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Do You Know What You Are Liable For?

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Directors in a company have an important role in ensuring that their company succeeds. In this context, the reference to Directors is not simply all people given the title of 'Director' in a corporate hierarchy (such as 'Director of Operations' or 'Sales Director') but rather the named Corporate Directors who are listed in the company's minute book. These are the individuals that, depending on the laws of the jurisdiction of the corporation, are liable for a number of things with respect to the business.

First of all, Directors often have a responsibility to make sure that their company remits any taxes it collects or that may become due to the government. This can range from sales taxes to employee source deductions to corporate income taxes. When a company collects sales tax or pays its employees, some jurisdictions have determined that they are deemed to have created a 'trust' situation whereby those funds should be properly segregated, accounted for and remitted to the government so that they get what they decide is their fair share. If the company fails to remit the taxes to the government (for example, if they go bankrupt or choose to use the funds that should be remitted to the government as capital to run their business), then they can be held personally liable and forced to pay out of their own pocket. At the least, the company and the directors can be held liable for any interest assessed by the government for failure to remit those funds.

Another area where Directors can he held liable is in the area of certain general corporate liabilities. If a company fails to meet the terms and conditions of a contract or damages are sought against a company for things like neglect or fraud, Directors can sometimes be named as defendants in civil litigation. If it can be proven that the Directors knew or ought to have known that they were causing damage, violating the terms of an agreement or being neglectful in their duties, they may be held liable for the negative repercussions experienced by others.

In some jurisdictions, there are specific acts and codes that attempt to hold directors liable for things like their company failing to pay for the transport of goods (such as the 'Bill of Lading Act' in Canada) or for goods and services related to leasehold improvements (like the 'Construction Lien Act', in Ontario, Canada).

When it comes to being a Director in a company, it is very important to understand what the potential risks are. It is usually your sole responsibility to understand and adhere to the regulations of your jurisdiction, along with the other Directors of the company. Thus, if you are a Corporate Director whose main responsibility is Sales and Marketing, it may be your responsibility and right to review and understand how your liability is being managed in the areas of Finance and Operations, for example.

The best way to understand these risks is to get good counsel from a lawyer who specializes in this area in your country or specific jurisdiction. While it may not entirely absolve you from all liability, Director's insurance policies are available to help mitigate some of the risks involved with being a Director.

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Keywords: corporate directorship, risk management

About the Author:

Ian Harvey is a finance professional in the small and medium-sized business market. He works with owners and managers to help them gain access to capital and structure their financial, operations and business development affairs to meet the needs to today and goals in the future.

If you have any questions about the content of this article or how your business can benefit from working with Ian and his network of SMB partners, please visit www.smbedge.com/contact.html

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Do You Know What You Are Liable For?

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