Directors' Duties and Governance in Ontario Nonprofit Corporations

Joining the board of a nonprofit is a meaningful act — and a legal one. Whether you are a founding director of a new charity or a community member stepping into an existing organization, Ontario's Not-for-Profit Corporations Act, 2010 (ONCA) places real obligations on your shoulders the moment you accept the role.

Understanding nonprofit directors duties under Ontario ONCA is not just about avoiding legal trouble. It is about running a board that earns the trust of members, funders, and the public. This article walks through the core duties, common pitfalls, and practical governance steps every Ontario not-for-profit board should know.

One important note before we begin: if your organization is a registered charity, the Canada Not-for-profit Corporations Act (CNCA) governs federally incorporated charities, while ONCA governs provincially incorporated ones. The concepts discussed here apply to provincially incorporated not-for-profits; check your certificate of incorporation to confirm your governing statute.

The Duty of Care

ONCA requires every director to act honestly and in good faith with a view to the best interests of the corporation, and to exercise the care, diligence, and skill that a reasonably prudent person would exercise in comparable circumstances.

In plain terms this means two things:

• Honesty and good faith. Your decisions must be made for the benefit of the organization — not for personal gain, not because a major donor pressured you, and not to settle internal politics.
• Reasonable diligence. You are expected to read board materials before meetings, ask questions when something does not add up, attend regularly, and stay informed about the organization's affairs. A director who rubber-stamps every motion without engagement is not protected simply because things were voted on.

Directors are not expected to be perfect. They are expected to be careful.

The Duty of Loyalty and Fiduciary Duty

Directors of nonprofit corporations owe a fiduciary duty to the organization. This is a higher standard than ordinary negligence — it means you must put the corporation's interests ahead of your own.

The duty of loyalty prevents directors from:

• Competing with the organization
• Using confidential information acquired through board service for personal gain
• Taking business opportunities that belong to the corporation
• Acting in the interest of a third party rather than the corporation

Breach of fiduciary duty can result in personal liability even when the director believed they were acting for good reasons.

Conflict of Interest Rules Under ONCA

ONCA contains specific provisions for managing conflicts of interest. If a director has a material interest in a contract or transaction being considered by the board — for example, a director's company is being hired to provide services — the director must:

1. Disclose the nature and extent of the interest at the board meeting, or as soon as practicable after becoming aware of the conflict
2. Abstain from voting on any resolution to approve the contract or transaction
3. Leave the room if required by the board to do so during the discussion

Disclosure must be recorded in the minutes. A director who fails to disclose and abstain may face personal liability and the transaction can potentially be set aside.

Best practice: maintain a standing conflict of interest policy and have directors complete annual disclosure forms. This creates a documented record and encourages proactive disclosure.

Liability Exposure: Wages, HST, and Vacation Pay

Directors are not shielded from personal liability simply because they volunteer. Under various Ontario and federal statutes, directors can be held personally responsible for:

• Unpaid employee wages and vacation pay (up to a statutory cap — verify the current limit)
• Unremitted HST/GST owed to the Canada Revenue Agency
• Source deductions (income tax, CPP, EI) that were withheld from payroll but not remitted to the CRA

These liabilities attach even if the director did not know about the default. The thresholds, limitation periods, and defences are technical; always verify current rules with a lawyer.

The Due Diligence Defence

Directors who face liability for unremitted source deductions or wages have access to a "due diligence" defence: they can escape personal liability by showing they took all reasonable steps to prevent the failure.

To rely on this defence, a director generally needs to show they:

• Actively monitored the organization's financial health
• Raised concerns when warning signs emerged
• Pushed for remedial action when defaults became apparent

A director who attended every board meeting but never asked about payroll compliance will have difficulty establishing this defence. The lesson is practical: board members should receive regular financial reports, ask about remittances, and document their oversight.

Minimum Number of Directors Under ONCA

ONCA requires nonprofit corporations to have a minimum of three directors (as of writing — verify). The articles of incorporation may require more. At least one director must not be an officer or employee of the corporation. Public benefit corporations have additional requirements. Always confirm the number specified in your own articles.

Board Meetings: In-Person, Electronic, and Written Resolutions

ONCA permits boards to conduct business flexibly:

• In-person and electronic meetings are both valid. Directors can participate by telephone or video conference, provided all participants can communicate adequately with one another.
• Quorum is set by the articles or bylaws (often a majority of directors). No business can be transacted without quorum.
• Written resolutions (sometimes called "consents in lieu of a meeting") allow directors to act without a formal meeting if all directors entitled to vote sign a written resolution. This is useful for routine approvals between scheduled meetings.

Meeting minutes must accurately reflect attendance, quorum confirmation, motions, votes, and any conflicts of interest disclosed.

Records and Minute Book Obligations

Every Ontario not-for-profit must maintain a minute book containing:

• Articles of incorporation and any amendments
• Bylaws and any amendments
• Registers of directors and officers
• Minutes of all board and member meetings
• Written resolutions

The minute book must be kept at the registered office or another location in Ontario designated by the board. Members generally have a right to inspect certain records.

A neglected minute book is one of the most common governance problems in small nonprofits — and one of the easiest to fix with a little focused effort.

Directors' and Officers' (D&O) Insurance

Even diligent directors can face expensive legal claims. D&O insurance covers the cost of defending a lawsuit and pays damages in many situations where a director is found personally liable for a governance decision.

For nonprofit organizations, D&O coverage is often affordable and widely available. Many funders and grant-making bodies now expect it as a condition of funding. The board should review coverage limits annually and confirm that volunteer directors are included in the policy — not just paid staff.

Frequently asked questions