Does Incorporation Protect You in Alberta? Director Liability Guide
Many business owners incorporate to protect themselves from personal liability. Incorporation does create a separate legal entity, and in most cases it shields shareholders from business debts.
However, incorporation is not absolute protection.
Directors and officers can still face personal liability in specific situations, particularly involving wages, taxes, regulatory compliance, or improper decision-making. These risks often surprise business owners who assume the corporation fully protects them.
The team at Libra Law regularly advises Alberta business owners and directors on how to manage these risks and structure their companies properly. Understanding where liability can still arise is essential to protecting both your company and your personal assets.
What Incorporation Actually Protects
Incorporation generally protects shareholders from personal responsibility for the corporation’s everyday debts.
For example, if the company:
- defaults on a supplier invoice
- loses money on a contract
- cannot repay a loan
creditors typically pursue the corporation, not the individual owners.
This separation is one of the main benefits of incorporation and an important reason many businesses choose to operate through a company structure.
However, this protection has limits.
When Directors Can Be Personally Liable
Alberta law imposes specific duties and responsibilities on directors. If those duties are breached, the “corporate shield” may not apply.
Directors can be personally liable for:
- unpaid employee wages and vacation pay
- certain tax remittances
- environmental or safety violations
- breaches of fiduciary duty
- signing personal guarantees
- reckless or negligent leading of the business
In these cases, creditors, employees, or regulators may pursue directors directly.
Understanding these risks is part of effective governance and risk management through business law services in Alberta.
Employment Law Liability Is Common
One of the most frequent sources of director liability involves employees.
If a company cannot pay wages, overtime, or vacation pay, directors may be personally responsible for outstanding amounts. This often arises when businesses face financial distress or shut down operations suddenly.
Employment obligations can also become expensive during terminations. Miscalculating severance or termination pay may lead to wrongful dismissal claims.
To understand these potential costs, review guidance on severance packages in Alberta and employment law services in Alberta.
Tax and Government Remittance Risks
Directors may also be personally liable for certain unpaid taxes and statutory remittances.
These can include:
- payroll deductions
- source deductions
- GST or other required payments
If the corporation fails to remit these amounts, directors may be assessed personally.
This risk often arises when cash flow is tight and businesses prioritize other payments first. Unfortunately, delaying government remittances can create personal exposure.
Personal Guarantees Can Eliminate Protection
Even when the law would otherwise protect you, signing a personal guarantee can override that protection.
Banks, landlords, and suppliers frequently require directors to personally guarantee:
- loans
- leases
- credit lines
If the company defaults, the creditor can pursue the director’s personal assets directly.
Before signing any guarantee, it is important to understand exactly what obligations you are taking on.
Poor Governance Increases Risk
Directors who fail to maintain proper corporate governance are more vulnerable to claims.
Common issues include:
- failing to document decisions
- not keeping financial records current
- ignoring compliance obligations
- mixing personal and corporate finances
- outdated minute books
Good documentation demonstrates that directors acted responsibly and in good faith.
You can learn why record keeping matters in the importance of corporate records in Alberta.
How Directors Can Reduce Personal Exposure
While liability risks cannot be eliminated entirely, they can be significantly reduced with proactive planning.
Practical steps include:
- staying informed about the company’s financial health
- keeping proper records and minutes
- ensuring compliance with employment and tax laws
- obtaining appropriate insurance
- seeking legal advice before major decisions
- reviewing contracts before signing personal guarantees
Taking these steps early is far less costly than defending a lawsuit later.
Get Advice Before Problems Arise
Incorporation is a valuable tool, but it is not a complete shield.
Understanding your duties and acting proactively helps protect both your company and your personal assets.
If you are unsure about your obligations or facing a potential liability issue, you can reach out through the contact page to speak with a lawyer.
This article is for general informational purposes only and does not constitute legal advice. For advice specific to your situation, consult a qualified professional.
