Becoming a Director of an Ontario Corporation

**Written by Adele Zhang, Summer Student at Lee Workplace Law

Every corporation in Ontario must have at least one director. The director of a corporation is responsible for overseeing the affairs of the corporation and making decisions about day-to-day operations.

There are two ways that someone can become a director. First, an individual can be legally appointed or elected as a director pursuant to the Ontario Business Corporations Act ("OBCA"). This type of director is known as a de jure director. Second, an individual may be found to be a director if they act in the capacity of a director despite not being duly appointed pursuant to the OBCA. This type of director is known as a de facto director.

This blog outlines (1) the process of becoming a de jure director and (2) how the courts determine whether someone is a de facto director.

Becoming a De Jure Director

Pursuant to the OBCA, private corporations need at least one director, and public companies generally need at least three directors. In order to become a director of an Ontario corporation certain qualifications must be met.

Step 1 - Eligibility

Directors of a corporation must be individuals, not corporate entities. Section 118 (1) of the OBCA further sets out that the following individuals are disqualified from becoming a director:

• A person below the age of 18 years;
• A person having personally filed for bankruptcy;
• A person with a criminal record; or
• A person who has been found incapable under the Mental Health Act or by a court.

If you have previously filed for bankruptcy or you have a previous criminal record, you are encouraged to consult a lawyer. In both cases, it may still be possible to become a director.

Previously, the OBCA required at least 25% of the directors of a corporation to be resident Canadians, and where a corporation had less than four directors, at least one had to be a resident Canadian. However, as of July 5, 2021, this requirement has been removed. Corporations governed by the OBCA are no longer required to have any directors be Canadian residents.

Unless required by the corporation's articles of incorporation, the director does not need to be a shareholder of the corporation.

Step 2 - Election

Directors who are named upon incorporation hold office until the first shareholder's meeting. At this meeting, the shareholders typically elect a director.

As of July 5, 2021, section 119 (4) of the OBCA was amended to specify that the shareholder vote to elect a director need only be passed by an ordinary resolution. This means the elected director must receive a majority of the votes cast at the meeting.

Step 3 - Consent

Section 119 (9) states that upon being elected or appointed, the individual must consent to the director role in writing within 10 days of the election or appointment. If the individual consents after the 10-day timeframe, the election or appointment may still be valid. However, absent consent, the individual is not a de jure director.

Fresh consent is not required for directors who are re-elected or re-appointed so long as the director serves consecutive terms in office.

Determining a De Facto Director

An individual who is not a de jure director may nevertheless be found to be a director. A de facto director is an individual who assumes to act as a director despite never having been validly elected or appointed into the position.

Whether an individual is a de facto director is assessed on a case-by-case basis. Some factors that courts look at to determine whether someone is a de facto director include:

• Documentation or testimony suggesting that this individual acts in a directorial capacity
• Responsibilities of a directorial nature (e.g. managerial role, decision-making power)
• Documents acknowledging the individual as a director
• Evidence of the appointment process (e.g. election or meeting minutes)
• Written consent accepting director position

An example of how Ontario courts determine whether someone is a de facto director can be found in Danso-Coffey v. Ontario, 2010 ONCA 171. In this case, the applicant argued that they were not the director of Danso Enterprises, and therefore, should not be personally liable for sums owed to the Ministry of Revenue.

To determine whether Ms. Danso-Coffey was a de facto director, the court first looked at consent. It was found that Ms. Danso-Coffey was unaware that her brother had named her as a director, and that she never gave consent in writing. Evidence also showed that she had no operational or decision-making involvement in the business, and that she had never received income from the company. In consideration of these factors, the court determined that she was never a director.

Takeaways

Directors are integral to a corporation. In addition to being responsible for managing and supervising the corporation's affairs, directors may be personally liable for the acts of the corporation. As such, it is critical to ensure that individuals understand the process involved in becoming a director and the circumstances in which they may be found to be a director of a corporation.

Those who want to become a director, are a director, or believe they may be a de facto director are encouraged to speak with an experienced lawyer to learn more about their role and responsibilities. Lee Workplace Law would be happy to help.