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How do shareholders remove a director or officer from a corporation?

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    How do shareholders remove a director or officer from a corporation?

    A director of a corporation and its officers have a duty of care to the best interests of a corporation. When these are violated, directors and officers can be removed by a special meeting of shareholders who vote on a resolution to this effect.

    This article will explore the circumstances that warrant the removal of a director or officer and the procedure for their removal.

    Removal of shareholder or officer from a corporation

    A corporation’s management, constituted by its directors and officers, have duties and liabilities reflecting the trust that a corporation’s owners and shareholders have in them. These duties and liabilities are primarily set out in the Canada Business Corporations Act (CBCA) but also are addressed in federal, provincial, and territorial statutes, as well as court decision.

    Duty of Care

    Duty of Care is one of the most important duties set out by the CBCA for directors and officers. Duty of care requires that directors and officer, in carrying out their functions, must

    • Exercise at least the level of care and diligence that a reasonable person would exercise in similar circumstances
    • Act honest at all time, in good faith and in the best interests of the corporation, and not to their own personal interests.

    Remaining Informed

    Can a defense be made by directors and officers that they should not be held responsible because they did not know what the corporation was doing? The answer is a resounding “no.” The CBCA specifies that directors and officers must always

    • Remain informed about the corporation’s activities
    • Ensure that the corporation’s activates are legal and in the best interests of the corporation

    Conflict of Interest

    Preventing conflicts of interests is an important part of running a corporation – a director must ensure that its decisions are in the best interest of the corporation and not one’s own personal interest. Directors and officers, therefore, must disclose in writing any personal interest that they have in a contract with the corporation.

    Directors and Officers Liabilities

    The CBCA under certain circumstances can impose that directors and officers are liable for up to six months’ worth of unpaid wages to employees of the corporation and for any unpaid sources deductions. There are several methods possible to protect directors and officers from liability, as long as they acted in the best interests of the corporation. These methods may include insurance that covers any liability costs, an agreement by the corporation to compensate management for any loss, or an agreement to advance funds for any legal costs, which directors and officers are required to repay if they fail to defend themselves successfully.

    Additionally, to the extent the corporation fails to pay its GST/HST or payroll taxes to the CRA, the directors can and will be held personal liable for these unremitted trust funds.

    Removal of Directors and Officers

    Directors and Officers may not be re-elected following the fulfilment of their term or they may resign. But there may be circumstances that it becomes necessary to remove a director or officer(s) before their term is completed and before shareholders have a chance to vote or not vote for their re-election.

    Removal of directors and officers is resolved by a vote of shareholders in a special meeting, by majority vote of the shareholders. Alternatively, a shareholders resolution, documenting in writing the decision made by shareholders, must be signed and placed in the corporation’s minute book. Additionally, a Notice of Change of Directors must be issued to the appropriate government department involving the submission of a form and the payment of the prescribed government fee.

    Contact Us

    Removing directors and officers that fail to meet their obligations to the company is a process that involves multiple steps that we can assist you with. We will review your options and complete the documentation, forms, and submissions to the government on your behalf. We also ensure that your minute book is up to date and reflects all the relevant activities of your corporation

    -Shira Kalfa, BA, JD, Partner and Founder

    Shira Kalfa is the founding partner of Kalfa Law. Shira’s practice is focused in corporate-commercial and tax law including corporate reorganizations, corporate restructuring, mergers and acquisitions, commercial financing, secured lending and transactional law. Shira graduated from York University achieving the highest academic accolade of Summa Cum Laude in 2012. She graduated from Western Law in 2015, with a specialization in business law. Shira is licensed to practice by the Law Society of Ontario. She is also a member of the Ontario Bar Association, the Canadian Tax FoundationWomen’s Law Association of Ontario, and the Toronto Jewish Law Society. 

    © Kalfa Law 2021

    The above provides information of a general nature only. This does not constitute legal advice. All transactions or circumstances vary, and specified legal advice is required to meet your particular needs. If you have a legal question you should consult with a lawyer.
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