What must an Ontario director do when they have a conflict of interest?

Under the Ontario Business Corporations Act, a director who has a material interest in a contract or transaction that the corporation is considering must promptly disclose that interest in writing to the board. The disclosure must be made before the matter is voted on. After disclosing, the director must generally abstain from voting on the matter.

Simply disclosing a conflict does not automatically make the transaction valid. The remaining, unconflicted directors must still independently determine that the contract or transaction is fair and reasonable to the corporation at the time it is approved. Depending on the circumstances and the corporation's constating documents, shareholder approval may also be sought to further protect the transaction.

Undisclosed conflicts are treated seriously. A contract or transaction that proceeds without proper disclosure is voidable at the corporation's option, and a director who profits from an undisclosed conflict may be required to account for those profits to the corporation. Keeping a "conflict of interest" section in every board meeting agenda and minute — even if no conflicts are disclosed — is a good governance practice. If you regularly have transactions involving related parties or connected businesses, a corporate lawyer can help you design a protocol that keeps the board protected.