On December 13, 2018 Bill C-86 (Budget Implementation Act, 2018, No. 2) received Royal Assent. Among many other things, Bill C-86 contains amendments to the Canada Business Corporations Act ("CBCA") that require privately-owned CBCA corporations to maintain a detailed register of information about individuals with significant control over shares of the corporation. Public companies (often referred to as "reporting issuers") will be exempt from these new CBCA requirements, in part, due to securities law requirements for public disclosure of beneficial ownership of shares of reporting issuers at certain thresholds.
These amendments are perhaps the first step in the implementation of policies to be pursued by both the Canadian Federal and provincial governments for greater transparency in the beneficial ownership of corporate entities and it is possible that the amendments to the CBCA will serve as a model for amendments to provincial corporate legislation in the future.
The amendments will require private CBCA corporations to maintain a register of "individual[s] with significant control" (an "individual" with significant control can also be multiple people in certain circumstances, such as when the shares are held jointly or shareholders are acting "jointly or in concert") over shares of the corporation. This will include individual[s] who are the registered or beneficial owners of an interest of 25 percent or more of the shares of the corporation; individual[s] that have direct or indirect control or direction over 25 percent or more of the shares of the corporation as well as any individual who has influence that, if exercised, would result in "control in fact" over the CBCA corporation.
The register will require the following information with respect to all such individuals with significant control over the shares of a CBCA Corporation:
Name, date of birth and latest known address;
Jurisdiction for tax purposes;
The day on which s/he acquired or ceased to have significant control;
A description of how control is maintained; and
A description of steps taken to update the record.
CBCA corporations will be required to take reasonable steps to update the register annually and will be required to update the register within 15 days of becoming aware of any information that is required to be recorded in the register.
The new register will not be available to the public but corporations will be required to disclose the register to the Director under the CBCA upon request. As with certain other corporate records, a shareholder or creditor of a CBCA corporation will be entitled to access the new register, but only for certain limited purposes.
Privately-owned CBCA corporations should consider these requirements and formally adopt procedures into existing governance and record keeping policies to ensure directors, officers and employees are able to discharge the corporation's duties in this respect.
If a corporation requests any of the required information from a shareholder, the amended CBCA will require the shareholder, to the best of its knowledge, to reply accurately and completely to the request "as soon as feasible". This is notable because the CBCA does not otherwise impose obligations on shareholders except in special circumstances.
Shareholders will be required to reply "accurately and completely as soon as feasible" to any requests from the CBCA corporation in respect of the matters to be recorded in the new register. The CBCA does not otherwise extend any duties to, or require any particular action from, shareholders except in special circumstances for this change is notable. CBCA corporations will also be required to take certain steps, to be detailed under future regulations, if is unable to identify controlling shareholders.
Privately-owned CBCA corporations should consider providing their shareholders with notice of the new requirements before they come into force since currently no corporate statute in Canada requires a record of beneficial ownership and this will be a new obligation likely unfamiliar to existing shareholders.
Any director or officer of a corporation who knowingly authorizes, permits or acquiesces in the corporation's failure to maintain the required register, to the recording of false or misleading information in the register, or in the provision to any person or entity of false or misleading information in relation to the register commits an offense. Similarly, a shareholder who knowingly contravenes its obligation to reply accurately and completely to a request for information from the corporation commits an offense. Upon conviction of an offence, directors, officers and shareholders are liable to a fine not exceeding $200,000 or to imprisonment for a term not exceeding six months, or to both.
The amendments will come into force on June 13, 2019, the six month anniversary of the date upon which the Bill received Royal Assent. The anticipated new regulations related to these amendments will provide a more complete picture of this new register system and will be commented upon once available.
This is likely only the first step towards the registration and, in certain circumstances, disclosure of registered and beneficial controlling interests of private corporate entities in Canada in line with recommendations in the House of Commons Standing Committee on Finance's recent report on the Proceeds of Crime (Money Laundering) and Terrorist Financing Act advocating for a "pan-Canadian beneficial ownership registry". It is reasonable to expect enactment of similar registry requirements in provincial corporate legislation and the adoption of further transparency measures in the future.
Endeavor Law can assist CBCA corporations as well as any directors, officers or shareholders of such corporation with legal advice and services directed at compliance with these, and other, corporate regulatory matters. Endeavor Law will always seek to provide competitive pricing for any legal services requested and is pleased to discuss fee arrangements that suit any potential client.
Does not constitute legal or other advice and must not be used as a substitute for legal advice from a qualified legal professional in your jurisdiction who has been fully informed of your specific circumstances. Information may not be up-dated subsequent to its initial publication and may therefore be out of date at the time it is read or viewed. Always consult a qualified legal professional in your jurisdiction.