Shareholder vs. Director: Two Different Roles

Shareholder or director: two distinct roles with very different responsibilities

In the business world, the terms “shareholder” and “director” are often used interchangeably. This confusion is understandable—and common—but it can have significant consequences, especially when a company is facing financial difficulties. After more than 30 years of supporting entrepreneurs through pivotal moments, we’ve seen this confusion cost many people dearly. Here’s what you need to know.

The Shareholder: An Investor, Not a Manager

A shareholder is someone who owns shares in a company. By purchasing these shares, the shareholder becomes an owner of a portion of the company—in proportion to their ownership stake. In return, they are entitled to declared dividends and, if the company is sold or liquidated, to a share of the residual assets after creditors have been paid.

That is generally where his direct involvement ends.

A shareholder is not liable for the company’s debts. In fact, this is one of the major advantages of incorporation: limited liability. If the company goes bankrupt, the shareholder loses their investment, but their personal assets are protected—unless they have personally guaranteed certain debts, which is a whole different story.

In short, shareholders assume financial risk but bear no management responsibility.

The Administrator: A Governance Role with Real Responsibilities

The director, for his part, serves on the board of directors. His role is to oversee the company’s management, guide its major strategic decisions, and ensure that it is managed in the best interests of all stakeholders: shareholders, creditors, and employees.

This role is governed by law—whether the Quebec Business Corporations Act or the Canada Business Corporations Act —and entails specific legal obligations:

• Duty of loyalty: to act in the best interests of the company, without any conflict of interest.
• Duty of care and diligence: Make informed decisions by gathering sufficient information before taking action.
• Specific legal obligations: particularly regarding employee withholding taxes, GST/QST, and unpaid wages.

And it is this last point that often takes directors by surprise: they may be held personally liable. If they have not taken the necessary steps to remedy a default, tax authorities or employees may take action directly against them, personally.

When the two roles overlap—and why this is common

In the reality of Quebec’s small and medium-sized enterprises (SMEs), the founder of a company is often both the majority shareholder and a director—and sometimes even the CEO. This concentration of roles is practical, but it creates a false sense of security: people tell themselves, “It’s my company; limited liability protects me.”

That’s not always true.

When a person is both a shareholder and a director, the protection of limited liability applies to their status as a shareholder —but, as a director, they are fully liable under the law.

What this means in practice in the event of financial difficulties

It is often during a company’s insolvency or bankruptcy that roles and responsibilities take on their full significance. Here are a few concrete examples:

Withholding taxes: If the company has failed to remit employees’ withholding taxes to the tax agency, the directors may be held personally liable for those amounts—including interest and penalties.

Sales and Value-Added Taxes (TPS-TVQ): If a company fails to remit the sales taxes it has collected, its directors may be held personally liable for those amounts—including interest and penalties.

Unpaid wages: The law provides that directors are jointly and severally liable for unpaid wages, up to a maximum of six months.

Dividends Paid During a Period of Insolvency: If dividends were distributed while the company was insolvent, or if their payment caused the company to become insolvent, the trustee may recover them—from both the shareholder and the director who authorized them.

Protecting Your Personal Situation: The Right Questions to Ask Yourself

If you are a manager of a company going through a difficult period, here are the questions you should ask yourself—ideally before the situation worsens:

• Are the government rebates up to date?
• Are the employees’ salaries being paid?
• Did I sign any personal guarantees on behalf of the company?
• Am I kept informed of important decisions that are being made?
• Have I taken the necessary steps to document my actions and decisions?

The good news is that, in most cases, taking action early can help protect your personal situation. An administrator who seeks advice at the first signs of trouble is in a much better position than one who waits for the situation to get out of hand.

In conclusion

Being a shareholder in a company means investing. Being a director means governing—and with that come real legal obligations that are not hidden behind the corporate veil.

If you hold either of these roles—or both—and your company is facing headwinds, an initial meeting with our team will allow you to take stock of your situation, your responsibilities, and the options available to you.

This meeting is free, confidential, and non-binding.

The BRESSE Syndics team has been here to support you for nearly 40 years, whether you’re facing a crisis or simply looking for clarity. Schedule an appointment today.