What director liability do I take on in a share purchase?

A share purchase buys the company with its history, and the buyer then becomes a director of it. That second step carries personal exposure the purchase agreement cannot allocate away, because the liability runs to the tax authority rather than to the seller.

Where personal liability bites

Amounts a company holds in trust — income tax, employment insurance and pension deductions withheld from pay, and GST/HST collected from customers — attract director liability if not remitted. Several provinces add unpaid wages and vacation pay. These are not ordinary corporate debts where the company alone answers.

An indemnity from the seller is not the same as protection

A seller can agree to indemnify a buyer for pre-closing tax liabilities, and that is worth having. It does not stop the authority assessing the director personally — it gives the director a claim against the seller afterwards, which is only as good as the seller’s ability to pay. This is precisely where a holdback does work an indemnity alone cannot.

What to search before you accept the appointment

Confirm the status of every program account directly rather than from the seller’s statements: payroll remittances, GST/HST filings and any balance owing. In an asset purchase the question is narrower, which is one of the real differences between the structures and worth weighing while the structure is still open.

Due diligence has a second meaning here

Directors can resist liability by showing they exercised reasonable care to prevent the failure. For a new director that means acting once appointed — establishing the position, putting remittance controls in place, and documenting it. Appointing yourself and leaving the previous arrangements untouched is the position hardest to defend.