Corporate Transparency: New Obligations Coming Soon
October 11, 2022
Stakeholders of OBCA and CBCA corporations will soon need to provide more information about their beneficial ownership and control
Corporate transparency, or the ability to identify the individuals who own and control a company, has increasingly become a priority for tax authorities, law enforcement, and policymakers around the world. To date, Canada has lagged in transparency ratings. The issue has even made the pages of The Economist: in 2018, it examined the phenomenon of “snow washing” – the use of relatively anonymous Canadian companies for illicit purposes such as money laundering.
Publicly available information about private Canadian corporations is often limited to their articles, registered office address, and current directors and officers. Typically, shareholders do not need to be publicly disclosed, nor would a corporation’s public profile reveal if it was subject to a shareholder agreement that transfers all governing power from the directors to the shareholders. Publicly traded companies are less opaque: Canadian securities laws require company insiders and holders of 10% or more of a class of securities to make public filings (check out our blog on this topic), and shareholder agreements are not typically in place.
Currently, private corporations subject to the Canada Business Corporations Act (CBCA) need to prepare and maintain a register of individuals with significant control over the corporation (we blogged about the requirement when it came into force in 2019). The register is not public, but a company’s shareholders and creditors can review its register for certain specific purposes. Corporations Canada can also request to review the register, as can a few other investigative bodies if they reasonably suspect that the information is relevant to certain types of investigations.
Corporations subject to the Business Corporation Act (Ontario) (OBCA) do not currently have to prepare or maintain any register of individuals with significant control.
Amendments have been adopted to each corporate statute. Effective January 1, 2023, private OBCA corporations will need to prepare and maintain a register of individuals with significant control, and to provide it to certain authorities upon request. On a date to be determined, CBCA corporations will have to begin actively submitting the information in their registers to the government (as opposed to simply awaiting a formal request). Corporations must submit the information upon incorporation, at regular intervals thereafter, and upon any change, amalgamation, or continuance.
In its 2022 budget, the Federal Government also confirmed plans to establish a public, searchable beneficial ownership registry for federal (and potentially also provincial) corporations before the end of 2023.
The OBCA – Current Requirements
Corporations subject to the OBCA are not currently required to create or maintain a register of individuals with significant control.
OBCA corporations are currently required to maintain other registers, such as registers of shareholders, officers, and directors. Since 2017, OBCA corporations must also maintain a register of ownership interests in land (check out our blog about this), which must, among other things, identify each property owned by the corporation, the date the corporation acquired the property and, if applicable, the date the corporation disposed of it.
The OBCA – Changes in Force on January 1, 2023
As of January 1, 2023, amendments to the OBCA will require private corporations to create and maintain a register of individuals with significant control, in addition to the other required registers.
“Significant control” includes registered or beneficial ownership of, or control over, at least 25% of the corporation’s shares on a votes or value basis, either individually or jointly with others.
Information that must be recorded on the register includes:
- the name, date of birth and the latest known address;
- the jurisdiction of residence for tax purposes;
- the day on which he or she became an individual with significant control (for example, the date on which they purchased 25% or more of the shares);
- the day on which he or she ceased to be an individual with significant control (for example, the date on which they sold their shares);
- a description of how he or she is an individual with significant control, including a description of his or her interests and rights in respect of shares of the corporation;
- any other information that the Minister may prescribe; and
- a description of each step taken to update the information in the register.
Additional regulations are also contemplated to provide for how the register must be prepared and maintained.
The register is relatively private: there is no requirement to periodically report the information in an OBCA corporation’s register to the government, nor to make it available to shareholders or creditors of the company.
However, a corporation must disclose its register upon request to law enforcement officers, tax authorities, certain financial regulatory bodies, the Ontario Securities Commission, and other authorities to be prescribed in future regulations. Such requests must be made for particular purposes, such as conducting an investigation into an offence or administering or enforcing laws, but there is no requirement that the corporation be the subject of those investigations or enforcement efforts.
A corporation that without reasonable cause fails to comply with these new rules may face a fine up to $5,000. Directors and officers who knowingly record, authorize or permit the recording of false or misleading information in the register may face a fine of up to $200,000 or imprisonment for up to six months, or both. The same liability applies to any shareholder who does not respond accurately and completely to an information request from the corporation in respect of the register.
The CBCA – Current Requirements
Since 2019, each CBCA corporation has been required to create and maintain a register of individuals with significant control. The definition of “significant control”, and the information required to be contained in the register, are virtually identical to those set out in the OBCA.
At least once every financial year, a corporation must take reasonable steps to ensure that it has identified all individuals with significant control and that the register is accurate and complete. A corporation has 15 days to update the register upon becoming aware of any change.
The register is not public, but in contrast to the OBCA, shareholders and creditors of a CBCA company can review its register when the information it contains is required to influence the voting of the corporation’s shareholders, when offering to acquire the corporation’s securities, and for other matters relating to the affairs of the corporation.
Corporations Canada can also request to review the register, and certain investigative bodies can also request the register, but only if they have reasonable grounds to suspect, among other things, that the register contains information relevant to investigating one of a selection of offences listed in the CBCA schedule.
Like under the OBCA, non-compliance can result in fines for the corporation, and fines and/or imprisonment for its directors, officers, and shareholders.
Upcoming CBCA Changes
Under amendments to the CBCA which have been adopted but have not yet come into effect, CBCA corporations will need to send the information in their register to Corporations Canada within 15 days of incorporation, amalgamation, or continuance under the CBCA, within 15 days of any change to the register, and otherwise on an annual basis.
The amendments also confirm that Corporations Canada will be authorized to provide that information to the Canada Revenue Agency, law enforcement, the Financial Transactions and Reports Analysis Centre of Canada, and any other authorities which are prescribed in the regulations. There does not appear to be any precondition to sharing the information, such as a requirement that the information be relevant to any particular investigation or enforcement action.
These amendments will come into force on a day to be fixed by order of the Governor in Council.
The CBCA amendments do not contemplate that the information in the register will become publicly available. However, in its 2021 and 2022 budgets, the Federal Government affirmed its commitment to implement a public and searchable beneficial ownership registry, which the Federal Government said will be accessible by the end of 2023 and will be scalable to cover corporations formed under the laws of provinces and territories which agreed to participate.
Further to a report issued in April of 2021 by Innovation, Science and Economic Development Canada, on October 29, 2022, the Federal government issued draft regulations which, among other things, expand on the type of “reasonable steps” that a federal corporation will need to take to identify individuals with significant control, and clarify what a company must do if it is unable to identify any such individuals. The draft regulations are open for comment until November 28, 2022.
What Other Jurisdictions are Doing
The amendments to the OBCA and CBCA are part of a broader push in Canada and around the world towards greater corporate transparency:
- British Columbia has recently established a requirement for private companies to maintain a “transparency register” of “significant individuals”;
- the United States enacted the Corporate Transparency Act into federal law on January 1, 2021 (as part of the 2021 National Defense Authorization Act); and
- the United Kingdom has established a free public register of beneficial ownership.
As of January 1, 2023, any private corporation subject to the OBCA must prepare a register of individuals with significant control. Significant shareholders of such companies should be on the lookout for requests for information, and directors and officers should ensure that they have taken reasonable steps to verify the information being provided. Those responsible for collecting and maintaining information to be included in the register should be mindful of applicable privacy and data security considerations.
Shareholders, directors, and officers of a CBCA corporation should continue to ensure their corporation’s register is accurate and complete, and should be on the lookout for the CBCA amendments to come into force, which will trigger reporting requirements, and for updates on the public beneficial ownership registry and any additional obligations it will impose on them.
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