What is a director
personally on the hook for?

By Jonathan Kleiman, Barrister & Solicitor · Published June 2026

When someone incorporates, they almost always come away with one comforting belief: the company is its own legal person now, so if things go wrong, the business is on the hook and they are not. That belief is mostly right, and it is one of the main reasons to incorporate in the first place. But the word that gets people into trouble is "not." The corporate shield is real, but it has specific, well-known holes — and most of them open up directly under the feet of the directors.

I have these conversations more than almost any other. A business hits a rough patch, payroll gets tight, a remittance to the Canada Revenue Agency gets skipped "just this once," and a few months later the director who thought incorporating made them untouchable is staring at a personal assessment. The shield did exactly what it was designed to do — it just was never designed to cover that.

So this is the honest version of what a director in Ontario is actually on the hook for. I will walk through the duties you owe, the handful of real personal-liability traps, the due-diligence defence that can save you, and the practical habits that close most of the avoidable gaps. None of this is legal advice for your specific situation — director liability turns on facts and timing, and you should get advice — but it is the map I wish every new director had before they signed on.

The myth that incorporating fully protects you

Let me start with the idea I spend the most time correcting. A corporation is a separate legal person, distinct from the people who own and run it. As a general rule, the company's debts and contracts belong to the company — not to its shareholders, and not to its directors. If the business fails, the usual outcome is that creditors look to the company's assets, and the people behind it walk away without personal exposure. That is limited liability, and it is genuinely powerful.

But "limited" is not "none." The law carves out a number of situations where it deliberately reaches past the company and holds a director personally responsible — usually because the obligation involves money that belongs to employees or the public purse, or because the director did something that does not deserve protection. These are not loopholes or exotic edge cases. They are baked into the statutes that govern corporations, and they come up routinely.

The mistake I see is treating the shield as a force field. Someone reads that incorporating protects them from liability, files the articles, and stops thinking about it. Then a liability that was never inside the shield — unpaid wages, an unremitted tax, a guarantee they signed — lands on them personally, and they are blindsided. The shield is worth having. You just have to know where its edges are, and the edges are exactly what the rest of this guide is about. If you are new to all of this, my guide on what happens after you incorporate in Ontario covers the steps that turn a certificate into a properly functioning company.

What duties a director actually owes

Before the liability traps, it helps to understand the job itself, because the duties are the foundation everything else sits on. Under the Ontario Business Corporations Act — and under the Canada Business Corporations Act if you incorporated federally — a director owes the corporation two core duties. They are different things, and it is worth keeping them straight.

The fiduciary duty

The first is a fiduciary duty: to act honestly and in good faith with a view to the best interests of the corporation. This is the loyalty duty. It means you put the company's interests ahead of your own when you are wearing your director hat — you do not help yourself to corporate opportunities, you do not sit on both sides of a deal without disclosure, and you do not make decisions to benefit yourself at the company's expense. The duty runs to the corporation, not to any one shareholder, which is an important distinction in a company with more than one owner.

In a small company, the most common place this duty gets tested is the related-party transaction — the company leasing space from a building the director owns, buying from a supplier the director has a stake in, or paying the director's spouse a salary. None of those is automatically improper, but each is a situation where your interest and the company's can diverge, and the fiduciary duty is what governs how you handle it: disclose, deal at arm's length, and do not use your position to take something that belonged to the company. Where there are minority shareholders watching, this duty and the oppression remedy further down tend to travel together.

The duty of care

The second is a duty of care: to exercise the care, diligence, and skill that a reasonably prudent person would exercise in comparable circumstances. This is the competence duty. You do not have to be perfect or guarantee good outcomes — directors are allowed to make decisions that turn out badly — but you do have to engage. You have to inform yourself, ask questions, read what is in front of you, and make decisions on a reasonable basis. A director who rubber-stamps everything and never looks at the numbers is not meeting this duty.

Why does this matter for liability? Because breaching either duty can expose you personally — and because the standard in the duty of care, the "reasonably prudent person in comparable circumstances," is the same standard that shows up later in the due-diligence defence for unpaid taxes. The duties are not just governance theory. They are the yardstick a court or the CRA uses to decide whether you behaved like a proper director, and that decision can land squarely on your personal balance sheet.

