Duties of Directors of British Columbia Companies
Managing a company is an exciting opportunity, but not one that should be taken lightly. Directors of British Columbia companies have significant obligations that they must fulfill in order to limit their personal exposure. Below is a brief summary of the main requirements for directors.
Duties for all BC Companies
Whether the company is public or private, all directors must perform the following duties:
1. To act honestly and in good faith with a view to the company’s best interests;[1]
- Directors owe the company what is known as a “fiduciary duty,” meaning they must put the company’s interests above their own.
- A director’s powers must only be exercised in advancing the company’s best interests, and not for any other or improper purpose, and especially not one which would benefit the director personally.
- Secret profits or conflicts between the interests of a director and the company are prohibited (unless that conflict is disclosed and approved by the non-conflicted directors or the shareholders).
- Directors must be honest and candid with fellow directors.
2. To exercise the care, diligence, and skill that a reasonably prudent individual would exercise in comparable circumstances;[2]
- Diligence includes attempting to attend all directors’ meetings and obtaining specialized advice where required.
- A director may rely in good faith on certain documents set out in the BCA, such as financial statements provided by another officer/director or the company’s auditor.[3]
- Exercising necessary skill may create different standards depending on the director’s background circumstances. An inexperienced or uneducated director versus a professional, such as a lawyer, must each perform to the level of a “reasonably prudent individual” in that director’s own circumstances, taking into account any specialized knowledge or skill.
3. To act in accordance with the Business Corporations Act and its regulations;[4]and
4. To the extent that it does not conflict with the above, to act in accordance with the memorandum and articles of the company.[5]
While the directors owe their duties only to the company, in assessing the company’s best interests, they should also consider the interests of shareholders and other stakeholders, including creditors, employees, consumers and suppliers, the government, and potentially the broader community in which the company operates and even the environment.[6]
Directors must be careful to observe their duties. Failing to do so can leave them personally liable to shareholders, employees, the government, or even the public in various circumstances for acts or omissions of the company. However, the “business judgment rule”[7] protects directors somewhat, not requiring their decisions to be perfect, but simply within a spectrum of reasonable options. This recognizes that directors may be better situated than a court to determine what is best for their company.
There are additional and/or slightly varied requirements for directors of BC Benefit Companies[8] and Community Contribution Companies.[9]
Additional Duties for Public BC Companies
Further, in addition to the above, the following requirements apply to directors of public companies (known as “reporting issuers”):
1. The directors are encouraged to be active in the company’s business and participate in meetings of directors;
2. If the director has not submitted a personal information form (PIF) to the CSE or TSXV, the director must complete the applicable form;
3. The director cannot provide insider trading tips to family and friends (telling them to buy or sell shares due to an upcoming material event); this is a violation of securities legislation and punishments have been severe;
4. When acquiring, selling or exercising any securities (shares, options or warrants), directors must file a SEDI insider report within 5 days of the transaction. More information about SEDI can be found here: https://www.sedi.ca/sedi/new_help/english/public/PDF_en/FAQs_Factsheet_-SEDI_(FINAL).pdf
5. Whenever a director becomes a director, officer or 10% holder of any reporting issuer in Canada, the director must file a SEDI insider report within 10 days of becoming an insider;
6. Whenever a reporting issuer holds an annual general meeting of shareholders (AGM), the issuer must to prepare a management information circular;
- The information circular requires updated biographical information of directors and their shareholdings, so that shareholders can have the opportunity to vote for or against the election of the director; and
7. Directors are also required to disclose if they were a director or officer of any other reporting issuers who have been subject to a cease trade order within 10 years.
If you have any further questions about directorship of private or public Vancouver BC Companies or for more information on the above, feel free to contact us (we are located in Vancouver, BC) at 1-800-604-1312 or via e-mail at [email protected].
Disclaimer
***The above blog post is provided for informational purposes only and has not been tailored to your specific circumstances. This blog post does not constitute legal advice or other professional advice and may not be relied upon as such.***
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[1] Business Corporations Act, SBC 2002 C 57, s. 142(1)(a) [“BCA”].
[6] Peoples Department Stores Inc. (Trustee of) v. Wise, [2004] 3 S.C.R. 461, 2004 SCC 68.
[7] BCE Inc. v. 1976 Debentureholders, [2008] 3 S.C.R. 560, 2008 SCC 69.
