Maintaining a Register of Individuals with Significant Control
Effective as of June 13, 2019, the Canada Business Corporations Act (the “CBCA”) was amended to require private CBCA corporations to track and record individual beneficial owners with significant control over the corporation. Since these new requirements have now been in effect for a number of months, the new year provides the optimal time for all CBCA corporations to review their compliance and to ensure that the corporation is meeting its ongoing responsibilities under the CBCA.
Now that these amendments are in effect, corporations incorporated under the CBCA are required to maintain a register of individuals who hold significant control over the corporation (an “ISC Register”). This is in addition to the registers corporations currently maintain for shareholders, directors and officers. The objective of the ISC Register is to provide greater transparency over who owns and controls a CBCA corporation and to help law enforcement agencies expose activities like money laundering and tax evasion.
What should be included in the ISC Register?
For each individual who has significant control over the corporation, the ISC Register must contain the individual’s name, date of birth, address, jurisdiction of residence for tax purposes, date on which the individual became or ceased to be an individual with significant control and a description of how the individual meets the definition of significant control.
Under these CBCA amendments, an individual has “significant control” if he or she:
- is the registered holder or beneficial owner of shares with 25% or more of the voting rights attached to all of the corporation’s outstanding shares;
- is the registered holder or beneficial owner of any number of shares that equal 25% or more of all of the corporation’s outstanding shares measured by fair market value; or
- has any direct or indirect influence that, if exercised, would result in actual control of the operations of the corporation.
If a “significant number of shares” is held jointly by many individuals, or if the above-referenced influence or rights are subject to any agreement or arrangement under which the right or rights are to be exercised jointly or in concert by those individuals (such as a unanimous shareholder agreement), each of those individuals will be considered to be an “individual with significant control”.
The ISC Register must go beyond any direct corporate shareholders of a CBCA corporation and include information regarding the ultimate individual beneficial owners controlling such corporate shareholder (directly or indirectly through one or more intermediary holding companies). In other words, a CBCA corporation must confirm the beneficial owner(s) behind each corporate registered shareholder. If a direct or indirect shareholder is a non-natural person (such as a corporation, partnership or trust), the inquiring corporation will also need to record the controlling individual(s) of the shareholder (with this process to continue all the way up the corporate chain until identifying the ultimate individual beneficial owner(s)).
What ongoing responsibilities does the CBCA corporation have?
The ISC Register must be reviewed and updated, as appropriate, at least once a year or within 15 days of any change in the individuals with significant control over the corporation. The ISC Register must include a description of the steps the corporation has taken to comply with these requirements. The corporation must keep its ISC Register at the corporation’s registered office or at any other place in Canada designated by the directors.
Within the year after the sixth anniversary of the day on which an individual ceases to be an individual with significant control over the corporation, and subject to any other law that requires a longer retention period, the corporation must dispose of any of that individual’s personal information that was recorded in the register.
What are the consequences for non-compliance?
Any CBCA corporation found not to be maintaining its ISC Register may face a fine of up to $5,000.00. Individual directors, officers and shareholders can also be found personally liable for knowingly contravening the amendments and may face fines of up to $200,000 and up to six months of imprisonment.
Who can access this register?
Corporations are not required to disclose to the public the information contained in the ISC Register or to file or send the information to Corporations Canada. The corporation only has to disclose the ISC Register information to:
- Shareholders and creditors of the corporation, upon application and following proper procedures (providing the corporation with an affidavit confirming that they will only use the information in connection with matters relating to the affairs of the corporation); and
- Corporation Canada, upon request.
As a result of additional amendments to the CBCA that came into effect on June 21, 2019, with the passage of Bill C-97, CBCA corporations are also required, on request, to provide investigative bodies with a copy of its ISC Register or specified information contained in its ISC Register. Any police force, the Canada Revenue Agency or equivalent provincial agencies, or any prescribed body, are considered investigative bodies entitled to access the information included in the ISC Register. Access is limited to circumstances where the agency has reasonable grounds to suspect that the information would be relevant to investigating an enumerated offence and that the corporation subject to the request committed the offence, facilitated the offence or protected a person who committed the offence. A CBCA corporation is guilty of an offence if it fails to comply with the requirement to provide and/or disclose the ISC Register information to an investigative body and may be liable for a fine of up to $5,000.