{"id":16126,"date":"2025-04-17T13:54:13","date_gmt":"2025-04-17T13:54:13","guid":{"rendered":"https:\/\/gascon.ca\/?p=16126"},"modified":"2026-04-23T12:26:38","modified_gmt":"2026-04-23T12:26:38","slug":"the-main-types-of-directors-liability","status":"publish","type":"post","link":"https:\/\/gascon.ca\/en\/the-main-types-of-directors-liability\/","title":{"rendered":"The Main Types of Directors\u2019 Liability"},"content":{"rendered":"

While in many cases\u2014particularly in small businesses\u2014directors and shareholders are the same individuals, their duties and responsibilities are distinct. Unless there is a unanimous shareholders\u2019 agreement, shareholders\u2019 liability is limited to the payment of the subscribed shares in the corporation. Directors, on the other hand, are subject to a number of duties, obligations, and liabilities. First and foremost, directors are required to act with care, diligence, honesty, and loyalty. They must act in the best interests of the corporation. Any breach of these duties can give rise to personal liability. In addition to these general duties, directors are subject to numerous obligations under various laws, which may result in civil or criminal consequences. While there are differences between provincial and federal legislation, the principles are generally similar.<\/p>\n

Below is a non-exhaustive list of the main areas of liability for directors of corporations, which can lead to civil, and in some cases, criminal sanctions :<\/p>\n

    \n
  1. Books, Records, Disclosure, and Misleading Information<\/b><\/b>
    \nDirectors are responsible for maintaining the corporation\u2019s books and records and must take all necessary precautions to prevent their loss, destruction, or falsification. They are also responsible for maintaining and disclosing a register of individuals with significant control over the corporation. Providing false or misleading information, or omissions in books, records, financial statements, reports, notices, or declarations, can result in severe penalties, including hefty fines and imprisonment.<\/li>\n
  2. Issuance of Shares and Consideration in Cash or in Kind<\/b>
    \n<\/b>In provincial corporations, directors must ensure that the purchaser of shares is able to pay the full subscription price. Failing this, directors may be held jointly and severally liable for any unpaid balance.
    \nFor Quebec and federal corporations, directors may also be jointly and severally liable if shares are issued in exchange for insufficient consideration in kind, up to the difference between the fair market value of the consideration and the amount the corporation should have received.<\/li>\n
  3. Repurchase of Shares by the Corporation<\/b>
    \n<\/b>Directors who authorize the purchase or repurchase of the corporation\u2019s shares, and the subsequent payment for those shares, in violation of shareholder rights, legal provisions, or financial tests (such as the ability to pay liabilities as they become due), may be held jointly liable for reimbursing the amounts paid.<\/li>\n
  4. Illegal Dividend<\/b>
    \n<\/b>Directors who approve a resolution to declare a dividend without meeting the financial tests required by law may be required to repay the amounts distributed to the corporation.<\/li>\n
  5. Payment of Illegal Commissions or Indemnities<\/b>
    \n<\/b>Directors are jointly liable for unreasonable commissions paid during the issuance or sale of shares. They are also liable for indemnities paid in violation of the law, such as those made in the context of investigations or civil, criminal, or administrative proceedings.<\/li>\n
  6. Liquidation, Restructuring, Bankruptcy, and Insolvency<\/b>
    \n<\/b>In the event of a breach of the law, a director who authorized the action is considered a co-offender and may face the prescribed penalties. For example, a director who authorizes the fraudulent disposal of corporate assets before or after the commencement of bankruptcy may be held liable.<\/li>\n
  7. Employee Wages<\/b>
    \n<\/b>Directors are jointly liable for unpaid employee wages for a period of up to six months, including vacation pay and other benefits.<\/li>\n
  8. Insider Trading<\/b>
    \n<\/b>A director who buys or sells a security using confidential information that may affect the price of that security can be ordered to compensate the injured party.<\/li>\n
  9. Environmental liability
    \n<\/b>A director who authorizes an offence under the Environment Quality Act<\/i> is considered a co-perpetrator of the offence and may be held liable for any amounts payable. Moreover, in Quebec, when the company, an agent, mandatary or employee of the company commits an offence under the Environment Quality Act<\/i>, the director is presumed<\/span> to have committed the offence. The company’s directors are jointly and severally liable for any amounts payable under the Act or its regulations. Several other laws provide for the liability of company directors for environmental acts, at both provincial and federal levels 1.<\/sup><\/li>\n
  10. Tax Liability<\/b>
    \nDirectors are jointly liable for source deductions and remittance of income taxes, GST\/QST, and employer contributions, including interest and penalties.<\/li>\n
  11. Abuse of Process<\/b>
    \nDirectors who engage in abusive legal proceedings may be personally ordered to pay damages, including legal fees and punitive damages.
    \nDirectors of a corporation face numerous and complex responsibilities that may result in civil, criminal, and even personal liability. It is therefore crucial for any current or prospective director to fully understand their obligations and take the necessary steps to comply.<\/li>\n<\/ol>\n

    Working with a lawyer helps secure decision-making, avoid legal pitfalls, and implement effective compliance mechanisms. Legal guidance is an essential investment to protect not only the corporation, but also the directors themselves from potentially severe consequences.<\/p>\n

    1 <\/sup>Loi canadienne sur la protection de l\u2019environnement, Loi sur les droits d\u2019exportation de produits de bois d\u2019\u0153uvre, Loi sur les P\u00eaches, la Loi sur les ports de p\u00eache et de plaisance, Loi sur les produits dangereux, Loi sur la s\u00e9curit\u00e9 des barrages, Loi sur la provocation artificielle de la pluie.<\/p>\n","protected":false},"excerpt":{"rendered":"

    While in many cases\u2014particularly in small businesses\u2014directors and shareholders are the same individuals, their duties and responsibilities are distinct. Unless there is a unanimous shareholders\u2019 agreement, shareholders\u2019 liability is limited to the payment of the subscribed shares in the corporation. Directors, on the other hand, are subject to a number of duties, obligations, and liabilities. […]<\/p>\n","protected":false},"author":1,"featured_media":16120,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[159],"tags":[],"class_list":["post-16126","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business-law"],"acf":[],"_links":{"self":[{"href":"https:\/\/gascon.ca\/en\/wp-json\/wp\/v2\/posts\/16126","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/gascon.ca\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/gascon.ca\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/gascon.ca\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/gascon.ca\/en\/wp-json\/wp\/v2\/comments?post=16126"}],"version-history":[{"count":4,"href":"https:\/\/gascon.ca\/en\/wp-json\/wp\/v2\/posts\/16126\/revisions"}],"predecessor-version":[{"id":18035,"href":"https:\/\/gascon.ca\/en\/wp-json\/wp\/v2\/posts\/16126\/revisions\/18035"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/gascon.ca\/en\/wp-json\/wp\/v2\/media\/16120"}],"wp:attachment":[{"href":"https:\/\/gascon.ca\/en\/wp-json\/wp\/v2\/media?parent=16126"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/gascon.ca\/en\/wp-json\/wp\/v2\/categories?post=16126"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/gascon.ca\/en\/wp-json\/wp\/v2\/tags?post=16126"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}