A director must act with prudence, diligence, honesty and loyalty. They can be personally liable for unpaid wages, source deductions and unremitted taxes. Current resolutions and insurance reduce the risk.
Accepting a seat on a board is accepting more than a title: the law attaches precise duties to the office and, in certain cases, a personal liability that cuts through the corporate screen. Whether you sit on the board of your own business or a relative’s, here is what you actually signed up for.
Two cardinal duties
The law imposes on directors a duty of prudence and diligence, to act with the care a reasonable person would bring to their own affairs, informing themselves before deciding, and a duty of loyalty, to act in the interest of the corporation and not their own. From that second duty flow the rules on conflicts of interest: a director who contracts with their own corporation, or who takes advantage of a business opportunity spotted in the course of their duties, must disclose it and often abstain from voting. Breaching these duties exposes them to proceedings by the corporation itself or by its shareholders.
The personal liabilities the law provides for
This is the part that surprises most. In specific cases the law makes directors personally liable for the corporation’s debts. The two most important: up to six months of unpaid wages owed to employees, and the amounts the corporation collected or withheld for the State without remitting them, sales taxes and source deductions foremost among them. In other words, a director of a struggling corporation who lets the remittances slide is gambling with their own patrimony. Add to that possible liabilities in environmental matters and for certain false or misleading statements.
The due diligence defence
Against most of these claims the law offers a defence: showing that you acted with a reasonable degree of care, diligence and skill. In practice that defence is built before the problem, not after. It looks like this: asking questions at meetings and insisting on answers, making sure the tax remittances are made and checking periodically that they are, recording your dissent in the minutes, consulting experts when the subject exceeds your competence. A diligent director leaves a trail; it is the trail that protects them.
The protections to put in place
Three tools complete diligence. Indemnification by the corporation, provided in the by-laws or by agreement, obliges the business to fund the defence of a director sued for acts done in good faith in the course of their duties. Directors’ and officers’ liability insurance takes over when the corporation cannot pay, precisely the scenario where the risk is greatest. And formal resignation, duly declared in the register, marks the end of the exposure: you do not answer for decisions taken after you left, provided you can prove the date you did.
The watchword: document
All the protections converge on the same practice: decisions taken properly, by written resolutions, kept in a current minute book. On the day someone asks for an accounting, the director who can show when and how each decision was taken starts with a decisive head start.
Who exactly is a director
The question looks trivial; it is not. A director is the person duly elected or appointed to that office and whose name appears in the registers. It is that status, and not a job title or a percentage of shares held, that triggers the duties and liabilities described above.
Two practical consequences follow. First, a shareholder who is not a director does not assume these liabilities merely by holding shares. Second, and this is the reverse trap, someone entered as a director but no longer taking part in the corporation’s life nonetheless keeps that status until their resignation has been formalized and declared. A verbal resignation, a simple withdrawal from day-to-day affairs or a departure for other projects are not enough.
This is one of the most frequent situations we see: someone believes they left a board three years ago and discovers, on the occasion of a dispute, that they are still on it. The resignation must be in writing, filed in the minute book and followed by an update to the registers. Until that is done, the presumption runs against you.
The minute book’s role in your defence
When a director’s liability is put in issue, the argument almost always turns on what they knew, what they asked and what they decided. Without documentation, making that showing becomes very hard.
Concretely, minutes recording the questions asked about the financial situation, an objection entered against a decision, or the check made with the accountant before authorizing a payment, are all evidence. Reconstructing those exchanges from memory two years later, with nothing in writing, leaves the director in a markedly weaker position.
This is not an administrative formality: it is the raw material of your defence. We explain what to record in it and how to keep it in our article on the minute book, and the detail of the decisions to be formalized each year in the one on annual resolutions.
The struck corporation, a blind spot
A corporation struck on the registrar’s own initiative for failing to file its declarations does not make its directors’ obligations disappear. Earlier claims remain, and the entity loses the means of defending itself properly until its situation is put right.
If your corporation has been struck, revoking the cancellation is generally the first step to consider, before anything else. Letting the situation drag on only piles up overdue declarations and penalties.
Before accepting a directorship
Agreeing to sit on the board of a corporation you do not control deserves a few checks first. Look into the current tax situation, particularly the state of the government remittances. Ask whether directors’ and officers’ liability insurance exists, what it covers and above all what it excludes. Check whether the shareholder agreement provides indemnification in your favour, and within what limits.
These questions are sometimes taken for suspicion. They are simply the minimum anyone should do before staking their personal patrimony on the sound management of a business they do not run day to day.
Frequently asked questions
What is a director personally liable for?
Certain obligations are subject to particular liability regimes, notably unremitted source deductions, taxes collected and not remitted, and certain unpaid wages. These mechanisms exist precisely to stop people sheltering behind the legal person.
How do you resign properly from a directorship?
The resignation must be in writing and delivered to the corporation, then declared in the register. As long as your name appears there, you publicly appear as a director to third parties. Keep proof of delivery and confirmation that the register has been corrected.
Is a shareholder liable in the same way as a director?
No, merely holding shares does not bring these liabilities. A shareholder who assumes a director’s powers, however, notably through a unanimous agreement, also assumes the duties and the liabilities.