Whether you’re running a growing business or sitting on the board of a not-for-profit, good corporate governance isn’t just good practice: it’s a legal obligation. When overlooked, even simple governance missteps have the potential to create serious operational, reputational, and legal issues. But in many small to mid-sized organizations and NFPs, governance often takes a back seat to day-to-day operations. Below are some common governance mistakes under Canadian corporate law — and what you can do to avoid them.
1. Treating the Board Like a Rubber Stamp
Many small or closely-held corporations and NFPs have boards that meet infrequently and take a hands-off approach to corporate oversight, simply approving proposals put forward without engaging meaningfully in the decision-making process. Directors may feel their role is to approve decisions already made by management or provide feedback on strategy and oversight. This undermines the board’s fiduciary duties and increases the risk potential for claims of negligence or mismanagement.
Under legislation such as the Canada Business Corporations Act (CBCA), Ontario Business Corporations Act (OBCA), Canada Not-for-profit Corporations Act (CNCA), and Ontario Not-for-Profit Corporations Act, 2010 (ONCA), directors have a legal obligation to act honestly, in good faith, and in the best interests of the corporation, exercising the care, diligence, and skill of a reasonably prudent person (e.g. CBCA s.122, OBCA s.134, CNCA s.148(1), ONCA s.43). These are not symbolic duties — they are enforceable legal standards. A board that fails to actively oversee the organization may be exposed to liability if a legal claim or regulatory issue arises.
Organizations can reduce this risk by ensuring meetings allow space for active discussion, and directors are clear on their roles, receive adequate training and onboarding support, and have regular access to timely, relevant information.
2. Poor Record-Keeping (or No Records at All)
In smaller organizations, maintaining accurate corporate records is often pushed to the bottom of the to-do list. At Mills & Mills LLP, we often see businesses or NFPs with incomplete or disorganized minute books — or none at all. This may not seem like a problem until a triggering event arises, such as a financing, sale, audit, legal dispute, or grant application, and gaps in the record can raise red flags.
Under the CBCA s.20, OBCA s.140, CNCA, s.21 and ONCA, ss.92-94, corporations are required to maintain up-to-date records, including registers of directors and officers, copies of resolutions, meeting minutes, and governance documents like articles and bylaws. Failing to maintain these records isn’t just a technical oversight; it can call into question the legitimacy of board decisions or corporate structure.
In addition to maintaining these internal records, corporations must also stay on top of annual return filings — a separate obligation from tax filings — which, depending on your jurisdiction, must be submitted to Corporations Canada or filed via the Ontario Business Registry every year. Missing or late filings can lead to administrative dissolution, loss of status, or problems when dealing with banks and third parties.
We regularly assist with updating minute books, filing outstanding annual returns, and rebuilding incomplete or missing records. Investing in proper record-keeping, whether digitally or through a traditional minute book, is crucial to avoid future regulatory complications, improve transparency, and demonstrate compliance with legislation.
3. No Succession Plan for Directors or Key Executives
Many small businesses and NFPs rely heavily on a founder, executive director, or small leadership team. But when those individuals leave, expectedly or otherwise, lack of a succession plan can create confusion, conflict, loss of institutional knowledge, and paralyze decision-making.
While there’s no statutory requirement under Canadian corporate legislation to have a succession plan in place, doing so is part of good corporate governance and promotes stability and longevity. This is especially true in not-for-profits that rely on donor confidence, or in family-owned businesses with unclear generational transition plans.
Succession planning doesn’t need to be elaborate. Boards should identify key roles, assess internal capacity, and build leadership development into their organizational strategy, as well as review governance documents, such as shareholder agreements, with legal representatives to ensure they support clear, flexible transitions.
4. Outdated Governance Documents
Many organizations operate with governance documents that no longer reflect reality. We often find by-laws, shareholder agreements, and board policies that have been drafted once and then forgotten —failing to reflect current practices, legal changes, or organizational growth.
This is particularly important in light of recent changes in Canadian corporate law. For example, ONCA, which came into force in 2021, revamped requirements for non-profit boards, membership structures, and procedural rules. Organizations that haven’t yet updated their by-laws to comply with ONCA should seek legal assistance to do so.
Regularly reviewing and updating governance documents is one of the simplest and most effective ways to ensure your organization remains compliant and aligned with its current operations. This process can also help clarify roles, prevent disputes, and strengthen internal decision-making.
Governance is Preventative Medicine
Strong governance protects your organization before problems arise — but it needs to be proactive and intentional. If your board or leadership team is overdue for a governance checkup, consider Mills & Mills LLP for a legal review of your structure, documents, and practices. Catching these common issues early can save you time, money, and headaches down the line. To learn more about how we can assist you, please contact us online or by telephone at (416) 863-0125.
At Mills & Mills LLP, our lawyers regularly help clients with a wide range of legal matters including business law, real estate law, estate law, employment law, health law, and tax law. For over 140 years, we have earned a reputation amongst our peers and clients for quality of service and breadth of knowledge. Contact us online or at (416) 863-0125. The material provided through the Mills & Mills LLP website is for general information purposes only. It is not intended to provide legal advice or opinions of any kind.
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