February 21, 2023
The Ontario government introduced Bill 43, the Build Ontario Act (Budget Measures), 2021 (the “Bill”), on November 4, 2021, and the Bill received royal assent on December 9, 2021. The Bill introduced changes to the Business Corporations Act (Ontario) (the “Act”), to improve transparency regarding private corporations incorporated under the Act. The changes came into effect on January 1, 2023.
These new requirements are similar to the requirements applicable to federally incorporated corporations that came into effect in 2019. A number of other provinces have also adopted transparency register requirements.
The amendments to the Act require that all private corporations incorporated or continued under the Act (with the exception of corporations that are wholly owned subsidiaries of publicly traded corporations) maintain a register of individuals with significant control (the “ISC Register”) over the corporation.
An individual with “significant control” is defined as an individual:
Furthermore, two or more individuals can be jointly or collectively considered to be an individual with significant control over a corporation if:
Each individual in the scenarios above will be considered an individual with significant control.
The amendments to the Act state that in determining whether or not an individual has indirect or direct control that, if exercised, would result in control in fact of the corporation, they will examine all factors that are relevant in the circumstances, and this shall not be limited to, and the relevant factors need not include, whether the individual has a legally enforceable right or ability to effect a change in the board of directors of the corporation, or its powers, or to exercise influence over the shareholder or shareholders who have that right or ability. It is worth noting that the amendments do not specify what the “relevant factors” might be.
In addition, the amendments outline certain exceptions to this test. Control in fact will not arise solely as a result of the corporation and individual dealing with each other at arm’s length pursuant to any of the following relationships:
The corporation’s ISC Register must be maintained at the corporation’s registered office or another place in Ontario that is designated by the directors. The information required to be included and maintained in the ISC Register for each individual with significant control is:
The ISC Register must be updated at least once during every fiscal year of the corporation but it does not have to be updated on the same date each year. If the corporation becomes aware of any new information that should be recorded in the ISC Register, whether during their review or in the regular course of business, the corporation is required to make the amendments to the register within 15 days of becoming aware of the information. The corporation is to dispose of the personal information of an individual who ceases to be an individual with significant control within one year after the sixth anniversary in which the individual ceased to be an individual with significant control.
The register is not publicly filed or available to the public. In addition, there is no requirement to disclose the register to creditors, shareholders or employees of the corporation. However, a corporation may be required to disclose the register for law enforcement purposes, tax purposes, and certain other sanctioned regulatory purposes. The corporation must respond and comply with the requests within the time period that may be specified in the requests, and the response must comply with any prescribed requirements, conditions or restrictions.
As the above-described amendments to the Act are now in effect, private Ontario corporations should begin preparing their transparency register for inclusion in the corporation’s minute book.
Tags: Corporate and Commercial