What should Saskatchewan corporations know about the new rules requiring corporations to maintain a register of individuals with significant control over their corporation?
This blog is part of our blog series examining upcoming changes to Saskatchewan’s corporate law arising from the coming into force of The Business Corporations Act, 2021 (Saskatchewan) (the “New SBCA”) and associated regulations. Part one discussed the new rules for directors of corporations, part two covered the changes to fiduciary duty of directors and officers and part three outlined the increased use of electronic documents and communication technologies.
The New SBCA comes into force on Sunday, March 12, 2023. The New SBCA will replace The Business Corporations Act (Saskatchewan) (the “Old SBCA”), which has been the law in Saskatchewan for over 40 years.
The New SBCA introduces new rules requiring corporations in Saskatchewan to prepare and maintain a register of all individuals with significant control over the corporation. The New SBCA also contains rules governing the permitted disclosure of this information.
The new rules are in accordance with an agreement between Canadian Finance Ministers to strengthen beneficial ownership transparency for Canadian corporations and are similar to those enacted federally in 2019 under the Canada Business Corporations Act and to those enacted (or soon to be enacted) in other Canadian provinces.
Which corporations must comply with the new rules?
The new rules only apply to private corporations incorporated or continued under Saskatchewan legislation.
A corporation does not need to maintain a register with the required information if the corporation is a distributing corporation within the meaning of the New SBCA or a member of a prescribed class of corporations, which includes a corporation that is a wholly owned subsidiary of a distributing corporation or a Crown corporation. A “distributing corporation” is defined as a corporation that is a “reporting issuer” under Saskatchewan securities legislation (essentially, a corporation whose securities are distributed to, and traded by, the public).
When does an individual have significant control over a corporation?
The new rules require corporations to maintain a register of all individuals with “significant control” over a corporation. The New SBCA contains a set of rules for determining when an individual will be considered to have “significant control” within the meaning of the New SBCA.
Ownership of shares in the corporation
The first rule establishes significant control based on ownership of a significant number of shares of a corporation. It provides that an individual will be considered to have significant control when they hold, beneficially own and/or control or direct (directly or indirectly) a significant number of shares of the corporation. A “significant number of shares” refers to (a) any number of shares that carry 25% or more of the voting rights attached to all of the corporation’s outstanding voting shares or (b) any number of shares that is equal to 25% or more of all of the corporation’s outstanding shares measured by fair market value.
For the purposes of this rule, “beneficial ownership” includes ownership through a trustee, legal representative, agent or other intermediary.
Influence leading to “control in fact” of the corporation
The second rule establishes significant control based on the shareholder’s influence over a corporation. That is, an individual will be deemed to have significant control over a corporation if they have any direct or indirect influence that, if exercised, would result in control in fact of the corporation.
Two or more individuals with significant control
The third rule establishes significant control in the context of two or more individuals acting in conjunction with one another. It provides that, two or more individuals will each be considered to be an individual with significant control over a corporation if, with respect to a significant number of shares of the corporation (as defined above) they: (a) jointly hold an interest or right, or a combination of interests or rights, that meet either of the 25% tests set out above or (b) are party to an agreement or some form of arrangement under which a right, or combination of rights, with respect to the shares of the corporation that meet either of the 25% tests set out above may be exercised jointly or in concert by them.
What information must the corporation maintain?
The register of individuals with “significant control” over the corporation must contain the following information:
- the name, date of birth and latest known address of each individual with significant control;
- the jurisdiction of residence for tax purposes of each individual with significant control;
- the day on which each individual became or ceased to be an individual with significant control within the meaning of the New SBCA, as the case may be;
- a description of how each individual is an individual with significant control, including, as applicable, a description of the individual’s interest and rights with respect to shares of the corporation; and
- any other information that may be prescribed in the regulations.
The register must also contain a description of the reasonable steps taken by the corporation, at least once during each financial year, to ensure it has identified all individuals with significant control and that the information in the register is accurate, complete and up-to-date. If the corporation subsequently becomes aware of any required information as a result of its review, it must record that information in the register within 15 days of becoming aware of it.
In addition, if the corporation requests the required information from one of its shareholders, the shareholder must, to the best of its knowledge, provide that information to the corporation.
Finally, the corporation must dispose of an individual’s personal information that is recorded in the register within one year after the sixth anniversary of the day on which an individual ceased to be an individual with significant control.
Disclosure of information in the register
The corporation is not required to make the register of individuals with significant control available to the public. The New SBCA contains specific rules governing the disclosure of said information.
The information in the register may be disclosed:
- to the Registrar of Corporations for Saskatchewan, on request,
- to the shareholders and/or creditors of the corporation, or their personal representatives, if they send the corporation an affidavit in the form and content required by the New SBCA and adhere to the rules governing the use and disclosure of the information, or
- to an investigative body, if requested thereby in accordance with the New SBCA. For the purposes of disclosure of the information contained in the register, investigative bodies include the Royal Canadian Mounted Police, any police service as defined in The Police Act, 1990 (Saskatchewan), the Canada Revenue Agency, the Saskatchewan Ministry of Finance and the director appointed under The Seizure of Criminal Property Act, 2009 (Saskatchewan).
Penalties for failing to comply with the new rules
Every director or officer of a corporation:
- who knowingly authorizes, permits or acquiesces in the corporation’s failure to maintain a register and disclose said information in accordance with the New SBCA;
- who knowingly records or knowingly authorizes, permits or acquiesces in the recording of false or misleading information in the register of the corporation; or
- who knowingly provides or knowingly authorizes, permits or acquiesces in the provision to any person or entity of false or misleading information in relation to the register of the corporation
- is guilty of an offence and is liable on summary conviction to a fine of not more than $10,000, imprisonment for a term of not more than 6 months, or both.
In addition, any shareholder who does not respond accurately, completely and to the best of its knowledge if the corporation requests information from the shareholder to complete the register is guilty of an offence and is similarly subject to a fine, imprisonment or both.
Corporations should promptly review their corporate registers
The new rules respecting the collection of information for individuals with significant control over the corporation come into effect on Sunday, March 12, 2023. Existing corporations in Saskatchewan should review their records as soon as possible and take steps to determine which individuals will need to be listed in their register. Failure to prepare a register by the date specified will amount to non-compliance with the legislation and could result in penalties against the corporation and/or its directors and officers.
If you would like to learn more about the New SBCA and the rules governing the collection and use of information related to individuals with significant control over a corporation, or require assistance with ensuring your corporation’s compliance with the new law, please feel free to contact a member of the Saskatchewan corporate governance team at MLT Aikins 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.