Avoiding the liability traps.

• Author: Rurka, Brian P.

Many of us take pleasure and pride in our community involvement in a wide variety of activities. These activities may be for a favourite charity, for a child's sports club, for the local school, or your church. Our involvement in these activities can often result in being asked to sit on the Board of Directors or to act as an officer of such groups or charities. We accept such an invitation with pride, but often do not consider the liability that may arise.

These not-for-profit organizations or charities are usually operated under the provisions of some type of association, a society, or a not-for-profit corporation. The legal status of the organization can impact the potential liability of officers and directors of the association, society, or not-for-profit corporation. It is the responsibility of the Board of Directors, acting through the officers, to manage the affairs of the organization. (For convenience, reference to associations, societies and not-for-profit corporations shall be collectively called the organization).

Such organizations are usually managed by officers or directors elected for a specific time period (for example, a one or two year term) from among the members of the organization.

This obligation of an officer or director is often referred to as a fiduciary duty to the organization which means the officer or director must exercise the utmost good faith and loyalty to the organization.

The purpose of this article is to describe potential areas of liability that an officer or director of an organization may encounter and to suggest steps that can be taken to avoid such liability should you be asked to volunteer as an officer or director of this type of organization.

Revenue Canada Remittance

The first potential area of liability arises if the organization fails to send to Revenue Canada income tax, employment insurance, or Canada Pension Plan deductions from salary and wages paid to the organization's employees. Directors are personally liable for the payment of the sums required to be paid by the organization as an employer.

This potential liability for unpaid taxes extends to sums collected, or that should have been collected, for the Goods and Services Tax applicable to any goods or services provided by the organization.

A director can minimize this personal liability by insisting that a procedure is in place to pay these funds. For example, a separate bank account could be maintained by the organization to deposit...