On December 13, 2018, Bill C-86, the Budget Implementation Act, 2018, No. 2, received Royal Assent. Bill C-86 introduces the requirement to identify individuals with significant control over a corporation incorporated under the Canada Business Corporations Act (the “CBCA”). On June 21, 2019, Bill C-97, the Budget Implementation Act, 2019, No. 1, received Royal Assent. Bill C-97 introduces the requirement to disclose this information on request by an investigative body that has reasonable grounds to suspect it would be relevant to investigating an offence committed by the corporation or an individual with significant control of the corporation.
These requirements reflect the objective to provide greater transparency over who owns and controls a corporation, and to help law enforcement agencies expose activities like money laundering and tax evasion.
Register of Individuals with Significant Control
As of June 13, 2019, all private CBCA corporations are required to maintain a register of all “individuals with significant control” over the corporation.
Section 2.1 was added to the CBCA and defines an individual with “significant control” as an individual:
- who is the registered or beneficial owner of, or has direct or indirect control or direction over any number of shares that (i) carry twenty-five percent (25%) or more of the voting rights attached to all of the corporation’s outstanding voting shares or (ii) is equal to twenty-five percent (25%) or more of all of the corporation’s outstanding shares measured by fair market value (“Control Shares”);
- who has any direct or indirect influence that, if exercised, would result in control in fact of the corporation; or
- to whom prescribed circumstances apply (as determined in the regulations).
Joint Shareholders, meaning two (2) or more individuals with joint ownership of Control Shares or who are in agreement to exercise their rights jointly, are each considered to be an individual with significant control.
A register of individuals with significant control (the “ISC Register”) must include the following information about each individual:
- their name, date of birth and latest known address;
- their jurisdiction of residence for tax purposes;
- the date on which the individual acquired or ceased to have significant ownership or control;
- a description of how the individual meets the definition of having “significant control”, including as applicable, a description of their interests and rights in respect of the shares of the corporation;
- any other prescribed information; and
- a description of the steps taken to identify the individual with “significant control”.
The corporation has a duty to maintain the ISC Register and to keep it with its other corporate records. At least once during each fiscal year the corporation must take reasonable steps to ensure that the information contained in the ISC Register is up to date and to record these steps undertaken in the ISC Register. This could involve contacting the shareholders to confirm that the information in the ISC Register is still up to date, whether they still own the shares directly, or whether they hold the shares on behalf of someone else. The shareholders are obligated to reply, to their best of their knowledge, to the corporation’s request. The ISC Register must be updated within fifteen (15) days of being aware of any changes.
Disposal of Information
Within one (1) year after the sixth (6th) anniversary of the day on which an individual ceases to be an individual with significant control, the corporation must (subject to other legislation) dispose of any of that individual’s personal information, as defined in the Personal Information Protection and Electronic Documents Act, that is recorded in the register.
Disclosure of the ISC Register
Corporations are required, upon request by Corporations Canada, or by the shareholders or creditors of the corporation on application by affidavit, to disclose the ISC Register, provided the request is for the purposes of or in connection with:
- an effort to influence the voting of shareholders of the corporation;
- an offer to acquire securities of the corporation; or
- any other matter relating to the affairs of the corporation.
The public does not have access to the ISC Register.
Corporations are also required to disclose the ISC Register on request by an investigative body (such as police forces and the Canada Revenue Agency) when the investigative body has reasonable grounds to suspect that the information in the ISC Register would be relevant in investigating an offence committed by or involving the corporation or an individual with significant control. Investigative bodies are required to keep record of their requests and to report annually to Corporations Canada in respect of those request.
Offences
The following could be subject to penalties should they fail to meet the above noted requirements:
- a corporation that, without reasonable cause, contravenes the requirement to record, update and maintain the ISC Register or fails to meet the request of an investigative body is guilty of an offence and liable on summary conviction to a fine not exceeding five thousand dollars ($5,000.00);
- a shareholder who knowingly fails to provide to the best of their knowledge, accurate and complete information requested by the corporation to complete the ISC Register is guilty of an offence and liable on summary conviction to a fine not exceeding two hundred thousand dollars ($200,000.00) and/or to imprisonment for a term not exceeding six (6) months;
- a director or officer of a corporation who knowingly authorizes, permits or acquiesces:
- in the contravention of the requirements dealing with the preparation and maintenance of the ISC Register by the corporation;
- in the recording of false or misleading information in the ISC Register of the corporation;
- in the provision to any person or entity of false or misleading information in relation to the ISC Register of the corporation,
commits an offence, whether or not the corporation has been prosecuted or convicted, and is liable on summary conviction to a fine not exceeding two hundred thousand dollars ($200,000.00) and/or to imprisonment for a term not exceeding six (6) months; and
- an individual who, without reasonable cause, contravenes the restricted use of the information in the ISC Register is guilty of an offence and liable on summary conviction to a fine not exceeding five thousand dollars ($5,000.00) and/or to imprisonment for a term not exceeding six (6) months.
DISCLAIMER:
This Blog is provided as an information service by Rasmussen Starr Ruddy LLP. It is distributed with the understanding that it does not constitute legal advice or establish a solicitor-client relationship by way of any information contained herein. The contents are intended for general information purposes only and under no circumstances can be relied upon for legal decision-making. Please consult with us and obtain a written opinion concerning the specifics of your particular situation.
