Directors play a pivotal role in the success and sustainability of any corporation, including owner-operated and family businesses. Their decisions shape strategy, manage risk, and ensure compliance with complex legal obligations. For smaller or family-run enterprises, the stakes can be even higher: approving a major loan without proper due diligence, failing to disclose a conflict when a family member is involved in a transaction, or neglecting to implement basic compliance systems can expose directors to personal liability and jeopardize the business itself. Understanding these duties is not just a legal formality, it is essential for protecting both the corporation and its leadership from significant financial and reputational harm.
Canadian corporate law imposes a comprehensive and nuanced set of duties on directors of corporations, rooted in both statutes and common law, and further shaped by regulatory standards and evolving best practices.
At the core of directors’ responsibilities are the fiduciary duty and the duty of care.
The fiduciary duty requires directors to act honestly and in good faith with a view to the best interests of the corporation, encompassing obligations of loyalty, selflessness, avoidance of conflicts of interest, maintenance of confidentiality, and prohibition on usurping corporate opportunities.
This duty is owed to the corporation as a whole and not to individual shareholders or specific stakeholder groups, although in fulfilling it, directors may, and sometimes must, consider the interests of a wide range of stakeholders – including shareholders, employees, creditors, consumers, governments, the environment, and the long-term interests of the corporation.
This approach has been recognized and codified by the Supreme Court of Canada and is now reflected in corporate statute across Canada (such as the Canada Business Corporations Act, RSC 1985, c C-44 and The Saskatchewan Business Corporations Act, 2021, SS 2021, c 6), which allows directors to consider, but not be limited to, these broader interests and requires that stakeholder interests be weighed equitably and fairly, especially where conflicts arise between them.
The Supreme Court of Canada case Peoples Department Stores Inc. (Trustee of) v. Wise, 2004 SCC 68, clarified that directors owe their fiduciary duty to the corporation itself, not to individual stakeholders. This case highlighted the importance of directors avoiding conflicts of interest and acting with the diligence and skill that a reasonably prudent person would exercise in similar circumstances.
No single stakeholder group’s interest is to predominate, and maximizing shareholder value is not an overriding duty in Canada, even in contexts such as change of control transactions.
Rather, directors are required to exercise prudent business judgement, engaging in a balancing exercise among competing interests, and their judgments will be afforded deference by courts so long as they are made honestly, on an informed basis, and within the range of reasonableness. This is the “business judgement rule”.
In Canada, the business judgment rule protects directors from liability for decisions made in good faith, with the belief that they are acting in the best interests of the corporation. This principle was affirmed in the Supreme Court of Canada case BCE Inc. v. 1976 Debentureholders, 2008 SCC 69, where the Court emphasized that directors’ decisions should be respected if they are made honestly, prudently, and on a reasonable basis. The Court recognized that directors are in the best position to make business decisions and that their judgment should not be second-guessed if it meets these criteria.
The duty of care requires that directors act with the care, diligence, and skill that a reasonably prudent person would exercise in comparable circumstances.
This duty was clearly articulated in Peoples Department Stores Inc. (Trustee of) v. Wise, 2004 SCC 68. In this decision, the Supreme Court of Canada emphasized that directors must make informed decisions, actively oversee management, and ensure that adequate systems are in place to manage risks and compliance. The case underscored that directors are expected to act on a fully informed basis, considering all relevant information, and to exercise their judgment in a manner that reflects the corporation’s best interests.
This standard of care is objective, focusing on the process by which decisions are made rather than the outcomes of those decisions, but the threshold can rise where a director possesses special expertise or professional background.
Directors must review all material and relevant information before acting, seek and consider advice from management and outside experts as needed, and are entitled to rely reasonably on such advice, provided such reliance is made in good faith and they have satisfied themselves as to the qualifications and independence of those providing it.
Directors are permitted to delegate certain tasks to management or committees (such as audit, compensation, governance, or special committees), but ultimate responsibility for oversight and for key matters such as approving financial statements, major transactions, and fundamental changes remains with the full board and cannot be delegated.
A central aspect of the directors’ duties is the obligation to avoid and properly disclose conflicts of interest.
If a director has a material interest in a contract or transaction, they must fully and promptly disclose it – as prescribed by statute – and refrain from voting on, or in some provinces, participating in discussions regarding that matter, except for certain statutory exceptions.
