If you’re considering becoming a director of a corporation, it’s important to understand the legal and financial responsibilities that come with the role. In Canada, directors have a duty to act honestly and in good faith, exercise care, diligence, and skill, and act in the best interests of the corporation.
In addition to these duties, there are also legal and financial responsibilities that directors must be aware of. Here are some key things to keep in mind:
- Legal Responsibilities: Directors must ensure that the corporation complies with all applicable laws and regulations. This includes everything from corporate law to environmental regulations. Failure to comply with these laws can result in fines, legal action, and damage to the corporation’s reputation.
- Financial Responsibilities: Directors have a duty to ensure that the corporation’s finances are managed properly. This includes ensuring that accurate financial records are kept, that the corporation has adequate financial resources, and that appropriate financial controls are in place. Directors may also be responsible for ensuring that the corporation’s financial statements are audited or reviewed by an independent auditor.
- Liability: Directors can be held personally liable for any losses or damages suffered by the corporation as a result of their actions or inaction. This means that directors can be sued for breach of their duties, negligence, or other actions that harm the corporation. Directors can also be held liable for any debts or obligations of the corporation that are not paid.
- Insurance: Given the potential for personal liability, it’s important for directors to have adequate insurance coverage. Directors and Officers (D&O) liability insurance can provide protection for directors against claims made against them while acting in their capacity as directors.
In summary, becoming a director of a corporation is a serious responsibility that requires careful consideration. It’s important to understand the legal and financial responsibilities that come with the role, and to take steps to ensure that you are protected against personal liability. If you’re unsure about your responsibilities as a director, it’s a good idea to seek legal or financial advice to help you navigate this complex area.