What duties does a director of an Ontario corporation owe?

Under the Business Corporations Act (Ontario), directors owe two fundamental duties to the corporation.

The first is a fiduciary duty — the duty to act honestly and in good faith with a view to the best interests of the corporation. This means directors must put the corporation's interests ahead of their own personal interests when making decisions. Directors who have a conflict of interest in a transaction (for example, they are personally a party to a contract the corporation is considering) must disclose that conflict and generally must not vote on the matter.

The second is a duty of care — to exercise the care, diligence, and skill that a reasonably prudent person would exercise in comparable circumstances. This does not make directors personally liable for every business judgment that turns out badly, but it requires informed, thoughtful decision-making. Courts generally apply the business judgment rule, giving deference to director decisions made on an informed basis, in good faith, without a conflict of interest.

Directors owe these duties to the corporation, not directly to shareholders, employees, or creditors — though courts have recognized that in some circumstances, like imminent insolvency, the interests of creditors become a relevant consideration. When those duties are breached — through fraud, self-dealing, or gross negligence — the corporation or, in some cases, shareholders through a derivative action can hold directors accountable.