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A director’s duty of loyalty toward the corporation

Categories:

Business law, Civil and commercial litigation

As is often the case in commercial matters, shareholders may be called upon to concurrently act as directors of a given corporation. However, it should be noted that a director’s title is not simply a token position, but rather brings various obligations that must be respected.

Specifically, one of the obligations that is often overlooked, but that can also cause serious issues between shareholders and directors within the corporation itself, is the duty of loyalty toward the corporation. In other words, a director will be called upon to see that the best interests of the corporation are favoured when making commercial decisions.

Furthermore, a director may be held liable for any damages if he or she decides to engage in competition with the said corporation, for example, through the establishment of a parallel business. Although this is often a tempting option for directors, that can be made more interesting if various partners of the business are involved in some sort of dispute, a director must always refrain from participating in this, so as to avoid costly lawsuits and disputes that often are more trouble than they are worth.

This being said, always make sure to consult your legal counsel in order to be properly prepared before making any important commercial decisions.

Me Harry Karavitis

Alepin Gauthier Avocats Inc.

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