When you incorporate in Ontario, you become both a shareholder and a director. Most small business owners treat these roles as the same thing — but legally they are very different. Directors have specific duties, obligations, and personal liability exposures under the Ontario Business Corporations Act (OBCA). Understanding what being a director actually means can protect you from significant personal financial risk.
Who Must Be a Director in an Ontario Corporation?
Every Ontario corporation must have at least one director. The directors are responsible for managing or supervising the management of the business and affairs of the corporation. For most small businesses, the owner is the sole director.
Under the OBCA, at least 25% of directors of an Ontario corporation must be resident Canadians. If there is only one director, that director must be a resident Canadian.
- Minimum one director required for Ontario corporations
- Must be at least 18 years old and not be bankrupt
- Cannot be a person found by a court to be incapable
- 25% of directors must be resident Canadians (if one director, must be Canadian)
Important for non-resident owners: If you are not a Canadian resident and want to incorporate in Ontario, you must have at least one Canadian resident co-director, or consider federally incorporating (CBCA allows 25% residency for the board as a whole).
The Fiduciary Duty: Acting in the Corporation's Best Interest
Directors owe a fiduciary duty to the corporation — they must act honestly and in good faith with a view to the best interests of the corporation. This means prioritizing the corporation's interests over your personal interests when making board decisions.
For small owner-managed businesses, this rarely causes problems. But it becomes critical in situations like taking a business opportunity for yourself instead of the corporation, dealing with a competing business, or making decisions that benefit you personally at the corporation's expense.
- Must act honestly and in good faith toward the corporation
- Cannot take corporate opportunities for personal benefit
- Must disclose any conflict of interest to the board
- Cannot compete with the corporation without disclosure and consent
The Duty of Care: Standard of Decision-Making
In addition to the fiduciary duty, directors owe a duty of care to the corporation. They must exercise the care, diligence, and skill that a reasonably prudent person would exercise in comparable circumstances.
This does not require perfection — directors are allowed to make business decisions that turn out badly. The "business judgment rule" protects directors who make informed decisions in good faith, even if the outcome is poor.
- Attend and participate in board meetings
- Review financial statements and be aware of the corporation's financial health
- Seek professional advice when facing complex legal or financial decisions
- Document decisions with proper corporate minutes
Personal Liability: The Most Important Part
The most significant practical concern for directors of small Ontario corporations is personal liability. Despite the general rule that a corporation shields its owners from liability, directors can be held personally responsible for specific corporate obligations.
- Payroll source deductions: directors are personally liable if the corporation fails to remit CPP, EI, and income tax withholdings to the CRA
- HST/GST: directors can be personally assessed for unremitted net HST
- Wages: Ontario directors are liable for up to 6 months of unpaid employee wages
- Environmental liability: directors can be personally liable for environmental violations
- Securities violations: directors can face personal liability under securities law
The most common liability trap: CRA payroll and HST liability is the most common way small business directors end up with personal assessments. If your corporation falls behind on remittances, the CRA can — and routinely does — hold directors personally liable for the full amount plus penalties and interest.
The Due Diligence Defence
Directors can protect themselves from liability for payroll and HST failures by demonstrating that they exercised due diligence to prevent the failure. This requires showing active steps to ensure compliance — not just passive ignorance.
- Monitoring the corporation's financial position and cash flow
- Implementing proper systems for payroll and HST remittance
- Taking action when you first learn remittances are being missed
- Retaining a CPA or bookkeeper to manage compliance obligations
Resigning does not immediately eliminate liability. You can still be assessed for obligations that arose while you were a director. Resignation starts a two-year clock on CRA's ability to assess you for most director liability — but existing liability for periods you served remains.
Key Takeaways
Being a director of your own corporation is not just a formality — it comes with real legal duties and significant personal liability risks if corporate obligations are ignored. The best protection is maintaining proper books, filing and remitting on time, and working with a CPA who keeps you informed of your corporation's compliance status year-round.
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