Are shareholders of an Ontario corporation personally liable for the corporation's debts?

Generally, no. One of the most fundamental principles of corporate law is limited liability. When you invest in a corporation — whether an Ontario corporation under the Ontario Business Corporations Act or a federal corporation under the Canada Business Corporations Act — your liability is limited to the amount you paid or agreed to pay for your shares. Creditors of the corporation cannot, as a general rule, reach your personal assets simply because the corporation cannot pay its debts.

This protection is real and significant, and it is one of the main reasons people incorporate their businesses. A shareholder who has paid for their shares in full generally has no further financial exposure to the corporation's debts or liabilities, even if the corporation becomes insolvent.

There are exceptions. A court may pierce the corporate veil and hold a shareholder personally liable where the corporation was used as a vehicle for fraud or to evade a specific legal obligation. A shareholder who personally guarantees corporate debts becomes personally liable on that guarantee. And a shareholder who is also a director is subject to all the director liability rules discussed elsewhere. But for a passive shareholder who has no director role and has not given guarantees, limited liability is a robust protection. Consulting a corporate lawyer when first structuring your investment helps ensure you understand exactly where your exposure ends.