BRIAN OSLER BARRISTER, SOLICITOR & NOTARY PUBLIC
Director Liability
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People provide a tremendous community service by sitting on the board of directors of charitable and not-for-profit organizations. Their work helps people in need and furthers important causes. Charitable and notfor-profit organizations play an essential role in a well-functioning society. Directors are needed to manage these organizations and make it possible to achieve their mandate. Being a director also involves responsibilities. Failing to meet these responsibilities can expose directors of a charitable or not-for-profit organization to personal liability. Fortunately, directors can take steps to minimize their exposure to personal liability so that they can continue to serve their organizations with peace of mind and security. Directors often retain lawyers to help them meet their duties and obligations as directors. The legal fees are not necessarily expensive and are usually paid by the organization. This arrangement is in everyone’s interest. It protects the directors from unexpected liabilities and ensures that the organization is run by an informed, active and responsible board. Directors have a wide range duties and responsibilities. Directors must comply with statutes, meet a certain standard of care in managing an organization and must ensure that activities are properly authorized. Particular attention must be given to potential or actual conflicts of interest, ensuring payment of taxes and employment source deductions, unpaid wages to employees, compliance with privacy and environmental protection legislation, financial management and investment policies of the organization and the general obligation of directors to perform duties in good faith and with honesty and loyalty. The failure of a director to meet these duties can lead to personal liability. A lawyer can help a director determine whether these duties and responsibilities have been met. A lawyer can help correct any deficiencies so that directors are protected from personal liability.
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B RIAN O SLER B ARRISTER, S OLICITOR & N OTARY P UBLIC
70 East Beaver Creek Road Suite 30 Richmond Hill, Ontario Canada L4B 3B2 Phone: 905-882-7045 Fax: 905-882-7061 E-mail: brian@geodesic.ca
A charitable or not-for-profit organization can also provide an indemnity to its directors or purchase liability insurance for the board. However, the Charities Accounting Act sets restrictions on indemnities and liability insurance policies that can be provided by charities. Before a charity can give an indemnity or purchase director liability insurance, the board must first review the degree of risk facing directors, whether it is possible to eliminate risks by means other than an indemnity or insurance and whether the cost of insurance is reasonable compared to the risk and other factors. There are other restrictions on the indemnity or insurance that can be provided by a charitable organization to a director. Directors should be fully informed of their responsibilities and obligations. Directors can manage their risk of personal liability by getting legal advice. The lawyer will advise on whether the directors are performing adequate due diligence, complying with the law and meeting their obligations in managing the organization. The lawyer will also advise the director on obtaining an indemnity from the organization and director liability insurance. The directors can then return their attention to steering the organization towards its goals and objectives.
For more information, contact Brian Osler, Barrister, Solicitor & Notary Public: 70 East Beaver Creek Road, Suite 30 Richmond Hill, Ontario, Canada L4B 3B2 Telephone: 905-882-7045 Fax: 905-882-7061 e-mail: brian@geodesic.ca The information in this publication is merely information and is not intended to provide legal advice. The information is not specific to any particular individual or organization. To obtain legal advice, it is necessary to review your particular situation and facts with a lawyer.