A director of a corporation and its officers have a duty of care to the best interests of a corporation. If these rules are violated, shareholders can vote on a resolution to remove directors and officers at a special meeting.
There are a number of circumstances that warrant the removal of a director or officer, as well as the procedures for removing them.
As a result of the trust a corporation’s shareholders and owners have in its management, a corporation’s directors and officers have responsibilities and liabilities. In addition to the Canada Business Corporations Act (CBCA), other federal, provincial, and territorial statutes and court decisions also address these duties and liabilities.
A director’s or officer’s duty of care makes up one of the most important duties set forth by the CBCA. Duty of care requires that directors and officers carry out their functions with care.
- Be as careful and diligent as a reasonable person would be under similar circumstances.
- At all times, be honest, act in good faith, and act in the best interests of the corporation rather than their own.
Directors and officers cannot claim that they were not aware of the corporation’s actions. The CBCA stipulates that directors and officers must always be actively involved in the corporation’s affairs.
- Keep informed about the corporation’s activities
- A corporation’s activities must be legal and in the corporation’s best interests
An essential aspect of running a corporation is preventing conflicts of interest – directors must ensure that their decisions are in the corporation’s best interest, not in their own interests. Any personal interest that a director or officer may have in a corporation contract must, therefore, be disclosed in writing.
A director’s and officer’s liability
Under the CBCA., directors and officers can be protected from unpaid wages to employees and unpaid source deductions, if they act in the corporation’s best interests. insurance that covers any liability costs, an agreement by the corporation to compensate management for any loss, or An agreement to advance funds for legal costs, which directors and officers must repay if they are unsuccessful.
In addition, the directors can and will be held personally liable for any GST/HST or payroll taxes not paid to the CRA.
The Removal of Directors and Officers
Following the completion of their terms, directors and officers may not be re-elected or may resign. In some circumstances, it may be necessary to terminate the term of a director or officer(s) before shareholders have the chance to vote or not vote for their re-election.
Shareholders vote in a special meeting to remove directors and officers, with a majority vote. Shareholders may also adopt a shareholder resolution, which documents in writing the decision made by shareholders, which is then entered into the corporation’s minute book. Additionally, a Notice of Change of Directors must be sent to the appropriate government department involving the submission of a form and payment of the prescribed government fee.
Frequently Asked Questions
How long is the company allowed to notify all shareholders?
Include a copy of the representation copy in the notice sent to the members seven days before the meeting.
How long does it take to ‘remove a director’?
A member proposing the dismissal should send out a ‘Special Notice’ at least 28 days before the meeting at which the director can be excluded.
Would it be possible for a company to remove a director without his consent?
It may be the only option left for the Company to remove Directors by consulting with the Board and with a majority of shareholders under the Company’s Articles of Association.