Liabilities Corporate Directors Canada

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 applicant’s destination province. Consequently, a common question we receive from those Canadians is what the directors’ liabilities are.

• Business types in Canada
• Shareholder versus director
• Duties of corporate directors
• Liabilities of corporate directors
• Liability insurance for corporate directors
• Tax and corporate directors
• Best practices for corporate directors
• Let us help!

Business types in Canada

You usually could establish any of the following business types in Canada:

• Sole proprietorship
• Partnership
• Corporation
• Cooperative

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:

• Register a Business in Canada – For Visa and Immigration Applicants

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 significantly.

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 corporate directors’ responsibility 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 directors 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, corporate directors’ duties 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, the directors could be liable for up to six months of unpaid wages. Of course, this could vary in various 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.

• Directors and Officers Liability – Risk Management

Honestly, most start-ups are too small to cause any trouble for their directors. However, it would help if you were mindful of potential risks.

Let us help!

If you would like to invest in Canada, submit the following form. However, you may alternatively book a consultation session with me or fill out our assessment form. If you are filling out the following form, make sure to be as thorough as possible.