Duties, Responsibilities, And Liabilities Of Corporate Directors

• Law Firm: McLennan Ross LLP
• Subject Matter: Corporate/Commercial Law, Directors and Officers, Shareholders
• Author: Ms Claudia Sanchez
• Published date: 13 March 2023

You have just become a director of a corporation, an exciting new beginning. However, you can't help but wonder, or at least you should wonder, what the role of a corporate director entails. This article will offer a brief overview of the responsibilities, duties, and potential liabilities of corporate directors in Alberta.¹

What are directors responsible for?

Directors are elected by the owners of the corporation, namely the shareholders, and are responsible for managing and overseeing the business and affairs of the corporation. To assist them in doing so, they may appoint and supervise officers, such as a President, Secretary and/or Treasurer who would be responsible for the day-to-day operation.

What are the duties of directors?

Because of their broad authority, the law imposes two overarching duties on directors: a fiduciary duty and a duty of care.²

(1) Fiduciary Duty

Firstly, directors owe a fiduciary duty to the corporation. As fiduciaries, they are expected to act honestly and in good faith when exercising their management role, and to do so with a view to the best interests of the corporation. They must also be loyal to the corporation, and avoid any potential conflicts of interest that may arise. The Supreme Court of Canada clarified that directors "owe a fiduciary duty to the corporation, and only to the corporation"³, and that such duty will prevail over the interests of any other stakeholders.

(2) Duty of Care

Secondly, directors owe a broad duty of care that extends to both the corporation and other stakeholders. This duty of care, diligence, and skill can be broken down into several sub-categories and explained as follows:

1. Duty of Care - Directors must carry out their responsibilities with an amount of care that commensurate with that of a prudent person in comparable circumstances.
2. Duty of Diligence - Directors must be diligent in their involvement in the corporation, meaning that they must attend directors' meetings, examine minutes, stay apprised of the day-to-day business and management of the corporation, ask questions, and stay informed.
3. Duty of Skill - Directors are expected to exercise their role with the same level of skill as a reasonably prudent person would, in similar circumstances.
4. Duty of Prudence - Lastly, they must exercise their role in a deliberate, but careful way, attempting to foresee any potential consequences of their decisions.

The Supreme Court of Canada emphasized that unlike the fiduciary duty, which is owed...