The big personal-liability traps

Here is the part everyone actually wants. These are the specific situations where, in Ontario, a director can be held personally liable despite the corporate shield. None of them is hidden — they are well established — but they catch people who assumed incorporation closed the door.

Unpaid employee wages and vacation pay

This is the one that surprises people most. Under section 131 of the Ontario Business Corporations Act, directors are jointly and severally personally liable for up to six months of unpaid employee wages, and up to twelve months of unpaid vacation pay, that became payable while they were directors. "Jointly and severally" means an unpaid employee can come after any one director for the full amount and let the directors sort out contributions among themselves.

The scenario is almost always the same: the business is failing, cash is tight, and the owner keeps the lights on by deferring payroll, telling themselves they will catch up. When the company finally goes under, the employees are still owed wages — and now the directors are personally on the hook for them. If your company is struggling to make payroll, this is not a problem to push down the road. It is a flashing warning light, and it is one of the first things I want to know about when a client tells me their business is in trouble.

It is worth being precise about the limits, because they cut both ways. The liability attaches to wages and vacation pay that became payable while you were a director — so the timing of when you joined and when you left the board matters, and so does the timing of when the wages came due. The six-month and twelve-month caps are real ceilings on the amount, but in a company with several employees those caps can still add up to a serious personal number. The takeaway I want directors to hold onto is simple: the moment payroll becomes uncertain, your personal exposure is already in play, and that is the moment to get advice rather than to wait and hope the cash flow turns around.

CRA source deductions and HST

This is the trap I see assess directors more than any other. When a company pays employees, it withholds income tax, CPP, and EI — the payroll source deductions — and it is supposed to remit those amounts to the CRA. When it sells goods or services, it collects GST/HST that it is supposed to remit as well. The law treats these as money that was never really the company's to keep — it was collected or withheld on behalf of others.

When a company fails to remit those amounts, the CRA can assess the directors personally — jointly and severally with the corporation, plus interest and penalties. This is enormously common in distressed businesses, because remittances are exactly what a cash-strapped owner stops paying first: the CRA is not standing at the door like a supplier refusing to ship, so it gets deprioritized. Months later, the assessment arrives, and it is addressed to the director, not just the company. There is a defence — the due-diligence defence, below — but you cannot rely on it if you simply let the remittances slide.

What makes this trap so dangerous is the lag. By the time the assessment shows up, the company is often already gone, the bank accounts are empty, and the CRA has nowhere to look but at the people who were directors when the money should have been remitted. The amounts also compound — interest and penalties pile on top of the original remittance — so a problem that started as a few months of missed source deductions can grow into a six-figure personal liability before the director even knows there is an issue. I have sat across from people who genuinely believed the worst that could happen was losing the business, only to learn that the business failing was the beginning, not the end, of their exposure.

The oppression remedy

The oppression remedy is a broad, flexible power that lets a court fix conduct that is oppressive, unfairly prejudicial, or that unfairly disregards the interests of a shareholder or other stakeholder. What makes it relevant here is that, in appropriate cases, a court can make an oppression order against a director personally, not just against the corporation — particularly where the director was the directing mind behind the conduct or benefited from it personally. It comes up most in companies with minority shareholders who feel squeezed out or unfairly treated. I dig into how this works in the guide on shareholder disputes and the oppression remedy in Ontario.

Environmental and other statutory liability

Certain statutes impose personal exposure on directors directly. Ontario's environmental legislation, for example, can make directors personally responsible in connection with the company's environmental obligations. There are other pockets of director-specific liability scattered across various statutes too. These are highly fact-specific and beyond the scope of a single article — the point is simply to know they exist, and that if your company operates in a regulated or environmentally sensitive area, director liability deserves a closer look with a lawyer.

Personal guarantees

This one is different in kind, because you opt into it. When a bank, landlord, or supplier is not satisfied with the company's credit, they often ask a director or owner to sign a personal guarantee — a separate promise that you will pay if the company does not. A guarantee is a voluntary, contractual liability that sits entirely outside the corporate shield. The shield was never going to help, because you personally signed up to be on the hook. People forget about guarantees they signed years earlier, then are shocked when the creditor comes calling personally. Before you sign one, understand exactly what you are agreeing to, and whether it can be limited or capped.

