Director’s and Officer’s Liability
Where the directors and officers of a corporation are selected to run a corporation on behalf of the shareholders, they carry a fiduciary duty to act in the best interest of the organization. Failing to do so, may result in the director’s or officer’s liability.
Having a fiduciary duty, directors are jointly and severally liable to restore to the corporation any amounts it distributed or paid and not otherwise recovered by the corporation.
Additional director liability exists where the directors vote for or consent to any of the following:
- A purchase, redemption or other acquisition of shares contrary to the applicable statute;
- A commission contrary to the applicable statute;
- A payment of a dividend contrary to the applicable statute;
- A payment of an indemnity contrary to the applicable statute; and
- A payment to a shareholder contrary to the applicable statute.
Directors who consent to a resolution which authorizes the issue of a share for consideration other than money results in the directors being jointly and severally liable to the corporation to make good any amount by which the consideration received is less than the fair equivalent of the money that the corporation would have received, if the share had been issues for money on the date of the resolution.
Due to the nature of the fiduciary duties of directors and officers, the associated risks of breaching these duties can lead to consequences that can be detrimental to the viability of the organization.
With directors and officers being jointly and severally liable for the actions of the other fiduciary employees, businesses should ensure that any agreements made, policies, and procedures, are implemented in a manner that reduces the likelihood of corporate wrongdoing and as such, reduces risk.