Liabilities Corporate Directors Canada
Elif is a dual citizen of Canada and Turkey. She currently lives in Regina, Saskatchewan. Recently, one of Elif’s friends from Turkey contacted her and told her she intends to establish a business in Canada. However, she needs a Canadian as a director of the firm. Of course, Elif wants to help her friend, but she wonders if being a corporate director in Canada comes with any responsibilities or liabilities.
Many of our clients establish businesses in Canada to immigrate to Canada or to get a work permit. However, most Canadian provinces expect at least one board member for the company who is a Canadian citizen or permanent resident. Of course, in many cases, that board member also needs to reside in the destination province of the applicant. Consequently, a common question we receive from those Canadians is, what their liabilities are.
Business types in Canada
You usually could establish any of the following business types in Canada:
- Sole proprietorship
For this article, we focus on corporations only. Of course, if you want to know more about these business types, you may read the following article:
You could register a corporation federally or provincially. If you read the above article, you will learn more about the differences. While the current article focuses on federal corporations, the concepts apply to the provincial ones to a great extent.
Shareholder versus director
A shareholder is someone who owns shares of the company. Shares could be voting or non-voting. Hence, shareholders with voting shares may appoint directors of the company. In general, directors oversee the well-being of the corporation. They also review the financial reports, appoint the officers of the company, and more. Of course, the responsibilities of directors could vary from one corporation to the other.
A shareholder may become a director. Similarly, a director may be a shareholder. However, it is not a must for a shareholder to be a director or a director to be a shareholder.
Duties of corporate directors
Corporate directors have the following duties:
- Remaining informed: It is the responsibility of corporate directors to know what is going on in their company. Of course, they usually do not need to be part of the day to day activities of the business. However, if something significant goes wrong, they could be liable. For example, corporate directors need to make sure the company does not get involved in illegal activities. Some cases could be money laundering, tax fraud and human trafficking.
- Duty of care: Corporate directors need to act in the best interest of their company. For example, they need to be honest all the time.
- Avoiding conflict of interest: Corporate directs must stay away from conflict of interest to ensure they govern their company above and beyond their interests.
Keep in mind, depending on the jurisdiction and sometimes the nature of the business, the duties of corporate directors differ. However, it is safe to say the three preceding elements apply across the board.
Liabilities of corporate directors
Corporate directors are liable for breaching any of their duties. Sometimes their jurisdiction expects them to be mindful of the salaries of the employees. For example, if the corporation fails to pay its employees, then the directors could be liable for up to six months of unpaid wages. Of course, this could vary in different jurisdictions. Make sure to consult with a corporate lawyer for more details.
Liability insurance for corporate directors
The previous section may seem scary. Luckily, you could purchase liability insurance for your directors. Here are some examples:
- Travellers Directors and Officers Liability insurance
- Victor Directors & Officers Liability insurance
- TCI Directors & Officers Liability insurance
These are just some examples. We have no association with these organizations. Consequently, make sure to explore all potential options before purchasing insurance.
Tax and corporate directors
Corporate directors do not pay taxes simply because they are directors of a company. If the company compensates them, then they need to pay personal taxes based on their income. Of course, if the corporation commits tax crimes or infractions, the directors could become liable.
Best practices for corporate directors
Make sure to consider the following before becoming a corporate director:
- Make sure there is no potential conflict of interest
- Consult with a corporate lawyer
- Make sure you trust other shareholders and directors
- Consult with your accountant
- Make sure you are familiar with the nature of the business
- Make sure you are willing to be part of the team
The following article also lists some critical issues you need to consider. Of course, I am not the author of this article.
Honestly, most start-ups are too small to cause any trouble for their directors. However, you need to be mindful of potential risks.
If you wish to visit or move to Canada, please fill out our free assessment form. We will review the form for free, but we will contact you only if we find an opportunity for you. Alternatively, you may book a consultation session. Consultation sessions are not free, but you will receive formal advice from a licenced practitioner.
This article provides information of a general nature only. It may no longer be current. It does not give legal advice. Do not rely on it as legal advice or immigration advice. We cannot be held responsible for the content of these articles. If you have specific legal questions, you must consult a lawyer. If you are looking for immigration advice, book an appointment. All the characters in the articles are fictional, unless otherwise clearly stated. Any resemblance in names, dates, and places (whether individuals, organizations, regions, or countries) is coincidental.