Fraud and improper conduct

Finally, the shield does not protect personal wrongdoing. A director who commits fraud, engages in clearly improper or illegal conduct, or uses the corporation as a vehicle for something it should not be used for cannot hide behind the company. This is the most intuitive exception — the law was never going to let incorporation launder genuinely bad acts — and it rarely catches honest directors by surprise. But it is part of the complete picture: the shield protects legitimate business risk, not misconduct.

The due-diligence defence

The single most important thing to understand about the CRA remittance trap is that it is not automatic — there is a defence, and it is worth knowing exactly how it works because it can be the difference between a personal assessment and walking away clean.

A director is generally not liable for the corporation's unremitted taxes if they can show they exercised the degree of care, diligence, and skill to prevent the failure that a reasonably prudent person would have exercised in comparable circumstances. Notice that this is the same standard as the duty of care — the "reasonably prudent person" — applied to the specific question of preventing a remittance failure.

The word that does all the work is prevent. The defence rewards directors who took real, proactive steps to make sure remittances were actually made — putting controls in place, monitoring that the money went where it was supposed to, raising the alarm and acting when it did not. What it does not reward is hoping for the best. Doing nothing is not a defence. A director who never asked about remittances, never checked, and only found out there was a problem when the assessment arrived has no due-diligence story to tell.

In practice, this defence lives or dies on records. If you ever have to argue it, you will want contemporaneous evidence — board minutes, emails, instructions to the bookkeeper, a paper trail showing you treated remittances as a priority and took steps to protect them. That is one more reason the documentation habits below are not busywork. They are the raw material of your defence.

How to protect yourself

You cannot reduce your exposure to zero — being a director carries real responsibility, and that is the point — but you can close most of the avoidable gaps with a handful of disciplined habits. Here is what I tell directors to actually do.

Watch the remittances above all else. If you remember one thing from this entire guide, make it this: payroll source deductions and HST are where directors get personally burned most often. Keep them current. If cash gets tight, do not let remittances be the thing that slips — that is precisely the decision that turns a company problem into a personal one. Build a system so you actually know, month to month, that the money went to the CRA.

Document that decisions were made carefully. The duty of care and the due-diligence defence both turn on whether you acted like a reasonably prudent person. The way you prove that, after the fact, is with a record. Keep real minutes. Note what information the board had and what it decided. A well-maintained minute book is not just corporate housekeeping — it is contemporaneous evidence that you took your duties seriously.

Consider D&O insurance. Directors' and officers' insurance can cover defence costs and certain liabilities arising from your role. Even a claim you ultimately defeat can be expensive to fight, and that is exactly what this coverage is for. It is especially worth looking at if the company has outside shareholders, employees, or real operational risk. Read the policy — coverage and exclusions vary, and most will not cover fraud or deliberate wrongdoing.

Resign properly if you step away. Director liability generally attaches to amounts that arose while you were a director. So if you are leaving a company, do not just stop showing up — resign formally, get it recorded, and make sure the registers and any government filings reflect it. A clean, dated resignation can stop the clock on new exposure going forward. But it does not erase what already accrued, and the cut-off rules can be technical, so get advice on exactly where your line falls. There are also time limits on how long the CRA has to come after a former director, but they are not something to rely on casually — they are technical, and the safe assumption is that a clean resignation protects you going forward, not backward. If you are winding a company down rather than just leaving it, the same care applies; my guide on how to dissolve a corporation in Ontario walks through doing it properly so liabilities are dealt with rather than left dangling.

Be careful with guarantees. Every personal guarantee you sign is a deliberate step outside the shield. Read them, understand them, and ask whether they can be limited, capped, or released once the company's credit improves. Do not sign them reflexively just because a landlord or lender slid one across the table.

Who should think hardest about this

Director liability is not just a concern for executives at large companies. In my experience, the people most likely to be caught off guard are the ones in small, closely held businesses — and a few situations come up again and again.

The solo director. If you own and run a one-person corporation, you are the sole director, which means every director liability lands on you with no one to share it. There is no board to dilute the responsibility. The wages exposure, the remittance exposure, the duty of care — all of it is yours alone. That is not a reason to panic; it is a reason to be disciplined about remittances and records, because there is no one else minding the store.

The volunteer or nominee director. This is the one that breaks my heart a little, because it usually involves someone trying to be helpful. People agree to be a director of a company they do not run — as a favour, to round out a board, to satisfy a structuring need — and assume that because they are not really involved, they are not really exposed. They are. A nominee or "in name only" director carries the same duties and the same personal liabilities as anyone else on the board. If you are asked to be a director of someone else's company, treat it as the legal commitment it actually is.

