Entrepreneurs are very busy people and in their busy schedules, they often combine the role of director, shareholder and officer. So much for just one person! Don’t worry, it’s possible to combine roles.
Thanks to the article “The three types of actors in a Quebec company“, you now understand the different stakeholders of a corporation. If the role of shareholder seems clear to you, many entrepreneurs still confuse the notions of “directors” and “officers”. Today, we set the record straight and explain what the directors of a Quebec corporation do.
What is an officer of a Quebec company ?
If the word “officer” makes you think of a director or a manager: bingo! You already understand the first characteristic of an officer: a person in a position of power who acts on behalf of the company.
You thought this was the role of directors? It’s true, BUT…
OFFICERS ARE APPOINTED, NOT ELECTED
In Quebec, the manner in which officers accede to their position is different from that of directors. Remember that shareholders have the right to vote at a shareholders’ meeting to elect directors (not officers). Once this is done, the directors become responsible for the management of the Québec corporation.
Although they are not obliged to do so, the directors may in return appoint officers.
Thus, the choice and appointment of officers is left to the full discretion of the board of directors.
Unless there is a unanimous shareholder agreement, shareholders play no role in the appointment of officers.
THE DAY-TO-DAY WORK OF AN OFFICER
Officers do not perform the same duties as directors.
Once they have appointed an officer, directors are no longer involved in the day-to-day management of the company.
But careful: The directors continue to define the general and strategic orientations of the company, but the officers are responsible for the day-to-day execution of said orientations. The directors play the role of the architect and the managers in return play the role of the worker.
The officers often include the position of president, vice-president, secretary or treasurer, but they may have any other title that the board of directors may agree upon.
In Quebec, the board of directors determines the salary paid to officers. As with the officers’ appointment, shareholders do not have a say in the salaries paid to officers (subject to a unanimous shareholder agreement).
Officers are generally employees of the corporation. Since they are involved in the company’s major decisions, however, the Quebec Business Corporations Act and the Canada Business Corporations Act give them specific responsibilities and duties.
What an executive may or may not do in a Quebec company ?
In Quebec, due to their position, officers are considered “mandataries”. A mandatary is a person who is given a power of representation. Officers therefore have the power to act on behalf of the Quebec corporation with respect to third parties. Subject to their position description, directors may even enter into legal acts on behalf of the corporation.
As mandataries and in accordance with section 119 of the Quebec Business Corporations Act, officers must act with “prudence and diligence” as well as “honesty and loyalty” in the sole interest of the corporation. The obligation of prudence and diligence is also mentioned in articles 321 and 2138 of the Civil Code of Québec.
In Quebec, persons appointed to serve as officers of the Corporation must comply with certain ethical rules. In the same vein as their duty of honesty and loyalty to the corporation, officers must avoid conflicts of interest.
According to section 122 of the Quebec Business Corporations Act, an officer must disclose the nature and value of any interest he or she has in a contract or transaction to which the corporation is a party. An “interest” may be considered a financial benefit that could reasonably be expected to influence an officer’s decisions.
According to Quebec law, an officer who is in a situation of conflict of interest must disclose his interest as soon as he is appointed or as soon as he learns that a contract concerning him will be discussed or, better yet, as soon as he acquires an interest.
For example, suppose you have incorporated a “Québec communication” company and decided to hire an executive as CFO. He turns out to be one of the shareholders of your direct competitor “Montréal communication”. If your board of directors were to discuss a possible partnership with Montréal communication, your CFO would be required to promptly notify the board of directors that he owns shares in this company. He would also have to inform the board of directors of the number of shares he owns and whether or not he is entitled to dividends.
Finally, officers may not use the information they have obtained in the course of their duties for their own benefit or for the benefit of third parties.
Like directors, officers must perform their duties properly and do so in compliance with the law.
What are the responsibilities of an officer in Quebec ?
The liability of officers is similar to that of directors. As a general rule, officers cannot be held personally liable for debts and other obligations incurred by the corporation.
Therefore, if the Quebec corporation were to become insolvent, its creditors would not be able to turn to the officers to collect their claims (unless the officers have given a guarantee or have personally incurred the obligation in question).
Like directors, officers may be held liable for certain actions prohibited by law, such as non-compliance with tax or environmental laws.
In the event that officers act within the scope of their functions (i.e., they had the power to perform an act), they cannot be held liable. However, if these officers act outside of their functions (i.e., without the power to do the act), they cannot hide behind the corporation and can be held accountable for their actions.
For example: in Quebec, a CTO who commits an error while working in his department cannot be held personally liable for that error. If this director begins to modify the company’s financial statements, he can be held responsible for damages incurred by the company.
Conclusion
The role of managers is often confused with that of directors. This confusion is quite understandable. However, it should be remembered that although it is possible to combine the two roles, the role of director differs from that of officer in many respects in Quebec.
We hope this clarifies things for you! If you have any questions about our legal products, please do not hesitate to contact us by e-mail at bonjour@lexstart.ca or make an appointment by phone.
