Are directors personally liable for company debts in Ontario?

Why aren’t directors usually liable?

Because the corporation is a separate legal person. Its contracts, loans and judgments are its own. A director who signs a contract on the corporation’s behalf, clearly as its officer, generally doesn’t become a party personally.

Which debts can follow directors?

Debt	Source	Defence or limit
Unpaid wages	CBCA s. 119 (up to six months’ wages); OBCA s. 131 and ESA s. 81 (up to six months’ wages and 12 months’ vacation pay)	Conditions apply, such as the corporation being sued, insolvent or bankrupt
Payroll source deductions (income tax, CPP, EI)	Income Tax Act s. 227.1	Reasonable care, diligence and skill to prevent the failure; two-year limit after ceasing to be a director
GST/HST collected or owing	Excise Tax Act s. 323	Same due diligence defence and two-year limit
Improper dividends, redemptions or share buybacks	OBCA s. 130 and CBCA s. 118	Applies when the corporation fails the solvency tests
Personal guarantees	Contract	None; you agreed to pay

Sources: section 119 of the CBCA, section 81 of Ontario’s Employment Standards Act, 2000, section 227.1 of the Income Tax Act and section 323 of the Excise Tax Act.

Other statutes, for example environmental and some privacy and consumer protection laws, can also reach directors or officers who authorized or acquiesced in a breach.

What’s the due diligence defence for tax debts?

A director isn’t liable for unremitted source deductions or GST/HST if they exercised the degree of care, diligence and skill a reasonably prudent person would have in comparable circumstances to prevent the failure. Courts look at what the director did before the problem, not after. Practical steps:

• confirm payroll remittances and HST filings are being made on time, every period;
• ask for proof when cash gets tight, since that’s when remittances slip;
• record your questions and the answers in board minutes.

Using remittance money to keep the company alive is a common way founders end up personally liable.

Can a director just resign?

Resigning stops future liability, but not liability for what already happened while you were a director. For tax debts, the CRA generally has two years after you stop being a director to assess you. A resignation should be in writing and delivered to the corporation, and the corporation should file a notice of change within 15 days. A director who resigns but keeps acting like one may still be treated as a director.

Do investors’ board nominees face the same risk?

Yes. Every director has the same statutory liabilities. That’s one reason investors ask for indemnities and D&O insurance before joining a board. See what duties does a director owe?

Does incorporating still protect me?

For most business risks, yes. It protects shareholders who aren’t directors more completely than directors. See should I incorporate or stay a sole proprietor? For employment obligations, see your first hire in Ontario.

This guide is general information about Ontario and Canadian law, not legal advice for your situation. If you’re worried about exposure as a director, book a free 15-minute consult.