Directors’ responsibilities

Directors’ powers

Subject to a company’s articles, the Business Corporations Act of British Columbia and any contract with the directors, the directors have day to day control and management of a company. In many private companies, the directors are also the shareholders.

The director is given authority to act on behalf of the company and manage its affairs. The powers are granted to directors by the Articles of Incorporation which contain provisions regarding the scope of the directors’ authority.

A director of a company has several statutory duties and obligations imposed on them by the law.

What are the directors’ statutory duties?

Examples of directors’ duties include:

• Duty to act within powers: the directors need to act for the benefit of the company. They cannot use their position as a director to act in their own private interest.
• Duty to promote the success of the company: the director must bear in mind the interests of the company and its shareholders when making decisions, investments, negotiating contracts with clients or contractors etc. He or she must act fairly and take care of the good reputation of the company and the company’s growth.
• Duty to exercise reasonable skill and care: the directors are expected to show a high standard of care in their actions and consider consequences.
• Duty to avoid conflicts of interest: directors must be loyal to the company and avoid situations which may compromise the company’s wellbeing or reputation. The directors should not act for the purpose of obtaining personal profits.
• Duty to exercise independent judgment: the director must obtain the company’s shareholders’ consent to make certain decisions on behalf of the company or seek their approval of his or her decisions.
• Duty not to accept benefits from other parties: the director is under a duty not to accept financial or personal benefits from third parties given to gain influence.
• Duty to disclose interest in proposed or existing transactions: if he or she does not comply with the statutory provisions and does not disclose his or her interest, they commit a criminal offence and could be liable for a fine.

A director cannot be indemnified by the company for liability he acquires through negligence, wrongdoing or a breach of duty.

Remedies for a breach of duties

As directors owe their duties to the company as a whole as opposed to the individual members of the company, if he or she acts in breach of their duties, the company has a claim and can take a legal action against the director. The remedies include:

• Injunction or declaration to stop the director from continuing to breach his or her duties
• Compensation or damages paid to reimburse the company for the loss suffered
• Account of profits obtained in breach of fiduciary duty (breach of trust): it is an action taken against the director to take away the profits made as a result of a breach of director’s duties such as a transaction damaging for the company and it prevents the unjust enrichment of the director
• Restoration of the company’s property which is in the director’s hands
• Rescission of a contract which was signed by the director contrary to the company’s intentions
• Summary dismissal of the director or derivative action removing a director from the office