The Secret Truth about Officers

Sometimes, we fall into standard phrases that are, or with the passage of time, become false or misleading. Corporate lawyers and CAs frequently warn business people about “Directors’ and Officers’ Liability”.

While it is true that Officers of a corporation do have “a duty to act honestly and in good faith with a view to the best interests of the corporation” and a duty to comply with the Business Corporations Act, the liability exposure of Officers is very different, and more importantly, very much less in scope than the liability of Directors. Yet, many corporate law pundits still group Directors and Officers together as if their respective liability exposure was the same or similar.

This exaggeration or misdirection is not trivial: it has crucial planning implications. Since Directors have much more liability risks than Officers, you might want to designate (elect Directors and appoint Officers) with legitimate creditor avoidance in mind.

So, someone who is judgment proof can be the sole Director, while a person with plenty of vulnerable (easily attached) assets (high income, domestic liquid assets, unencumbered real estate) could be an Officer without taking on a substantial risk.

But I would note that, even in corporate law, a rose is a rose is a duck if it walks like one. So, if someone is making or participating in decisions and actions that are the purview of the Board of Directors, then they can be deemed to be a Director:

“director” means an individual occupying the position of director by whatever name called. Emphasis added. Section 2.(1) of the Act.

If an Officer, employee, consultant or even an advisor (not a lawyer or CA) participates in Director-type decisions and actions, then they could be deemed to be a Director under the Act, even though they’ve never been elected as a Director. Beware, it’s substance, not form that matters.