Directors, Officers, and Shareholders: Understanding Roles and Responsibilities in a Corporation — CPA Firm Near You, Montreal

Introduction

Many small business owners in Quebec incorporate without fully understanding the distinct roles of directors, officers, and shareholders. Confusion between these functions can lead to legal mistakes, governance problems, and tax exposure. CRA, Revenu Québec, banks, and courts rely on clear corporate structures, and misunderstanding these roles can undermine liability protection and corporate compliance. This guide explains each role, what the law requires, and how a CPA near you in Montreal can help you maintain proper corporate governance.

Legal and Regulatory Framework

Under the Quebec Business Corporations Act (QBCA) and the Canada Business Corporations Act (CBCA), corporations must separate ownership, management, and oversight. Shareholders own the corporation. Directors oversee the corporation, appoint officers, and approve major decisions. Officers manage daily operations. Corporate records must document these roles in minute books, registers, and resolutions. Directors owe legal duties of diligence, loyalty, and good faith. Officers must execute responsibilities delegated by directors. Shareholders have limited liability but must elect directors annually. Failure to respect these roles can lead to fines, invalid decisions, or personal liability.

Key Court Decisions

Courts have ruled that directors can be personally liable for unremitted GST/QST, payroll deductions, and negligent management. Judges confirmed that officers acting beyond their authority can invalidate contracts. Shareholders who act like directors without being appointed may be treated as de facto directors and held responsible. Courts emphasize that corporations must document director elections, officer appointments, and shareholder decisions in the minute book to maintain legal validity.

Why CRA and Revenu Québec Look Closely at Governance

Corporate governance issues raise red flags for tax authorities. CRA and RQ examine minute books and filings to confirm who controls financial decisions, who authorized dividends or salaries, whether resolutions were passed legally, and whether officers acted within their authority. Problems arise when directors and officers are not formally appointed or records are missing. Governance failures increase audit risk and can lead to reassessments, penalties, or denial of deductions.

Role of Shareholders

Shareholders own the corporation. They invest capital, elect directors, approve major changes such as reorganizations, and receive dividends. They do not manage daily operations unless also appointed as directors or officers. Their liability is limited to their investment, provided corporate formalities are respected.

Role of Directors

Directors are responsible for strategic oversight. They approve financial statements, appoint officers, authorize dividends, approve borrowing, maintain compliance, and manage corporate risk. Directors must act in good faith and in the best interests of the corporation. They can be held personally liable for payroll deductions, GST/QST, and negligent governance.

Role of Officers

Officers such as the president, secretary, or treasurer manage operations. They execute decisions, sign contracts, maintain records, manage staff, and oversee finances. Officers report to the board. Their authority must be documented in resolutions to ensure legal validity.

Problems When Roles Are Not Clearly Defined

Mixing roles leads to unauthorized decisions, invalid contracts, personal liability, tax disputes, misallocated dividends or salaries, incorrect share transactions, and breakdown in corporate governance. Lack of documentation allows CRA or RQ to challenge compensation, corporate structure, or expense claims.

Mackisen Strategy

At Mackisen CPA Montreal, we help corporations clarify governance by updating minute books, documenting director elections and officer appointments, maintaining shareholder registers, preparing annual resolutions, and ensuring compliance with QBCA/CBCA rules. We guide owner-managed businesses on how to correctly separate roles, protect limited liability, and maintain audit-ready corporate records.

Real Client Experience

A Montreal corporation paid dividends without director approval. CRA denied the deductions and reclassified payments as shareholder benefits. We corrected the minute book, prepared missing resolutions, and resolved the audit. Another client had no record of director appointments. During financing, the bank rejected the file until governance documents were updated; we rebuilt the minute book and secured approval.

Common Questions

Can one person be shareholder, director, and officer?

Yes, but each role must be formally documented.

Are directors always personally liable?

Only for specific obligations such as payroll deductions and GST/QST.

Do officers need to be employees?

No, but their authority must be documented.

Do shareholders manage the business?

Not unless formally appointed as directors or officers.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps corporations maintain proper governance, protect limited liability, and comply with tax and legal requirements. We ensure your corporate structure is properly documented and audit-ready.