What are the Responsibilities and Liabilities of Corporate Directors?

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What are the Responsibilities and Liabilities of Corporate Directors?

Medicine Hat has a number of Corporations with one or several owners.  I meet with single person owners of Corporations such as oilfield consulting Corporations and I meet with many family owned Corporations.  Each of these Corporations in Medicine Hat has a few things in common, one of which is, they all have one or more directors.

Directors are known as the leading minds of the Corporation.  This means the directors are the people making the day to day decisions for the company.

A Corporation is generally responsible for its own actions and at the same time the directors can also be responsible for some of the actions of a Corporation.

The Business Corporations Act of Alberta states every director of a Corporation owes a fiduciary duty to that Corporation.  This means that in exercising their powers and discharging their duties, directors must act honestly and in good faith with a view to the best interests of the Corporation.  In addition, a director’s personal interests must give way to the interests of the Corporation.

A director can be liable to the Corporation or a third party.

A director is liable to the Corporation if he voted or consented to a decision authorizing the:

a) issuance of shares in exchange for property having a fair market value less than the amount the Corporation would have received if the shares had been issued for money;

b) payment of dividends where the Corporation is unable to pay its liabilities as they become due or when the Corporation is “insolvent”;

c) purchase by the Corporation of its own shares if there are reasonable grounds for believing the Corporation is insolvent or would be insolvent after the purchase;

d)  provision of financial assistance by means of a loan, guarantee or otherwise to any director or shareholder in connection with the purchase of shares of the Corporation where there are reasonable grounds for believing the Corporation is “insolvent” or would be after the transaction;

e) payment of an unreasonable commission for the sale of shares; or

f) payment of an unauthorized indemnity to a director or officer.


Additionally, subject to certain limitations, a director is liable:

g) to employees of the Corporation for all debts for services performed but not exceeding the equivalent of 6 months wages;

h) to the Workers’ Compensation Board for unpaid dues or assessments owing by the Corporation;

i) for a Corporation’s failure to follow prevailing environmental protection legislation.

A director is also personally liable for the failure of the Corporation to withhold and remit any tax Canada Revenue Agency (CRA) requires be withheld, deducted or remitted.  This means if the Corporation owes GST to CRA, or if the corporation has employees and it does not remit the employees’ income tax to CRA, then CRA has the option (which it WILL exercise) to go after the directors to collect those taxes plus penalties and interest.

It is important for any person acting as a director in any Corporation to be aware of their duties, obligations and liabilities and to carry out these responsibilities.

Pritchard and Co
Pritchard and Co. Law Firm, LLP helps you navigate the turning points of life. Contact us at 403-527-4411 or at lawyers@pritchardandco.com.