Tracking Controlling Shareholders

Tracking Controlling Shareholders: New Record-Keeping Requirements under the CBCA

If your company was incorporated under the Canada Business Corporations Act (CBCA), your corporate record-keeping requirements will be changing on June 13, 2019.

What’s New?

In a bid by the federal government to increase transparency over who owns and controls Canadian corporations, as of June 13, 2019, private corporations incorporated under the CBCA must create a new type of register that identifies individuals who have significant control over the corporation.

The new register requirement, which was implemented through Bill C-86, will generally include individuals who are the registered or beneficial owners or, or have direct or indirect control over, at least 25% of the corporation’s shares on a votes or value basis, either individually or jointly or in concert with others.

The government’s objectives in establishing the new register are to provide greater transparency over ownership and control of a corporation, and to help law enforcement agencies expose activities like money laundering and tax evasion.  Canada has been criticized for its opacity when it comes to who really owns and controls our companies.

How to Comply With Your New Obligations

1. Identify and Record Individuals with Significant Control

For each individual with significant control, the register must include:

• 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 or ceased to be an individual with significant control;
• 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; and
• any other information that the Minister may prescribe.

The new provisions of the CBCA (which will mainly be added to sections 21 and 182-185) also place a positive obligation on shareholders to respond accurately and completely to any request for this information from the corporation.

2. Update the Register Annually and Upon Each Change

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.

Liability

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.

Is this Information Public?

Corporations are not required to disclose to the public the information contained in the register or to send this information to Corporations Canada. Rather, the register is to be kept in the corporation’s minute book.

However, shareholders and creditors of a company can review such documents when the information in the register 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.

Deadlines

This new register requirement will come into effect on June 13, 2019.

Who’s Affected?

The new CBCA requirements will apply only to federally incorporated companies.

However, the federal, provincial, and territorial finance ministers have an agreement to strengthen beneficial ownership transparency, and so it is expected that other provinces will adopt similar amendments over time.

British Columbia, for example, has already introduced legislation that would require BC-incorporated companies to maintain a “transparency register” similar to the new CBCA register, as well as the Land Owner Transparency Act which would mandate disclosure of beneficial ownership by corporations, trusts, and partnerships which own property in BC.

For More Information

For more information on whether these changes apply to you and to learn more about our minute book maintenance services, please contact us.