Can an Ontario corporation indemnify its directors against personal liability?

Yes. The Ontario Business Corporations Act expressly permits a corporation to indemnify a director or officer against costs, charges, and expenses incurred in connection with any civil, criminal, administrative, or investigative proceeding in which the director or officer is involved because of their corporate role. The corporation may also advance funds to cover defence costs before the outcome is determined.

Indemnification is permitted where the director or officer acted honestly and in good faith with a view to the best interests of the corporation, and in criminal or administrative proceedings requiring proof of intent, reasonably believed their conduct was lawful. A court may also order indemnification even in circumstances where the corporation itself would not have granted it.

Indemnification is not unlimited. A corporation cannot indemnify a director for a judgment in a derivative action brought against that director on behalf of the corporation — that would mean the corporation compensating the director for liability owed to the corporation itself. Indemnification agreements and by-laws should be carefully drafted to ensure they are enforceable and cover the intended situations.

Directors' and officers' (D&O) liability insurance complements statutory indemnification by providing coverage when the corporation is unable to indemnify — such as when it is insolvent. Obtaining D&O insurance is strongly advisable for any director taking on meaningful personal liability risk.