Unethical business practice has been the topic of note in the news lately, with criminal charges being brought against CEO's of major corporations such as Enron and WorldCom. Directors of small, private corporations should also know their duties and obligations, as they too could run into legal problems. This article will cover some of the more common legal problems that one may face as the head of a private company.

As common sense would suggest (and the law requires) every director of a corporation responsible for exercising and discharging duties is obliged to act honestly and in good faith, with the good of the company as his or her primary objective. Legally, this is held in the context of a reasonably prudent person in comparable circumstances.

A director or officer of a corporation must comply with the Business Corporations Act, the Regulations, Articles, By-Laws and any Unanimous Shareholders Agreement. There are no provisions in these documents that relieve the director from her or his duties with accordance of the Business Corporations Act, and more importantly relieves the director from liability from the breach of that duty.

The Business Corporations Act requires disclosure by a director of any interest in a material contract. What this essentially means is that the director of a company may not do business with anyone they have a current business relationship with, without disclosing it in writing (or as the minutes of a shareholder meeting). If the director has an interest such as this, they are not allowed to vote on any resolution to award a material contract with that firm. There are limited exceptions to this.

A director is liable who takes part in actions that are contrary to the Business Corporations Act. Specific acts include: issuing shares for reasons other than money, a more than reasonable payment for commission on the sale of shares, the repurchase of shares, making of loans to shareholders, among others. Your lawyer can give you the full list of potential liabilities should you want them.

Liability comes into play for a director in certain employee relations. They may be liable for debts for services performed for the corporation by an employee while he or she is the director. The director is not liable for services by an employee if the company can reasonably be expected to repay its debts, nor is the director liable if the services were performed while the company is in receivership, or in liquidation.

Although not an exhaustive list a director may also be liable under the following acts:Income Tax Act directors are considered personally responsible for withholding taxes.Excise Tax Act a director may liable for the failure of a corporation to remit GST.Alberta Securities Act both the corporation and its directors and officers are equally liable for misrepresenting disclosure documents.