The spouse added as a director. A specific and very common version of the nominee problem: a business owner adds their spouse or a family member as a director, often for a share structure or income-splitting reason an accountant suggested, without anyone explaining the downside. That spouse now carries personal liability for unpaid wages, for unremitted CRA amounts, and the rest — even though they may have nothing to do with running the business. If your spouse is a director of your company, or vice versa, make sure you both understand what that actually means before there is ever a problem.

Common mistakes I see

The same handful of errors come up over and over, and each one converts a manageable situation into a personal-liability problem.

Treating the shield as absolute. The root mistake behind all the others — assuming that "I incorporated" means "I cannot be touched." It does not, and the people who believe it most firmly are the ones who plan least for the exceptions.

Letting remittances slide in a cash crunch. When money is tight, the CRA feels like the most patient creditor in the room, so it gets paid last. That instinct is exactly backwards for a director, because unremitted source deductions and HST are precisely the amounts that become a personal liability.

Becoming a director without understanding it. Signing on to someone else's board as a favour, or being added to your spouse's company, without anyone explaining that you have just taken on personal liability. The favour is real; so is the exposure.

Walking away without resigning properly. Drifting out of a company without a formal, recorded resignation, then assuming you are no longer a director. Liability can keep attaching to you until the resignation is real and on the record.

Keeping no records. No minutes, no paper trail, nothing showing decisions were made with care — which leaves you with no due-diligence defence and no evidence you met your duty of care when it matters most.

Key takeaways

• The shield is real but bounded. A corporation is a separate legal person and protects you from most business debts — but specific liabilities reach directors personally.
• You owe two duties. A fiduciary duty (act honestly and in good faith in the corporation's best interests) and a duty of care (the care a reasonably prudent person would exercise) — and breaching either can mean personal liability.
• Wages and CRA remittances are the big traps. Section 131 of the OBCA makes you liable for up to six months of unpaid wages and twelve months of vacation pay, and the CRA can assess you personally for unremitted source deductions and HST.
• The due-diligence defence exists, but doing nothing fails it. You must show you took real steps to prevent the failure — documented, contemporaneous steps, not hindsight.
• Protect yourself proactively. Stay current on remittances, keep good records, consider D&O insurance, resign properly if you leave, and be careful with guarantees and nominee directorships.

Frequently asked questions

Does incorporating protect a director from all liability?

No. A corporation is a separate legal person, and that shield is real — most business debts and contracts belong to the company, not to you. But the shield has specific holes for directors. Under the Ontario Business Corporations Act you can be personally liable for up to six months of unpaid employee wages and twelve months of vacation pay. You can also be personally assessed for the company's unremitted payroll source deductions and HST, named personally in an oppression claim, and caught by anything you personally guaranteed. Incorporating protects you a great deal, but treating it as absolute is a mistake I see constantly.

What duties does a director owe in Ontario?

Two, and they sit at the core of the job. Under the OBCA (and the CBCA federally), a director owes a fiduciary duty — to act honestly and in good faith with a view to the best interests of the corporation — and a duty of care — to exercise the care, diligence, and skill that a reasonably prudent person would exercise in comparable circumstances. The fiduciary duty is about loyalty and good faith; the duty of care is about competence and diligence. Breaching either can expose you to personal liability, so these are not abstract ideals — they shape what a director can safely do.

Are directors personally liable for unpaid employee wages in Ontario?

Yes, within limits. Under section 131 of the Ontario Business Corporations Act, directors are jointly and severally personally liable for up to six months of unpaid employee wages, and up to twelve months of accrued vacation pay, that became payable while they were directors. That means an employee who is not paid can pursue the directors personally, not just the company. It is one of the more common ways a director of a struggling business gets a nasty surprise. If your company is having trouble making payroll, this is a liability to take very seriously and to get advice on early.

Are directors personally liable for unpaid CRA taxes?

For certain trust-type amounts, yes. The Canada Revenue Agency can assess directors personally for the corporation's unremitted payroll source deductions and unremitted GST/HST — jointly and severally with the company, plus interest and penalties. These are amounts the company collected or withheld and was supposed to hand over to the CRA, so the law treats them as money that was never really the company's to keep. This is one of the single most common ways directors get personally assessed. There is a due-diligence defence, but doing nothing is not a defence — get advice the moment remittances start slipping.

