Directors’ Duties Under Ontario’s OBCA

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The duties every director owes

In a small Ontario company, the owner is often also the only director, the president and the bookkeeper, and the roles blur together. The Business Corporations Act (OBCA) keeps them apart. Section 115(1) gives the directors the job of managing, or supervising the management of, the corporation’s business and affairs, subject to any unanimous shareholder agreement. With that power come duties that apply whether the company has one director or ten. They are part of the governance advice we give owners on our corporate law files.

Section 134(1) sets out the two core duties. Every director and officer, in exercising their powers and discharging their duties, must:

Act honestly and in good faith with a view to the best interests of the corporation. This is often called the fiduciary duty. It is owed to the corporation, which is not the same thing as any one shareholder.
Exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. This is the duty of care.

Section 134(2) adds a third: every director and officer must comply with the Act, the regulations, the articles, the by-laws and any unanimous shareholder agreement. Section 134(3) says no contract, article, by-law or resolution can relieve a director or officer of the duty to act in accordance with the Act or of liability for breaching it, subject only to the unanimous shareholder agreement rule in section 108(5).

What the duties mean in practice, step by step

Know you are a director. Section 118(1) disqualifies anyone under 18, anyone found incapable of managing property, anyone who is not an individual, and anyone who is bankrupt. If you were named in the articles or elected later, you hold the office until you die, resign, are removed or become disqualified (section 121(1)).
Make decisions on information. Read what you approve, ask for financial statements, and minute the decision. Our page on what goes in an Ontario minute book explains the records.
Declare conflicts. Under section 132(1), a director or officer who is a party to a material contract or transaction with the corporation, or has a material interest in a party to one, must disclose the nature and extent of the interest in writing or have it entered in the directors’ minutes.
Dissent when you disagree. A director present at a meeting is deemed to consent to what is passed unless the dissent is minuted or delivered as section 135(1) describes. A director who was absent is deemed to consent unless they register a dissent within seven days of becoming aware of the resolution (section 135(3)).
Watch the payroll. Section 131 can make directors personally liable to employees for unpaid wages, as explained below.
Keep the company compliant. Annual resolutions and the registers are part of the section 134(2) duty to comply with the Act; the provincial annual return under the Corporations Information Act sits alongside them. See what annual filings an Ontario corporation has.

Directors’ duties and liabilities under the OBCA at a glance
Rule	What it requires or imposes	Section
Fiduciary duty	Act honestly and in good faith, in the best interests of the corporation	134(1)(a)
Duty of care	The care, diligence and skill of a reasonably prudent person in comparable circumstances	134(1)(b)
Duty to comply	Follow the Act, regulations, articles, by-laws and any unanimous shareholder agreement	134(2)
Conflicts of interest	Disclose an interest in a material contract or transaction, in writing or in the minutes	132(1)
Unpaid wages	Joint and several liability for up to six months’ wages, and up to twelve months’ accrued vacation pay, that became payable while a director	131(1) to (5)
Shares issued for non-cash consideration	Liability to make good a shortfall where a resolution breaches section 23	130(1)
Deemed consent	Present: consent unless dissent recorded; absent: consent unless dissent within 7 days	135(1) to (3)
Reasonable diligence defence	Not liable under s. 130, and compliant with s. 134(2), if prudent, including good-faith reliance on financial statements and professional reports	135(4)
Indemnity	The corporation may indemnify a director who acted honestly and in good faith in its best interests	136

What changes the answer

Liability for unpaid wages

Section 131(1) makes directors jointly and severally liable to the corporation’s employees for debts of up to six months’ wages that become payable while they are directors, and for vacation pay accrued while they are directors for not more than twelve months, under the Employment Standards Act, 2000 or a collective agreement. Section 131(2) limits when an employee can collect from a director: generally only after suing the corporation without being paid, or after the corporation goes into liquidation, winding up or bankruptcy and the claim has been proved. A director who pays can claim contribution from the other directors (section 131(5)).

Relying on others

Directors are not expected to do everything themselves. Section 135(4) gives a reasonable diligence defence: a director who exercised the care of a reasonably prudent person, including relying in good faith on financial statements presented by an officer or the auditor, on reports of officers or employees where reliance was reasonable, or on reports of a lawyer, accountant, engineer, appraiser or similar professional, is not liable under section 130 and has complied with section 134(2).

Indemnity and insurance

Section 136(1) lets the corporation indemnify a director or officer for costs, charges and expenses of proceedings they face because of the role, and section 136(2) lets it advance those costs. Section 136(3) bars indemnity unless the person acted honestly and in good faith with a view to the corporation’s best interests, and section 136(4) adds, for criminal or administrative proceedings enforced by a monetary penalty, that they had reasonable grounds to believe their conduct was lawful. The section 130 liability for shares issued for property or services ties back to the rules in how shares are issued in an Ontario corporation. Section 136(4.3) also lets the corporation buy insurance for directors and officers against liability incurred in the role. Some corporations set out an indemnity in their by-laws or in a separate agreement.