Where all directors are conflicted, shareholder approval is generally required.
Disclosure must be sufficiently detailed to inform the other directors and, ultimately, the board must ensure that any decision affected by a director’s conflict is made independently and in the best interests of the corporation.
If a director improperly fails to disclose a conflict, the contract may be voided, and the director may be required to account to the corporation for any benefit received.
In some circumstances, resignation may be necessary to manage ongoing or unresolvable conflicts.
In addition to these general duties, directors are responsible for the stewardship and overall governance of the corporation.
This includes appointing and overseeing senior management, shaping strategy and risk appetite, monitoring performance, approving significant transactions and annual budgets, ensuring the integrity of financial reporting, and establishing suitable internal policies (such as codes of conduct, compliance programs, risk management frameworks, and policies on disclosure, privacy, health and safety, environmental protection, and cybersecurity).
For public companies, statutory and regulatory obligations are heightened and include disclosure and continuous reporting requirements (such as annual and quarterly financial statements, MD&A, annual information forms, timely disclosure of material changes), the establishment and proper functioning of independent and financially literate audit committees, compliance with insider trading restrictions, and ensuring accuracy and completeness of all public filings.
Directors may be personally liable for misrepresentations in disclosure documents, with limited defenses available such as demonstrating due diligence – a defense available where the director can prove reasonable investigation and an honest belief in the accuracy of the disclosure.
Directors must also ensure compliance with a broad array of statutes and regulations, covering areas such as employment and labour standards, tax remittance, pensions, privacy and data protection, anti-corruption and anti-money laundering (including compliance with the Corruption of Foreign Public Officials Act), environmental laws, and occupational health and safety.
Statutes frequently impose direct or deemed personal liability on directors for the corporation’s violations, such as unpaid employee wages, unremitted taxes, environmental offences, and pension funding failures.
In environmental matters, directors may be held personally liable if they authorized, acquiesced in, or failed to prevent an offence, with the defense of due diligence available if they can demonstrate appropriate preventative steps and oversight of compliance systems .
In the context of insolvency or financial distress, directors’ duties remain owed to the corporation, but their decisions are subject to heightened scrutiny, particularly in relation to the impact on creditors, and are exposed to increased personal liability for certain statutory breaches and transfers made during insolvency.
Directors must ensure that the corporation ceases to trade while insolvent and be especially mindful of the need for fairness in addressing competing stakeholder interests in such circumstances.
Transparency obligations have expanded, requiring directors to ensure the corporation maintains accurate registers of individuals with significant control or beneficial ownership, with information often accessible to regulators and sometimes the public, depending on jurisdiction.
The liability landscape for directors is significant.
Directors may face civil, regulatory, or even criminal liability for their own breaches of duty or, in some cases, for the corporation’s statutory violations, even without direct culpability, except where the director can show due diligence (that is, that all reasonable steps were taken to prevent the violation), proper recusal/dissent, and appropriate reliance on qualified advice.
Directors are generally entitled to indemnification from the corporation (except for breaches of fiduciary duty or bad faith), and corporations may and should maintain directors’ and officers’ liability insurance, though statutory and policy limits and exclusions apply.
Further, “best practice” guidance encourages directors to foster a culture of integrity and risk awareness, maintain appropriate documentation of all key decisions, and continually upgrade their knowledge of governance and risk matters.
For public companies and financial institutions in particular, directors are expected to approve risk appetite and strategy, ensure the board and its committees oversee all major risks, promote a risk-aware culture, and maintain robust internal controls and compliance programs.
In the not-for-profit (NFP) sector, while the underlying duties closely parallel those in the for-profit context – best interests, care, loyalty, oversight, statutory compliance – the objectives focus on the NFP’s mission, stewardship of assets, and accountability to members or the public, rather than shareholder value.
In summary, directors of corporations in Canada must:
The duties of directors of corporations in Canada are comprehensive and multifaceted, requiring a careful balance of various interests and compliance with a wide range of legal obligations.
Directors must act with integrity, diligence, and prudence to fulfill their responsibilities effectively, ensuring the corporation’s success and sustainability while safeguarding against personal liability.
Disclaimer. This information is general and may not apply to your specific situation. For more targeted advice, consult a qualified lawyer regarding the duties of directors and the law regarding directors’ duties.
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