Old Exemption, New Exposure: What Directors of Pre-1954 Pharmacy Corporations Need to Know

Being a Director is Not a Formality

Ontario's pharmacy ownership legislation contains an unusual grandfathering provision. Corporations that were operating pharmacies on May 14, 1954 are exempt from the ordinary requirement that pharmacists must hold a majority of each class of the corporation's shares.^[1]

Such an exemption can make these corporations commercially valuable. It can permit non-pharmacists to hold the economic interest in a corporation that owns or operates one or more pharmacies. But the exemption’s scope is narrower than many assume.

It is an exemption from the pharmacist share-ownership requirement – not an exemption from the pharmacist director requirement.

That distinction has significant consequences for pharmacists who are asked to serve on the board of a pre-1954 pharmacy corporation.

What Section 142 Actually Says

Section 142 of Ontario's Drug and Pharmacies Regulation Act establishes two separate requirements for a corporation that owns or operates a pharmacy.

“No corporation shall own or operate a pharmacy unless the majority of the directors of the corporation are pharmacists.”

This is subsection 142(1). Subsection 142(2) separately states that no corporation shall own or operate a pharmacy unless a majority of each class of its shares is owned by and registered in the name of pharmacists or qualifying health profession corporations.^[2]

The grandfathering provision appears in subsection 142(4). It provides that subsection 142(2) does not apply to a corporation that was operating a pharmacy on May 14, 1954. The drafting is important: subsection 142(4) disapplies the share-ownership rule in subsection 142(2), but it does not disapply the pharmacist-director rule in subsection 142(1).^[3]

Accordingly, a qualifying pre-1954 corporation may have non-pharmacist shareholders, but a majority of its directors must still be pharmacists. The Ontario College of Pharmacists makes the same distinction in its corporate-amendment guidance, separately identifying the director requirement in subsection 142(1) and the ordinary shareholder requirement in subsection 142(2).^[4]

The Exemption Belongs to the Corporation

The expression “pre-1954 charter” is useful commercial shorthand, but it can obscure the legal structure. The DPRA does not create a free-standing, transferable licence called a “54 charter.” Rather, subsection 142(4) describes a corporation that was operating a pharmacy on the specified date.

In a transaction, the purchaser ordinarily acquires shares of that corporation. The corporation's identity, continuity, historic qualification, corporate records, accreditation status and continuing compliance therefore require careful diligence. A purchaser should not assume that acquiring a corporation described commercially as a charter company, without more, establishes or preserves the statutory exemption.

“Can You Just Be the Director?”

In some pharmacy transactions, the pharmacist-director position may be presented as an administrative requirement. The investor provides the capital. Management runs the business. A Designated Manager is responsible for managing the individual pharmacy. The pharmacist may therefore be told: “You do not need to do anything. We just need a pharmacist’s name as director.”

This is precisely the moment when the pharmacist should stop and ask what the position actually entails.

A person appointed as a director occupies a legal office. A private understanding that the person will be only a nominee, placeholder or director for College purposes does not eliminate the obligations that corporate, tax, employment and pharmacy legislation may attach to that office.

Ordinary Corporate-Law Duties Still Apply

For an Ontario corporation governed by the Business Corporations Act, subsection 134(1) requires every director and officer to act honestly and in good faith with a view to the best interests of the corporation. Subsection 134(1) also requires the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.^[5]

Those duties are not displaced merely because a shareholder, lender or management company exercises substantial commercial influence over the business. The director must exercise appropriate judgment. Instructions from the economic owner are not an automatic substitute for the board's own decision-making responsibilities.

Directors Can Face Specific Statutory Liabilities

Incorporation generally protects shareholders from corporate liabilities, but it is not an absolute shield for directors. Section 131 of the Business Corporations Act can make directors jointly and severally liable to employees for up to six months' unpaid wages for services performed for the corporation, subject to the section's conditions and limitations. Part XX of the Employment Standards Act, 2000 also contains director-liability provisions for specified unpaid wages and vacation pay.^[6]

Federal tax statutes create another material area of exposure. Section 227.1 of the Income Tax Act and section 323 of the Excise Tax Act can make directors jointly and severally liable with the corporation for specified unremitted amounts, together with related interest or penalties. Each provision contains statutory preconditions, a due-diligence defence and a two-year limitation period running from when the person last ceased to be a director.^[7]

The practical point is not that liability is automatic. It is that accepting the title without information, reporting or oversight may leave the director poorly positioned to demonstrate the care, diligence and skill required by the applicable statutory defence.

