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Non-profits must have directors. Together, they form the board of directors for a corporation. The board has the overall responsibility for managing the activities and affairs of the corporation. They can appoint officers to assist in the running of the corporation. It is important for directors and officers to understand their duties and liabilities.
Membership corporations must have at least one director. Charitable corporations must have at least three directors. At least two of these three must not also be officers or employees of the corporation. Under their articles, corporations can set out the number of directors they want to have. However, they cannot have fewer than the minimum required by law.
A director of a non-profit corporation can be any person who:
At least one director must live in Saskatchewan. If not, the corporation must appoint a power of attorney. This can be done using the Power of Attorney form. A director does not have to be a member of the corporation unless required by the corporation's articles.
The first directors are selected when the corporation is first created. They hold office until the first annual meeting of the members. The directors must call this meeting no later than 18 months after the corporation was created. At this meeting, members vote to elect directors. After that, the members meet each year to elect the directors. If no directors are elected, those already in office continue to be the directors.
To be elected, a director must have the majority of the votes of the members who voted. Directors do not need to be at the meeting to be elected. Instead, they can consent in writing to being a director before the election or within 30 days after the election.
Terms for directors can be for up to three years. If no term is specified for a director, their term ends at the next meeting where an election is required. Directors do not need to all be elected for the same term.
If the minimum number of directors is not elected at the annual meeting, the directors that are elected can still act as the board as long as they constitute a quorum. This may happen because a candidate did not consent to being a director, died or is unqualified.
New directors can also be appointed by the existing directors instead of being elected if the articles allow it. In this case, they can only hold office until the next annual general meeting. No more than one third of the directors can be chosen this way.
Directors can resign before their term is complete. Resignation of a director is reported using the Resignation of Directors form. A vacancy can also be created if a director:
If there are no directors at any given time, a person who manages the affairs of the corporation becomes the director.
If there is a vacancy on the board of directors between elections, the board can fill the vacancy unless the articles provide otherwise. A vacancy can be filled only by members if the vacancy exists because:
Any change to who is a director or officer of the corporation must be reported to the Corporate Registry within 15 days. This can be done online, if available, or by using the Change of Directors/Officers form.
The directors listed when the non-profit applied to incorporate make up the first board of directors. They have an initial meeting to make some organizational decisions such as:
After the initial meeting, they continue to meet as needed. How often the board of directors is required to meet may be set out in the bylaws. The board's functions often include:
In most cases, the board makes decisions at meetings of the directors. No one can act for a director at a meeting. Subject to the bylaws, a director, with the consent of the other directors, can participate in a meeting and vote remotely. A board can make a decision without a meeting if all the directors entitled to vote on the matter sign a written resolution. The written resolution can be signed electronically.
The directors can choose to appoint officers to fill various positions on the board. Examples include the board chair, secretary and treasurer. The board can also choose to appoint officers to perform certain duties for the corporation. Directors can also be officers. The same person can also hold two or more offices of the corporation. Some powers of the board cannot be delegated to officers, including:
The articles and bylaws can change how officers are appointed.
The first meeting of the board can be called by any director appointed when the corporation was created. The other directors must be given at least 5 days’ notice of the time and place of the meeting.
After the first meeting, the notice required for subsequent meetings can be set out in the bylaws. In some cases, the notice must state what business will be discussed at the meeting, including:
Directors can waive notice of meeting. They are also considered to have waived notice if they attend unless it is only to object to the meeting being held.
Before business can be transacted at a directors' meeting, there must be a quorum. The number of directors needed to make up a quorum is determined in one of three ways. The articles may state:
Every director and officer must:
A director or officer may have special skills. For example, they could be an architect. If so, their special skill will be taken into account to determine what is reasonable.
If it is reasonable to do so, directors can:
A director cannot avoid being held to the standard of reasonable care simply by not taking any action. A director who does not give adequate attention to the affairs of the corporation may also be found to have not taken reasonable care. A director who delegates their responsibilities is still responsible for how they are handled.
Unless the articles provide otherwise, directors can receive reasonable pay for services provided to the corporation. They can also be reimbursed for expenses they incur on behalf of the corporation.
A director or officer must disclose any conflicts of interest they may have in any contract or transaction of the non-profit. This applies to proposed contracts or transactions as well. For example, an officer who owns a landscaping company would need to disclose their conflict if the non-profit was thinking of hiring the company.
A conflict may also arise after a deal is made. For example, if a director becomes an owner of a landscaping company that was hired by the non-profit, they must disclose this conflict. The same would be true if the owner of the landscaping company later became a director or officer of the non-profit.
Directors who have a conflict must not vote on the matter. Disclosure must be made as soon as possible. Failing to disclose may result in the contract being set aside. The director or officer could also be held personally liable for any damages.
Directors and officers of non-profits are protected from personal liability for the most part. In most cases, they are not required to pay any debt incurred by a corporation themselves. The corporation itself is a separate legal body. It is responsible for its own debts and obligations. This is one of the advantages of incorporating.
There are some exceptions, however. Directors can become liable for an obligation if the directors themselves agree to be responsible. This may be the case, for example, by giving a personal guarantee on a loan.
Directors and officers can be liable if they fail to properly exercise any of their duties as directors. As mentioned above, these duties include acting honestly and with appropriate care.
A director would not be acting honestly if, for example, they took a secret payment from a landlord in exchange for voting to rent their property. A director could be liable for failing to act with appropriate care if, for example, the director allowed a daycare to rent clearly unsafe premises.
Various laws set out when a director may be personally liable. This includes failing to:
When it comes to lawsuits, it is generally the corporation that may be liable. Employees and volunteers will usually not be found personally liable, even if they were the cause. For example, an employee may have been negligent in dealing with a slippery patch of ice on the corporation’s property. In this case, the corporation is liable, not the employee. The exception to this is when the wrongful act is sufficiently unrelated to the work the employer directed them to do.
Directors and officers have similar protection from liability. As long as they were carrying out their duties in good faith when an injury happened, they cannot be sued for damages. This does not apply if they engage in criminal activity, such as fraud, that results in damages, however. This immunity also does not affect the statutory liabilities of directors.
The non-profit itself continues to be liable for damages if someone successfully sues on the basis that they were harmed. The damages would then be paid out of the funds of the non-profit. The non-profit itself also cannot sue the employee or volunteer who was responsible. The exception to this would be if criminal activity were involved. If an employee stole money from the non-profit, the non-profit could sue to get it back.
Directors may personally arrange to buy insurance to protect themselves from liability. Corporations can also purchase and maintain insurance for the benefit of the directors. In either case, the proceeds of the policy will only be paid to a director who has acted honestly and in good faith. For example, directors cannot insure themselves against the consequences of stealing from the corporation. Directors' insurance is less common than it once was because of the dramatic increase in the premiums in recent years.
It is usually a good idea to have comprehensive general liability insurance for the corporation itself. This type of coverage could reduce the danger of financial disaster if a large judgment is made against the corporation. To assure coverage, all hazards must be reported to the insurer when the policy is drawn up and the insurer must be informed of new risks when they arise. For example, if a daycare centre operating as a non-profit corporation expands to include a playground open to the public, the insurer must be notified.
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