Directors' and Officers' Liability

Directors and officers of companies are required to exercise the care, diligence, and skill that a reasonably prudent person would exercise in comparable circumstances.

This duty of care is codified in the Ontario Business Corporations Act (“OBCA”), s. 134(1)(b) for Ontario-incorporated corporations, and the Canada Business Corporations Act (“CBCA”), s. 122(1)(b) for federally incorporated entities.

Ontario courts apply the business judgment rule: a director or officer will generally be shielded from liability if the decision-making process was rational, undertaken in good faith, and aimed at advancing the corporation's best interests.

1. Fiduciary Duty

Directors and officers also owe a fiduciary duty to act honestly, in good faith, and in the best interests of the corporation. This duty is enshrined in OBCA s. 134(1)(a) and CBCA s. 122(1)(a).