Does a corporation actually need a director? Yes. Every corporation must have at least one director, however small the business and however few shareholders it has.
This article explains the corporate director requirements in Ontario, how directors differ from shareholders and officers, what directors actually do, and the duties they take on. It also explains why a corporation is not fully set up until its directors are properly in place.
Key Takeaways
- Every Ontario corporation must have at least one director, and a corporation that offers its securities to the public must have at least three.
- A director must be an individual, not another corporation, and must meet the statutory qualifications.
- Ontario corporations do not need any resident Canadian directors.
- Shareholders own the corporation, directors manage or supervise its business, and officers run day-to-day operations.
- Directors owe their duties to the corporation itself, and can be personally liable for certain obligations.
- A corporation is not properly organized until its directors are in place and its first resolutions are adopted.
- Ontario corporations must keep their director information up to date with the Ontario Business Registry.
Does a Corporation Need a Director?
Yes. Under Ontario's Business Corporations Act (OBCA), every corporation must have at least one director. A corporation that offers its securities to the public must generally have at least three, and some of them must not be officers or employees of the corporation.
Federal corporations under the Canada Business Corporations Act are subject to similar minimums.
The requirement exists because a corporation is a separate legal person, and it can only act through people. Directors are the people with legal responsibility for managing the corporation's business.
Corporate Director Requirements in Ontario
Not everyone can be a director, but the requirements are straightforward.
A director must be an individual, meaning an actual person. Another corporation cannot be a director, even though a corporation can be a shareholder.
A director must also be at least 18 years old and meet the other qualifications set out in the OBCA, such as not having been found incapable of managing their own affairs.
A person must generally consent to act as a director. Directors do not need to be shareholders, unless the corporation's articles or by-laws require it.
Ontario corporations do not need any resident Canadian directors, so a board can be made up entirely of people living outside Canada. Our article on director residency requirements in Ontario explains this, and how it differs from federal corporations.
Shareholders, Directors, and Officers: Distinct Roles
A corporation involves at least three types of participants, each with a different function.
Shareholders own the corporation through their shares. They elect the directors and vote on fundamental matters, such as amending the articles or approving a sale of the business. They do not generally manage the business.
Directors manage, or supervise the management of, the corporation's business and affairs. They set direction, approve major decisions, and appoint the officers.
Officers, such as a president or chief financial officer, run day-to-day operations under the directors' authority.
In a small corporation, one person often holds all three roles. The roles are still legally distinct, so that person should be clear about which role they are acting in for each decision.
Shareholders can also change this balance through a unanimous shareholder agreement, which can move some of the directors' powers to the shareholders. Our article on what a corporation is explains why the corporation is separate from all three groups.
What Corporate Directors Actually Do
Directors are responsible for the corporation's overall direction. In practice, the board typically:
- sets the corporation's strategy and oversees management
- appoints officers and decides who can sign on the corporation's behalf
- approves major decisions, such as significant contracts, borrowing, and share issuances
- declares dividends
- approves the annual financial statements
A useful image is a pilot. The pilot does not serve drinks or check passengers in at the gate. The pilot's job is to know where the aircraft is headed, watch the instruments that matter, and change course when conditions require it. Directors play a similar role, while officers handle the corporation's everyday operations.
Directors' Duties and Personal Liabilities
Taking on a directorship brings legal responsibilities.
Directors owe a fiduciary duty to act honestly and in good faith with a view to the best interests of the corporation. They also owe a duty of care, meaning they must exercise the care, diligence, and skill of a reasonably prudent person in comparable circumstances.
The Supreme Court of Canada confirmed in BCE Inc. v. 1976 Debentureholders that this duty is owed to the corporation itself, not to any single group such as the shareholders.
Directors can also be personally liable for certain corporate obligations, such as some unpaid employee wages and some unremitted payroll and tax amounts.
Directors should understand these risks, and corporations often protect their directors through indemnities and insurance.
Appointing the First Directors: Completing Incorporation
Setting up a corporation happens in two steps.
First, the incorporator files the articles of incorporation, which name the first directors. Once the filing is accepted, the corporation legally exists. Our article on what a certificate of incorporation is explains this step.
Second, the corporation is organized. The directors and shareholders adopt the first resolutions, which typically adopt by-laws, confirm the directors, appoint officers, issue shares, and set up banking arrangements. These records are kept in the corporation's minute book.
Ontario corporations must also keep their information, including their directors, current with the Ontario Business Registry. They file annual returns, generally within six months after their fiscal year-end, and must report changes to their directors through a notice of change.
What Happens If Directors Are Not Properly Appointed
A corporation can legally exist even if its organizational steps were never completed. In that situation, it may not be clear who has authority to act for the corporation, who its officers are, or who owns its shares.
That uncertainty causes real problems later. Banks, investors, and buyers will ask for the corporation's resolutions and registers, and missing records can delay a transaction or raise questions about whether past decisions were properly authorized.
Gaps can often be fixed with resolutions that confirm earlier actions, but it is far easier to get the steps right at the start.
When to Involve a Lawyer
The best time to involve a lawyer is before you incorporate, so the board, share structure, and first resolutions are set up properly from the start.
It is also worth getting advice if you are being asked to become a director, if your corporation never completed its organizational resolutions, or if your board is changing.
The Bottom Line on Corporate Director Requirements in Ontario
Every Ontario corporation must have at least one director, who must be an individual who meets the statutory qualifications. There is no residency requirement, and directors do not need to be shareholders.
Directors manage or supervise the corporation's business, owe their duties to the corporation itself, and can face personal liability for certain obligations. A corporation is not properly organized until its directors are in place and its first resolutions are adopted.
If you are incorporating, or have been asked to serve as a director, our team at Levine Law can help. We can set up your board and organizational resolutions properly, and explain the duties and protections that come with a directorship.
Frequently Asked Questions
Does every corporation need at least one director?
Yes. Every Ontario corporation must have at least one director, however small the business. A corporation that offers its securities to the public must generally have at least three.
The requirement exists because a corporation can only act through people, and directors are legally responsible for managing or supervising its business.
Federal corporations are subject to similar minimums under the Canada Business Corporations Act.
Who can be a director of an Ontario corporation?
A director must be an individual, not another corporation, and must be at least 18 years old and meet the other qualifications in the Business Corporations Act.
Directors do not need to be shareholders unless the corporation's articles or by-laws require it. Ontario corporations do not need resident Canadian directors, as our article on director residency requirements in Ontario explains.
What is the difference between a director and an officer?
Directors manage, or supervise the management of, the corporation's business. They set direction, approve major decisions, and appoint the officers.
Officers, such as a president or chief financial officer, run day-to-day operations under the directors' authority.
In small corporations, one person often holds both roles, but the roles remain legally distinct and carry different responsibilities.
Can a director be personally liable for a corporation's debts?
Generally, directors are not liable for the corporation's ordinary debts. However, they can be personally liable for certain obligations, such as some unpaid employee wages and some unremitted payroll and tax amounts, and for breaching their duties. Directors owe their duties to the corporation itself, as confirmed in BCE Inc. v. 1976 Debentureholders.
Is a corporation fully set up once it receives its certificate of incorporation?
Not yet. The certificate confirms the corporation legally exists, but it still needs to be organized. The directors and shareholders adopt the first resolutions, which typically adopt by-laws, confirm the directors, appoint officers, and issue shares. Our article on what a certificate of incorporation is explains both steps.