One of the main reasons to incorporate is limited liability. The Business Corporations Act (Ontario) (the “OBCA”) states that shareholders are not liable as shareholders for acts, defaults, obligations, or liabilities of the corporation except as provided in the OBCA. That principle separates the corporation’s legal obligations from the personal obligations of its shareholders.
But limited liability should not be oversold. Shareholders may still be liable under contracts they personally guarantee, under tax or employment statutes, under oppression or other court remedies, or under a unanimous shareholder agreement that transfers director powers and related liabilities to shareholders. The OBCA’s limited-liability rule is a starting point, not a universal immunity clause. In practice, shareholders should understand when they are acting merely as investors and when they are also acting as directors, guarantors, managers, or controlling decision-makers.
The information in this post is intended to be legal information only and nothing in it should be interpreted as legal advice.