Introduction

There is a breadth of common law that establishes various duties and liabilities of directors¹. Some of these duties are codified in applicable not-for-profit legislation.² This article provides a brief introduction to some of the duties of directors of not-for-profit corporations subject to the Ontario Not-for-Profit Corporations Act, 2010³ (ONCA) and the Canada Not-for-profit Corporations Act⁴ (CNCA). Future articles will expand on certain key duties of directors of not-for-profit corporations.

Why It Matters

Directors who breach their duties to a not-for-profit corporation may be liable if the corporation suffers a loss that results from their action or inaction as a director.⁵ To limit potential exposure to personal liability, it is crucial that directors understand and fulfill their duties. Fulfilling their duties also assists in ensuring that directors are acting in the best interests of the not-for-profit corporation as required by legislation.

Oversight of Not-for-Profit Corporation

Under not-for-profit legislation, the directors of a not-for-profit corporation are required to manage or supervise the management of the activities and affairs of the corporations.⁶ This is one of the most basic duties of the board of directors. Broadly speaking, the board of directors is responsible for supervising management, strategic planning, and creating corporate policy.⁷ The directors are also responsible for ensuring the financial stability of the not-for-profit corporation.⁸

Standard Care

Directors owe a fiduciary duty to the not-for-profit corporation.⁹ Under applicable legislation, directors are required to:

a) act honestly and in good faith with a view to the best interests of the corporation; and

b) exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.¹⁰

The standard of care also includes the duty to comply with the relevant legislation and its regulations, as well as the not-for-profit corporation’s articles and by-laws.¹¹ Importantly, this means that directors of a not-for-profit corporation must ensure compliance with the purposes of the not-for-profit corporation.

As mentioned above, directors who do not meet the standard of care expected of them may be held liable.

Business Judgment Rule and Reasonable Diligence

Although directors must meet the standard of care imposed on them, the common law has developed reasonable limitations through application of the business judgement rule. This rule has been used by courts to examine the standard of care in the context of both for-profit corporations and not-for-profit corporations.¹² The substance of the business judgement rule is that the courts will defer to the responsible business judgment of a director, including an error in business judgment, if it was made after an honest and good faith evaluation.¹³

Put another way: can the directors demonstrate that they made reasonable decision (not a perfect decision)? To avoid liability through reliance on the business judgment rule, directors of not-for-profit corporations need to demonstrate diligence in their decision making.

In addition, both ONCA and the CNCA provide for a reasonable due diligence defence¹⁴ for certain losses suffered by the not-for-profit corporation if the director can demonstrate that he or she exercised the care, diligence and skill that a reasonably prudent person would have exercised in comparable circumstances. From a practical perspective, this means directors must fully and carefully consider all appropriate meeting and other materials and consider the advice of professionals where required.

Conclusion

Directors of not-for-profit corporations have very real expectations and duties imposed on them through legislation and the common law. A breach of these duties can potentially lead to personal liability. It is important for directors to understand their duties, and to act diligently and with care toward the best interests of the not-for-profit corporation to ensure they meet the standard of care expected of them.

Specific aspects of the fiduciary duties of directors of not-for-profit corporations will be expanded on in a future article.

We Can Help

Walter Lehman practices Community Law as a member of the Corporate and Commercial Law practice group at KMB Law. He advises community organizations, including not-for-profits, foundations and charitable organizations on compliance matters, governance matters, and assists with setting up not-for-profit organizations and obtaining registered charity status. Should you have any questions regarding duties of a not-for-profit corporation, Walter would be pleased to assist.

This article is provided for general information purposes and should not be considered a legal opinion. Clients are advised to obtain legal advice on their specific situations.

¹ Corporate and Practice Manual for Charities and Not-for-Profit Corporations, Burke-Roberston, Carter and Man, Release No. 5, August 2026
² Ibid. This excludes the common law applicable to charities, which may take precedence if there is a conflict with not-for-profit corporate legislation (not discussed in this article).
³ S.O. 2010, c. 15.
⁴ S.C. 2009, c. 23.
⁵ Jane Burke-Roberston, Primer for Directors of Not-for-Profit Corporations (Industry Canada, 2002).
⁶ ONCA, s. 21 and CNCA, s. 124
⁷ Jane, supra, note 5.
⁸ Corporate, supra, note 1.
⁹ Corporate, supra, note 1.
¹⁰ ONCA, s. 43(1) and CNCA, s. 148(1).
¹¹ ONCA, s 43(2) and CNCA, s. 148(2).
¹² Corporate, supra, note 1.
¹³ Ibid.
¹⁴ ONCA, s. 44 and CNCA, s. 149 (1).

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