A unanimous shareholder agreement

Where a unanimous shareholder agreement takes powers away from the directors, the shareholders who hold those powers take on the directors’ rights, powers, duties and liabilities to that extent, which is why section 134(3) refers to section 108(5). We explain that structure in what a unanimous shareholder agreement is.

Officers, too

Section 134 applies to officers as well as directors. A president or treasurer who is not on the board still owes the same duties when acting for the corporation.

Questions to ask before you agree to become a director

People are often asked to “just be a director” of a relative’s or friend’s company, sometimes to make up numbers or to sign documents while the owner travels. Because the duties and the wage liability attach to the office, not to how involved you are, it is worth asking a few questions first.

Is payroll current? Section 131 makes directors liable for unpaid wages that become payable while they hold office, so ask whether wages and vacation pay are up to date.
Will I see the financial statements? The reasonable diligence defence in section 135(4) depends on actually receiving and relying on them in good faith.
Is there a unanimous shareholder agreement? If so, some of the powers, and the liabilities that go with them, may sit with the shareholders instead.
Do the by-laws indemnify directors? Section 136 allows it; check whether this company actually does.
How do I leave? Agree how a resignation will be delivered and recorded, so the date you stop being responsible is clear.

Example

For example, imagine three friends who own a Vaughan renovation company, each a director. One of them, Marco, also owns the company that supplies most of its lumber. At a directors’ meeting, the board approves a large supply contract with Marco’s company. Under section 132(1), Marco must disclose his interest in writing or have it entered in the minutes, and section 132(5) generally bars him from attending the discussion or voting on the contract; the company’s minutes should show that he did.

A year later, sales collapse and payroll is missed. Under section 131, all three directors could be personally liable to the employees for up to six months of unpaid wages, once the conditions in section 131(2) are met, and the director who pays can seek contribution from the others. A director who had objected to the risky expansion would still be liable for the wages, because section 131 does not depend on fault, but a recorded dissent under section 135 matters for other decisions the board made.

Common mistakes directors make

Agreeing to be a director “in name only“. The duties and the section 131 wage liability apply all the same.
Not declaring a conflict. Section 132 requires written disclosure or a minuted entry.
Staying silent at a meeting. Without a recorded dissent, a director present is deemed to consent (section 135(1)).
Resigning without paperwork. A resignation takes effect when the written resignation is received, or at a later time it specifies (section 121(2)); make sure the register of directors and provincial filings are updated.
Signing without reading. The reasonable diligence defence in section 135(4) protects good-faith reliance, not inattention.
No indemnity. Outside directors in particular should ask whether the by-laws or an agreement indemnify them.

What to do this week

Check the register of directors: is everyone listed actually still a director, and is everyone acting as one listed?
Read the by-laws for any indemnity provision.
List any contracts in which a director or officer has a personal interest, and check each was disclosed.
Confirm that payroll, vacation pay and source deductions are current.
Read your shareholders’ agreement for any limits on the directors’ powers.
If you are joining a board, or the company is under financial strain, get advice early. A first consultation takes 30 minutes, by video or in person, and you can request one here.

Frequently asked questions

Who do directors owe their duties to?

Section 134(1)(a) frames the duty as acting with a view to the best interests of the corporation. That is not the same as following the wishes of the largest shareholder.

Can a corporation have just one director?

Yes. Section 115(2) requires a corporation that is not an offering corporation to have at least one individual on its board. That person carries all of the duties described here. Setting up the first board is part of incorporating a business in Ontario.

Do directors have to be Canadian residents?

Not under the current OBCA: section 118(3), which set a resident Canadian rule, has been repealed. The federal statute has its own rules, covered in Ontario or federal incorporation.

Can the articles or a contract excuse a director from these duties?

No. Section 134(3) says no contract, article, by-law or resolution relieves a director from the duty to act in accordance with the Act or from liability for breaching it, subject to section 108(5).

Am I liable for wages if I resign?

Section 131(1) covers wages that become payable while you are a director. Resigning does not erase liability for that period, so keep proof of the date you left.

Do shareholders have the same duties?

Not generally. Shareholders vote; directors manage. The exception is where a unanimous shareholder agreement transfers directors’ powers to the shareholders, under section 108.

Sources

This page is general information about Ontario law, not legal advice for your situation. It reflects the law as of October 26, 2026.

What are directors’ duties under Ontario’s OBCA?