A director is an individual appointed by the shareholders of a corporation or the members of a society (as applicable) to manage or supervise the management of the operations of the corporation or society, (as applicable). In this article we will discuss some of the requirements, qualifications and obligations of directors as well as potential liability incurred by directors.

Requirements:

The act under which the entity is incorporated dictates how many directors are required and various other requirements. For example:

1. British Columbia Business Corporations Act:A corporation incorporated pursuant to the British Columbia Business Corporations Act must have at least one director. If the corporation is a public company, it must have at least three directors. There are no residency requirements.
2. Canada Business Corporations Act: A corporation incorporated pursuant to the Canada Business Corporations Act must have at least one director. If the corporation is a distributing corporation with more than one shareholder, it must have at least three directors. At least 25% of the directors must be residents of Canada.
3. British Columbia Societies Act: A society incorporated pursuant to the British Columbia Societies Act must have at least 3 directors. At least one of the directors must be a resident of British Columbia.

Qualifications:

The qualifications of a director include:

1. 18+ years of age (although a director of a society may be 16 or 17 years of age in certain circumstances);
2. Capable of managing their own affairs;
3. Not an undischarged bankrupt; and
4. Individual (ie. not corporations).

In addition, the director of a corporation incorporated pursuant to the British Columbia Business Corporations Act or a society incorporated pursuant to the British Columbia Societies Act must also not be convicted of an offence with respect to fraud (subject to certain exceptions).

Please note that the articles of the corporation or the bylaws of the society (as applicable) may impose additional qualifications on directors.

Obligations:

The obligations of directors are set out in the act under which the entity is incorporated as well as the common law (judge-made law). Generally, a director must:

1. act honestly and in good faith with a view to the best interests of the corporation or society (as applicable);
2. exercise the care, diligence, and skill that a reasonably prudent individual would exercise in comparable circumstances;
3. act in accordance with the applicable act and associated regulations;
4. subject to the above, act in accordance with the articles of the corporation or the bylaws of the society, as applicable; and
5. act with a view to the purposes of the society when exercising the powers and performing the functions of a director of the society (society only).

Directors also have the obligation to disclose and mitigate the effect of any actual or potential conflicts of interest. The British Columbia Business Corporations Act, Canada Business Corporations Act and British Columbia Societies Act differ slightly in determining what constitutes a conflict of interest. When in doubt, the best practice is to disclose, abstain and refrain from influencing the other directors, shareholders or members, as applicable.

Liability:

A director may be held personally responsible for failing to satisfy his or her obligations as a director. In addition, the British Columbia Business Corporations Act, Canada Business Corporations Act and British Columbia Societies Act set out specific instances in which a director may be personally liable for voting for or consenting to certain acts such as approving the payment of a dividend contrary to the British Columbia Business Corporations Act or the distribution of funds contrary to the British Columbia Societies Act.

Please note that a director who has resigned is not absolved of liability with respect to decisions made while acting as a director.

A director may have a defence against liability if he or she reasonably and in good faith relied on the entity’s financial statements, the advice of a professional, a statement of fact represented by another director, or any other record.

In certain circumstances, the corporation or society (as applicable) may indemnify a director or maintain insurance to protect the director from personal liability to the extent permitted by law.

If you have questions regarding being a director, appointing a director, resigning as a director or any other matter regarding corporations and/or societies, please do not hesitate to reach out to reach out to one of our lawyers practicing in the area of business law.

Author: Danielle (Dani) Brito