The DPRA Adds a Regulatory Dimension

For a director of a pharmacy corporation, the analysis does not end with ordinary corporate and tax law. Section 140 of the DPRA addresses circumstances in which the Accreditation Committee has reason to believe that a pharmacy or its operation does not conform with the Act, the regulations or the terms of its certificate of accreditation, or that proprietary misconduct has occurred. The section expressly permits a referral to the Discipline Committee of the directors of a corporation that has been issued a certificate of accreditation.^[8]

A referral is not a finding of misconduct or personal liability. The result depends on the statutory test, the allegations, the evidence and the circumstances. Still, the express inclusion of directors is significant. The legislation does not treat the board as irrelevant merely because a Designated Manager is also in place.

The Mathematics of the Board Matters

The practical effect of subsection 142(1) depends on the size of the board. If the corporation has one director, that director must be a pharmacist. If it has three directors, at least two must be pharmacists. A two-director board would require both directors to be pharmacists because one of two is not a majority.

This arithmetic can give pharmacist directors substantial legal responsibility even where the economic interest rests elsewhere. It also points to the importance of the corporation's actual governance arrangements matching its formal structure.

“I Was Not Involved” is Not a Governance System

A pharmacist director may ultimately have valid factual and legal responses to a claim or regulatory proceeding. The director may have been misled, denied information or kept unaware despite reasonable oversight. The director may have objected, demanded corrective action or exercised statutory due diligence. These facts matter.

There is, however, an important difference between being kept unaware despite reasonable oversight and deliberately agreeing not to be informed. “I was not involved” is not a reporting system, a board process or evidence of preventive oversight.

If a pharmacist is appointed because Ontario law requires pharmacists to hold a majority of the board positions, the position should not simultaneously be treated as meaningless.

Questions a Pharmacist Should Ask Before Accepting

• What pharmacies does the corporation own or operate?
• Who are the shareholders, officers, lenders and key management personnel?
• What authority does the board have under the articles, by-laws and any unanimous shareholder agreement?
• Will the board receive regular financial statements and confirmation that payroll deductions and GST/HST remittances are current?
• How will College inspections, complaints, material incidents and regulatory issues be reported to the board?
• Are significant acquisitions, financings, leases and management agreements brought to the board for approval?
• Can directors obtain information from management and the corporation’s professional advisers?
• Is there appropriate directors’ and officers’ liability insurance and contractual indemnification?
• What happens if a pharmacist director objects to a proposed course of action?
• Can the director require a meeting, have an objection recorded and obtain independent advice?

The relevant question is not simply whether the pharmacist trusts the investor. It is whether the governance structure gives the pharmacist sufficient information and authority to perform the office responsibly.

Real Director Needs Real Governance

A properly structured pre-1954 pharmacy corporation should treat pharmacist directors as actual directors, not regulatory placeholders. That means regular board meetings or written resolutions, timely financial and regulatory reporting, access to records and management, monitoring of material remittances, reporting of inspections and complaints, documented escalation procedures, appropriate insurance and indemnification arrangements, accurate corporate and College filings, and access to independent advice where appropriate.

Good governance does not require a pharmacist director to manage every prescription, supervise each employee or duplicate the Designated Manager's functions. It does require the director to understand the corporation, remain reasonably informed, ask questions and act when concerns arise.

The Signature is the Easy Part

We’ve established that pre-1954 pharmacy corporations are unusual because subsection 142(4) exempts qualifying corporations from the ordinary pharmacist-majority share-ownership requirement. However, the exemption does not eliminate pharmacist-majority board governance.

The majority of the corporation's directors must still be pharmacists. Those directors occupy a recognized corporate office, owe applicable corporate-law duties and may face specific statutory exposures. In the pharmacy context, the DPRA also expressly contemplates directors being drawn into the disciplinary process in relation to the operation of an accredited pharmacy.

None of this means a pharmacist director is automatically liable whenever something goes wrong. But it does mean that the position is not merely ceremonial. When a problem arises, the corporate records, the director's conduct, the information received, the questions asked, the decisions made and the steps taken may become central to the analysis.

Director.

That one word carries considerably more responsibility than the request to “just sign here” may suggest.

This article provides general information only and is not legal advice. The qualification of a corporation for the subsection 142(4) exemption, the duties of a director and any potential personal or regulatory liability depend on the applicable legislation, the corporation’s governing documents and the particular circumstances.