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Being A Director – Know the Risks

When you become a director of a corporation or a non-profit organization, you may be appointed because people respect your opinions and abilities. However, you are accepting a number of responsibilities, including a fiduciary duty to the organization’s membership and/or the general public.

Federal and provincial legislation can make you personally responsible for certain actions of the organization. In this article, we are referring to your liability for government remittances, although you do not want to participate on a Board of Director’s where you are aware of any misrepresentations or illegal activities.

If the organization is delinquent on certain government remittances, such as payroll taxes, you can be held personally responsible unless you can prove that you acted with “due diligence.” What is due diligence? How do you act with due diligence, particularly if you are not involved in the organizations activities on a daily basis?

First of all, continually ask questions about the organization’s financial position, and obtain confirmation that liabilities are not overdue. Request that the organization purchase director liability insurance to protect you from unforeseen liabilities.

If you become aware of problems, obtain as many facts as you can about the situation. Attempt to ensure that government remittances are paid properly. Insist that arrangements be made to bring arrears up to date prior to payment of other liabilities.

Obviously, if the problems are serious, obtain legal advice and resign as director of the organization. Document your resignation by forwarding a registered letter to the secretary of the Board of Directors, and keep the appropriate documentation to prove that you did this.

Of course, if you have concerns about the liabilities of an organization, do not accept appointment as director in the first place. Whether you are an active director or not, you may find yourself receiving assessments from the Canada Revenue Agency. In either case, to avoid personal liability, you will need to prove that you acted with due diligence.

Blair Corkum, CPA, CA, R.F.P., CFP, CFDS, CLU, CHS holds his Chartered Professional Accountant, Chartered Accountant, Registered Financial Planner, Chartered Financial Divorce Specialist as well as several other financial planning related designations. Blair offers hourly based fee-only personal financial planning, holds no investment or insurance licenses, and receives no commissions or referral fees. This publication should not be construed as legal or investment advice. It is neither a definitive analysis of the law nor a substitute for professional advice which you should obtain before acting on information in this article. Information may change as a result of legislation or regulations issued after this article was written.©Blair Corkum