What is the due-diligence defence?

It is the main escape hatch for a director facing a remittance assessment. A director is generally not personally liable for the corporation's unremitted taxes if they can show they exercised the degree of care, diligence, and skill to prevent the failure that a reasonably prudent person would have exercised in comparable circumstances. The key word is prevent — the defence rewards directors who took real, documented steps to make sure remittances were made, not those who looked away. Doing nothing is never a defence. In practice, contemporaneous records of the steps you took are what make or break this argument.

Can a director be personally sued in an oppression claim?

Yes. The oppression remedy is a broad, flexible tool that lets a court fix conduct that is oppressive, unfairly prejudicial, or that unfairly disregards the interests of a shareholder or other stakeholder. In appropriate cases a court can make an oppression order against a director personally — not only against the corporation. It tends to come up where a director benefited personally from the conduct or was the directing mind behind it. It is a real reason directors should make decisions carefully and even-handedly, and document that they did, especially in companies with minority shareholders.

Should I be a director of my spouse's or friend's company?

Be careful before you agree. People often add a spouse, a friend, or a family member as a director as a favour, or for a share structure, without realizing that a so-called nominee director carries the same legal duties and the same personal liabilities as any other director. The unpaid-wage exposure, the CRA remittance exposure, the duty of care — they all apply to you whether or not you run the business day to day. Being a director in name only does not shrink the liability. If you are asked to be a director of a company you do not control, get advice on what you would actually be signing up for.

How do I limit my personal liability as a director?

A few practical things make the biggest difference. Stay current on remittances — payroll source deductions and HST are where directors get burned most often. Document that board decisions were made carefully and on proper information, because that record is what supports a due-diligence defence. Consider directors' and officers' (D&O) insurance. Resign properly and on the record if you step away from the company. And do not sign personal guarantees casually — those are a separate, voluntary liability. None of this makes you bulletproof, but together these habits close most of the avoidable gaps.

What happens to my liability if I resign?

Resigning matters, but the timing and the paperwork matter more than people think. Director liability generally attaches to amounts that arose while you were a director — so a clean, properly recorded resignation can stop the clock on new exposure going forward, but it does not erase liabilities that already accrued while you served. There are also time limits on how long the CRA has to assess a former director, but those rules are technical and easy to get wrong. The practical advice is simple: if you are stepping away, resign properly, get it on the record, and get advice on exactly where your cut-off falls.

Do I need director's insurance (D&O)?

For many directors it is worth serious consideration, though it is not mandatory. Directors' and officers' (D&O) insurance can cover defence costs and certain liabilities arising from your role, which matters because even a claim you ultimately defeat can be expensive to fight. It is especially worth looking at if the company has outside shareholders, employees, real operational risk, or a board you sit on as a non-owner. Read the policy carefully, because coverage and exclusions vary a lot — many policies will not cover fraud or deliberate wrongdoing, for example. A broker and a lawyer can help you size it to your actual exposure.

Final thoughts

Incorporating is one of the smartest protective steps a business owner takes — I help people do it all the time, and the limited-liability shield is a big part of why. But the shield protects you from your company's ordinary debts, not from the specific obligations the law deliberately places on directors personally. Unpaid wages, unremitted CRA amounts, oppression, the guarantees you signed yourself: these are the edges of the shield, and knowing where they are is what separates a director who is genuinely protected from one who only thinks they are.

The good news is that almost everything that gets directors into trouble is preventable with a little discipline: keep the remittances current, document your decisions, resign cleanly if you step away, and read what you sign. If you want help setting your company up so the structure actually works the way you think it does, my guides on how to incorporate a business in Ontario and how to dissolve a corporation in Ontario bookend the corporate life cycle, and a corporate maintenance lawyer can keep the records that support your defence in order.

If you are a director worried about your personal exposure — or you have just been asked to become one — the smartest move is a short conversation before there is a problem rather than after. An incorporation lawyer or business lawyer can map your actual risk, and if a dispute or claim is already brewing, a commercial litigation lawyer can help you respond. Call 416-554-1639 or book a free consultation — it is far cheaper to understand your exposure now than to discover it in an assessment letter later.