What to Know Before Becoming a Director of a Small Ontario Corporation

Someone you trust — a spouse, a friend, a new business partner — has just asked you to join the board of their small corporation. The ask sounds simple. Maybe it is framed as a formality: "we just need another name on the paperwork" or "it's for tax planning." If you are thinking about becoming a director of a small Ontario corporation, this is the moment to pause and understand what you are actually agreeing to.

The corporation is a separate legal entity. That separation is supposed to protect you. But the law carves out specific situations where that protection disappears and directors become personally responsible for the corporation's unpaid obligations — regardless of whether they were involved in day-to-day management or even knew a problem existed.

This article explains what directors are actually liable for, what questions to ask before you say yes, and what to do in the first days after joining a board.

What a Director Actually Does (and Is Liable For)

Under the Ontario Business Corporations Act (OBCA), the board of directors manages or supervises the management of the corporation's business and affairs. Directors are elected by shareholders and owe the corporation two core duties: a fiduciary duty (to act honestly and in good faith with a view to the best interests of the corporation) and a duty of care (to exercise the care, diligence, and skill that a reasonably prudent person would exercise in comparable circumstances).

Those duties sound manageable. What surprises many new directors is the personal liability that attaches to specific unpaid obligations — regardless of how involved you actually were in creating them. The main categories:

• Unpaid wages and vacation pay: Under the Employment Standards Act, 2000, directors of Ontario corporations can be personally liable for up to six months of unpaid wages and twelve months of unpaid vacation pay owed to employees (as of writing — verify the current limits before relying on them).
• Unremitted payroll source deductions: Under the Income Tax Act (federal), directors are personally liable for CPP contributions, EI premiums, and income tax that the corporation deducted from employee pay but failed to remit to CRA.
• Unremitted HST: Under the Excise Tax Act (federal), directors can be personally liable for HST that was collected by the corporation but not remitted to CRA.
• Environmental orders: In some circumstances, directors can be named in environmental compliance or cleanup orders depending on the nature of the corporation's operations.

The exposure is real. CRA pursues director liability assessments regularly, and the amounts involved — accumulated payroll arrears, HST owing, interest, and penalties — can run to tens of thousands of dollars or more. This liability exists whether you were active in management or passive, whether you signed the remittance forms or never saw them.

Questions to Ask Before Saying Yes

Think of the following as a pre-board due diligence checklist. You do not need to be a lawyer to ask these questions, but you do need answers before you sign anything.

1. Is the company incorporated under the OBCA or the CBCA? The OBCA (Ontario) no longer requires any directors to be Canadian residents — that requirement was removed in 2021. The Canada Business Corporations Act (CBCA), which governs federally incorporated corporations, still requires that at least 25% of directors be Canadian residents as of writing — verify the current requirement before relying on it. Knowing which statute governs the corporation affects your eligibility and your obligations.

1. Is the company solvent? Ask for recent financial statements — ideally the last two years. If the company is losing money, carrying significant debt, or behind on obligations, your personal exposure begins the moment you join.

1. Are payroll source deductions current? Request written confirmation or ask to review any CRA correspondence. Unremitted source deductions are one of the most common and most overlooked sources of personal director liability.

1. Is HST current? Ask whether the corporation files HST returns on time and whether there are any outstanding amounts owing to CRA. The same principle applies as with payroll: you can inherit liability for arrears that predated your appointment.

1. Are all employee wages paid up to date? Review payroll records or ask for written confirmation. Wage arrears that existed before you joined can still create exposure for you.

1. Who else is on the board and what are they doing? Understanding who you will be governing alongside — and whether they have been running the company with appropriate care — is part of your diligence.

1. What exactly are you being asked to sign? This brings us to the consent to act as director.

The Consent to Act as Director

Before you can legally act as a director of an Ontario corporation, you must sign a consent to act as director. This document is kept in the corporation's minute book as part of its governance record. Signing it is not a formality. It is the legal step that makes you a director and starts the clock on your exposure.

Do not sign the consent without completing your due diligence first.

Do You Need to Be a Canadian Resident?

Under the OBCA — which governs most Ontario private corporations — no. Since the 2021 amendments, the OBCA has no Canadian residency requirement for directors. Any individual who is at least 18 years old, not bankrupt, and not found to be incapable by a court can serve as a director of an OBCA corporation.

Under the CBCA — which governs federally incorporated corporations doing business across Canada — at least 25% of directors must be Canadian residents as of writing. Verify the current requirement with a lawyer before relying on it, as federal corporate law continues to evolve.

Your First Steps After Becoming a Director

If you have done your due diligence and decided to join the board, take these steps right away.

1. Get a copy of the minute book. The minute book contains the articles of incorporation, bylaws, share register, and resolutions passed by the directors and shareholders. Review it or have a lawyer review it. Missing resolutions and incomplete records are common in small corporations and can create problems later.

1. Review the most recent financial statements and any outstanding CRA correspondence. You need to know the company's real financial position — not just what you were told when you were recruited.

1. Confirm that directors' and officers' (D&O) insurance exists. D&O insurance protects you personally if someone sues you for decisions made in your director capacity. Ask whether the corporation carries it, review the policy limits, and understand what it covers.

1. Request an indemnification agreement or confirm the bylaws indemnify you. The OBCA permits corporations to indemnify directors against litigation costs and settlements arising from their role. This should be documented in the bylaws or a separate written agreement — and the corporation must be solvent enough to actually honour it.

1. Understand how resolutions are passed. Directors act formally, through resolutions passed at meetings or signed in writing. Understand what decisions require a director resolution versus an officer decision, and make sure the corporation maintains proper records going forward.

When It Is Smart to Decline

Being asked to join a board can feel like a compliment, especially when the person asking is someone close to you. It is entirely reasonable — and sometimes the right call — to decline if:

• The company has outstanding CRA arrears and cannot demonstrate they are being addressed
• You cannot get access to basic financial information before agreeing
• There is no D&O insurance and the corporation will not obtain it
• The company is in financial distress and you are being asked to join to help manage a wind-down
• You do not understand what the business does or what risks it carries

Declining is not a betrayal. It is responsible risk management. A true friend or partner will understand.

Frequently asked questions