When can directors and officers become personally liable for the debts of the corporation?
by Jack W. Hope

Generally speaking, directors and officers are not liable for the debts of the corporation.  There are some significant exceptions to this rule, however.  First of all, if a director or officer uses the corporation as part of a fraudulent transaction or scheme, he or she will not be able to hide behind the corporate status to avoid personal liability.  Even without fraud, a director can still be liable to employees of the incorporation for up to six months of back pay if their wages have not been paid.   Directors may also be personally responsible to the provincial and federal governments for unremitted provincial sales tax and G.S.T., as well as for some other government obligations or remittances the corporation is obliged to make.  Directors may also be liable to the corporation itself if they have authorized the payment of money to shareholders without leaving enough funds in the company to pay the corporation's creditors.  Because directors are allowed to sometimes sell shares in the company to people for property, rather than for money, they can be liable to the company for any shortfall if they overvalue the property they take in exchange for shares.  Both directors and officers can be liable to their own corporation if they do not act in the best interests of the corporation, if they make secret profits from the corporation's business or if they in any way act in conflict of interest with the corporation.  Directors and officers may also find that they can sometimes be fined personally under certain laws, such as environmental protection statutes, if they permit their corporations to break those laws.  Accordingly, it is important that directors and officers conduct themselves carefully and ethically in order to avoid problems of this sort.

To contact the author, please email jhope@smhilaw.com

The information contained in this message is general and should not substitute for the advice and counsel of a licensed lawyer.