It is so common for entrepreneurs to think that all they have to do is incorporate a business and they are fully protected personally from any repercussions that could arise as a result of the business. For example, they believe that if the Company runs into debt that the owners of the company are free and clear from this problem. If worse comes to worse the business can just file for bankruptcy.
This type of thinking often leads individuals to accepting the position as a director and officer of a company way too lightly.
Anyone that is taking on the position of a director in a Company should know the answers to…
Who holding any of the corporate positions can be held liable and for what and to what extent? They should know what they can do to protect themselves within the confines of the law. They also need to know what could be the possible consequences if they were to be held liable.
It is not good enough for a director who is one in name only to state that they had no hands on dealing with the company. They may feel that if something is remiss in the company concerning the CRA that because they were in no decision making capacity that they are exempt from any CRA scrutiny. This sort of stance can backfire. The CRA may come to the opinion that this particular director did not take their position seriously and they failed to meet their obligations that comes with being a company director.
It can even go a step further. Although someone may not officially be on record as a director, if they are acting like one by fulfilling some of the responsibilities then they could be held accountable just as if they were a director.
The big thing to remember with the CRA regulations are is that they are broad spectrum. They are going to encompass everything that could possibly affect the tax obligations of a business. It may seem like the rules and regulations for running a business are one sided, in the favor of the CRA, and this is pretty much true. Business experts will use endless energy to always try and detect loop holes in the Canada tax laws, and they are pretty good at it. For a short period of time anyway, because as soon as a flaw in the law is detected and legally used to the advantage of the tax payer, it quickly becomes rectified by the CRA through amendments or changes.
What is important to take away from here, is that no matter what involvement you have with a Company whether it be a director, shareholder, management or an employee know what your obligations are and what if anything you could be held liable for in regards to the business.
Even if you are family member of someone who wants to start a small business and wants to name you as a director, unless you are fully aware of what the obligations as a director for that company would be and you are prepared to fulfill these then you are better off saying, “thanks” but no thanks”.