Directors of Canadian corporations have several important duties and responsibilities. These duties and responsibilities are set out in the Canada Business Corporations Act (CBCA), provincial securities legislation, and corporate governance guidelines such as the National Policy 58-201, Corporate Governance Guidelines (NP 58-201) issued by the Canadian Securities Administrators (CSA).
The key duties and responsibilities of directors in Canada include:
- Duty of care: Directors must act with the care, diligence and skill that a reasonably prudent person would exercise in a comparable situation. This means that directors must keep informed about the corporation’s business and affairs and make decisions based on reasonable information and analysis.
- Duty of loyalty: Directors must act in the best interests of the corporation and avoid conflicts of interest. This means that directors must put the interests of the corporation ahead of their own personal interests and must not use their position as directors to obtain personal benefits.
- Duty of good faith: Directors must act in good faith and in the belief that their actions are in the best interests of the corporation. This means that directors must be honest and transparent in their dealings with the corporation and must avoid making decisions that they know are not in the best interests of the corporation.
In addition to these general duties, directors also have several specific duties, such as: - Duty to supervise management: Directors have a duty to supervise the management of the corporation. This means that directors must ensure that management is acting in the best interests of the corporation and that the corporation is complying with all applicable laws and regulations.
- Duty to approve financial statements: Directors have a duty to approve the corporation’s financial statements. This means that directors must review the financial statements to ensure that they are accurate and fair.
- Duty to declare dividends: Directors have a duty to declare dividends if the corporation is in a financial position to do so. However, directors also have a duty to ensure that the corporation maintains a sound financial position.
Directors can be held personally liable for breaches of their duties. This means that shareholders can bring lawsuits against directors for damages if they suffer losses as a result of a director breaching their duties.
How can directors fulfill their duties and responsibilities?
Directors can fulfill their duties and responsibilities by:
- Attending and participating in board meetings: Directors should attend all board meetings and participate actively in the discussion and decision-making process.
- Reviewing board materials: Directors should review all board materials carefully before attending board meetings. This will help them to understand the issues being discussed and to make informed decisions.
- Asking questions: Directors should not be afraid to ask questions about the corporation’s business and affairs. They should also ask questions about any matters that they do not understand.
- Seeking independent advice: Directors should seek independent advice if they have any concerns about the corporation’s business or affairs. They should also seek independent advice if they are facing a potential conflict of interest.
By fulfilling their duties and responsibilities, directors can help to ensure that their corporation is well-managed and that it is acting in the best interests of its shareholders.
This article is for informational purposes only and is not legal advice. Contact us today to discuss your specific situation.