Article

Directors Be Good: A Look at a Director’s Duties

Becoming a director is never something to take lightly. In Canada, directors are subject to statutory duties under corporate law. In this Article we take a look at the duties that are imposed on directors in BC and the federal jurisdiction of Canada.

Directors are elected by shareholders to manage and/or supervise the management of a corporation’s business. As such, directors have a lot of power and control within a corporate structure. In fact, all of the power and control remains with the directors until delegated to others, e.g. officers.

To provide some level of protection to shareholders, corporate law requires directors to:

  1. act honestly and in good faith with a view to the best interests of the corporation; and
  2. exercise the care, diligence and skill that a reasonably prudent individual would exercise in comparable circumstances.

The first duty is a codification of the director’s common law duty of loyalty and good faith towards the corporation. This duty means that a director is not permitted to act in his or her own self-interest. A director must always act in the interests of the corporation or at least with the intentions of acting that way. For example, a director is not permitted to personally carry on another business that competes with the corporation’s business. This would be an obvious conflict of interests which could potentially result in a director being required to account for profits earned in the competing business.

The second duty mentioned above requires a director to act prudently and on a reasonably informed basis. This does not mean that directors are expected to be perfect but they should be able to show, at a minimum, that they were responsible when exercising their discretion. Directors who are careless could potentially be held liable for their mistakes.

Legal Tip: Make sure before becoming a director that no business conflicts exist that could interfere with you acting in the best interests of the corporation.