Director Liabilities in Ontario: When Directors Are Personally Responsible
A corporation is a separate legal person, but its directors are not always shielded from every debt or claim. Ontario and federal laws make directors personally responsible in specific situations, and the exposure often comes as a surprise.
- Directors owe duties to act honestly and in good faith in the corporation's best interests, and to use care, diligence and skill.
- Directors can be personally liable for certain unpaid employee wages and vacation pay under the Ontario Business Corporations Act.
- They can also be liable for unremitted payroll deductions and HST under federal tax law.
- Good records, proper meetings, insurance and prompt action when a company is in trouble reduce the risk.
The core duties
- Fiduciary duty: put the corporation's interests ahead of your own and avoid conflicts, or disclose them.
- Duty of care: act with the care, diligence and skill that a reasonably prudent person would use in similar circumstances.
- Duty to comply with the corporation's governing documents and the law that applies to it.
Where personal liability can arise
- Wages: under the Ontario Business Corporations Act, directors can be liable for up to six months of unpaid wages and up to twelve months of unpaid vacation pay owed to employees.
- Payroll deductions and HST: the Canada Revenue Agency can assess directors for unremitted source deductions and GST/HST, subject to defences.
- Environmental and health and safety laws, which can impose duties and penalties on directors.
- Oppression or other claims by shareholders and creditors, where the court finds conduct was unfair.
- Personal guarantees given to banks, landlords and suppliers, which are separate contracts.
Defences and protections
- A due diligence defence for some tax liabilities, if the director took reasonable steps to prevent the failure.
- Good faith reliance on financial statements and professional advice.
- Corporate indemnification in the by-laws or an agreement, within the limits of the law.
- Directors' and officers' liability insurance, which has exclusions to read closely.
- Resigning properly, in writing, and filing a notice of change, though past liabilities may remain.
Practical steps
- Keep the minute book current and record major decisions, with the reasons.
- Make sure payroll deductions and HST are remitted on time, ahead of other creditors.
- Review the company's financial position regularly, and act early if it is struggling.
- Understand any personal guarantee before you sign it.
- Get advice before paying out dividends or loans to shareholders when cash is tight.
Common questions
Am I still a director if I only signed the paperwork?
Yes. A director who is registered is subject to the duties, whether or not they run the business day to day.
Does an incorporated business protect me completely?
No. It limits liability for ordinary business debts, but not for personal guarantees, taxes and wages as above, or your own wrongdoing.
Who can help. Corporate and tax liability questions are for a lawyer or accountant. A licensed paralegal can help with registrations and filings.
This guide is general information for people in Ontario, not legal advice. Rules, forms and deadlines change, and every situation is different. Check the current rule or speak to a licensed legal professional before you act.
Not sure where you stand? A licensed paralegal can look at your documents and tell you your options.
Book a Free Consultation
PIPEDA-compliant