As a result of recent amendments to the Canada Business Corporations Act (CBCA), as of June 13, 2019 private corporations incorporated under the CBCA (i.e. CBCA corporations that are not publicly listed) will be subject to new record keeping requirements.
The amendments require these corporations to maintain a register containing certain information about individuals who, directly or indirectly, have “significant control” over the corporation. We understand that the general purpose for these new requirements is to enhance corporate transparency and help prevent finance related criminal activity.
Individuals with Significant Control over a Corporation
The new requirements define an individual with significant control over a corporation as an individual who:
- is the registered or beneficial owner of, or has control or direction over, directly or indirectly, either
- 25% or more of the outstanding number of voting shares of the corporation, or
- 25% or more of the corporation’s shares measured by the fair market value;
- has any direct or indirect influence that, if exercised, would result in control in fact of the corporation; or
- is one of two or more joint owners of – or has agreed to act jointly with a group of shareholders who collectively own 25% or more of – the outstanding number of voting shares of the corporation or 25% or more of the corporation’s shares measured by the fair market value.
CBCA corporations will be required to take “reasonable steps” to ensure that they have identified all individuals with significant control over the corporations, and they must accurately maintain the required information about those individuals.
If the corporation requests information that is required under these new requirements from one of its shareholders, that shareholder will have an obligation to reply accurately and completely to the best of that shareholder’s knowledge as soon as feasible.
Information that Needs to Be Maintained in a CBCA Corporation’s Register
The information about individuals with significant control over the corporation that the corporation must maintain in its register will include:
- name, date of birth and last known address;
- jurisdiction of residence for tax purposes;
- the day on which each individual became or ceased to be an individual with significant control of the corporation;
- a description of how the individual has significant control of the corporation;
- a description of the reasonable steps taken by the corporation in each financial year to ensure the register is complete and accurate; and
- any other prescribed information as set forth in any regulations (not yet published).
Any shareholder or creditor of the corporation or their personal representatives can obtain access to the information contained in the register, provided that they use the information in connection with an effort to influence 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. A corporation will also be required to disclose to the Director appointed under the CBCA, on request, any information in its register of individuals with significant control.
Consequences of Non-Compliance with Requirement
Non-compliance with these new CBCA requirements can result in rather serious penalties. Corporations or their directors, officers or shareholders found in violation of their obligations are subject to a fine not exceeding $200,000 or six months imprisonment or both.
Legislative Trend
While the new CBCA requirements only apply to private corporations incorporated under the CBCA, lawmakers in several provinces and territories have hinted that similar requirements may be just over the horizon for corporation incorporated under provincial corporate legislation.
Have questions about how the CBCA Beneficial Ownership Register will affect your company? Contact our legal team today.
Note: This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.