The corporate 'shield' is not impenetrable - Directors and Officers of Ontario business corporations take note

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Under Ontario’s Business Corporations Act, a corporation has the rights, powers and privileges of a natural person. This means that a corporation can sue and be sued and will own assets and incur liabilities. Operating a business through a corporation can shield a business owner from the potential liabilities that will arise in the ordinary course of operating a business. There are a number of instances, however, where this shield is ineffective or can be pierced. There are also a number of laws that impose specific duties and potential liabilities on directors and officers. The latter topic will be discussed in a follow-up post.

Generally, directors and officers will incur personal liability where they have participated in a fraud by the corporation or the corporation has been formed for some other improper purpose. As a result, there is a body of case law that has allowed litigants to “pierce the corporate veil” of a corporation and proceed against its directors and officers in circumstances where the court considers it just. A review of these cases will be undertaken in a future blog.

 

Topics:  Business Formation, Corporate Veil, Directors, Officers, Ontario's Business Corporations Act

Published In: Business Organization Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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