not involved in the day-to-day business of the corporation in which you are already a director. It is important to be aware of your legal responsibilities as a director.
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