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Small Business Week 2018: Director Liabilities

Written by Krystin Kempton, Associate 

Directors have to comply with fiduciary duties and fulfill the duty of care. Fiduciary duties require directors to act in good faith and in the best interests of the company, to avoid conflicts and potential conflicts of duty and interest, and to not take advantage of company opportunities. The duty of care requires a director to exercise the care, diligence and skill of a reasonably prudent person. A director can be held personally liable for losses suffered by the company if these duties are not followed. 

Directors are also held to statutory liabilities, including:

• the failure to deduct, withhold and remit money to the federal government;
• unpaid wages of employees under the Employment Standards Act - a director may be
   personally liable for up to 2 months’ unpaid wages for each employee if he or she was a
   director at the time the wages were earned or should have been paid;
• pollution offences;
• failure to maintain a safe work environment;
• misleading consumers; and
• insider trading.

To avoid liability, directors need to show that they exercised the appropriate standard of care and skill to prevent that failure. It is important to carry out director duties diligently. Good practices include, but are not limited to the following:

  •    • Be informed about your company. Keep up to date with the company’s affairs,
         constating documents policies and risks. 

  •    • Be prepared for and attend all board meetings. If you have special knowledge or
         expertise, apply those skills when making decisions. Read all reports and minutes.
         Have shareholders ratify director decisions. 

  •    • Do not vote in favour of any transaction without understanding it. If you disagree with
         a decision, register your dissent. If you don’t have your dissent registered, you’re
  •      deemed to have consented to a corporate activity. Don’t turn a wilfully blind eye to
         offensive action.

  •    • Establish good policies to mitigate risk and delegate duties. Ensure these policies are followed.

  •    • Be informed about revenues and expenditures. Follow the money!

  •    • Avoid putting the company at financial risk. 

  •    • Be aware of your duties:
    •        - Act in the best interests of the organization, not your own.
    •        - Disclose all conflicts of interest.
    •        - Do not use company property for personal benefit.
    •        - Be aware of and familiar with legislation setting out duties and liabilities of directors.
       

   • Appoint good officers and ensure the company has effective staff under the direction
      of the officers. Maintain open channels of communication between the board and the 
      organization’s officers.  

 

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