When can a director of an Ontario corporation be personally liable?

One of the main reasons to incorporate is limited liability — shareholders are generally not personally responsible for the corporation's debts. Directors, however, occupy a different position and can face personal liability in specific circumstances under Ontario and federal law.

Under the Employment Standards Act, 2000, directors of Ontario corporations can be held personally liable for up to six months of unpaid wages owed to employees if the corporation fails to pay and the employee cannot collect from the corporation. Directors of federally regulated companies face similar exposure.

Tax statutes impose personal liability on directors where a corporation fails to remit source deductions (payroll taxes, CPT, EI premiums deducted from employees) or HST that it collected. The Canada Revenue Agency can pursue directors personally if the corporation cannot pay.

Directors who participate in, consent to, or fail to prevent certain environmental violations can also face personal liability. Environmental statutes in Ontario and federally allow orders against directors and officers, not just corporations.

To protect themselves, directors should ensure the corporation maintains adequate financial controls, proper remittances, and minute book records. Directors and officers insurance provides an additional layer of protection for claims arising from the performance of their duties.