July 21, 2004by Israel Foulon LLP
Question: What are the potential personal liabilities of officers and directors of a corporation if the corporation breaches an agreement?
Officers and directors of corporations cannot be held civilly liable for the actions of the corporations they control and direct unless there is some conduct on the part of those directing minds that is either itself tortious or that exhibits a separate interest or identity from that of the corporation.
A corporation is a legal entity, distinct from its shareholders and directors. Therefore shareholders and directors are generally accorded the advantages of limited liability: the liability of the corporation is limited to the assets held by the corporation. In other words the assets of the corporation’s individual directors are not available to satisfy liabilities in excess of the value of the corporation’s assets.
Since a corporation must essentially function through the thoughts and actions of its director, agreements that a director causes a corporation to enter into can result in potential liability to the corporation. But except for a few statutory and fact-specific exceptions, unless a director is acting outside her capacity within the corporation, she will not be personally liable for agreements she has entered into on behalf of the corporation.
Peter Israel is the senior partner in the Toronto law firm of Israel Foulon LLP – Employment and Labour Lawyers. He can be reached at 416-640-1550 or firstname.lastname@example.org. A version of this article originally appeared in the Carswell publication, Canadian Employment Law Today