Bill C-86 Budget Implementation Act, 2018, No. 2 received Royal Assent on December 13, 2018. One of the resulting changes to the Canada Business Corporations Act (CBCA) is the requirement for certain corporations, specifically private issuers, to maintain records of their beneficial shareholders.
There has been, both globally and locally, a more concerted effort to provide increased transparency to beneficial shareholder information, especially as it pertains to safeguarding against tax evasion, money laundering, and terrorist financing. We have written about some of these initiatives in the past, in "Transparency of Beneficial Ownership".
The New Requirements
Starting on June 13, 2019, CBCA issuers who are not reporting issuers are required to maintain a register of "...individuals with significant control over the corporation...". This register must contain certain information for each of these individuals, including:
- The names, birth dates, and last known address;
- The jurisdiction of residence for tax reporting;
- The day on which they became or ceased to be an individual with significant control;
- A description of how they are an individual with significant control, including a description of their rights and interests in respect of the shares of the corporation.
The corporation must also, at least annually, take reasonable steps to ensure that they have identified all holders with significant control, and that the information on the register is accurate. Details of these steps must also be recorded on the register. There are various penalties for non-compliance with these new requirements, including fines and imprisonment.
Who is an "individual with significant control"?
The changes to the CBCA define an "individual with significant control" as one that has an interest or rights, or any combination of them, in a significant number of shares of the corporation. A significant number of shares has further been defined as any number of shares that carry 25% or more of the voting rights or is equal to 25% or more of the outstanding shares measured by fair market value.
Two or more individuals with joint ownership of control are also covered by the requirement.
Once a shareholder is contacted with a request for the information, they have an obligation to reply with accurate and complete information as soon as possible.
Who has access to the information?
The register is not going to be publicly available; however shareholders and creditors of the corporation may obtain access by providing a form of affidavit and reasonable fee. The Canadian government also has access to the data, upon request.
Next Steps
The Canadian government has not yet published the regulations related to these changes, so more details are still forthcoming. These amendments to the CBCA are a first step toward disclosure of information that is invaluable for the fight against tax evasion, corruption, money laundering, and terrorist financing. The amendments are aligned with the December 2017 "Agreement to Strengthen Beneficial Ownership Transparency" (the "Agreement") published by the Department of Finance and agreed to by provincial and territorial finance ministers, as well as Recommendation 1 in the House of Commons publication "Confronting Money Laundering and Terrorist Financing: Moving Canada Forward – Report of the Standing Committee on Finance", published in November of 2018.
The Federal government has taken the first step in meeting the Agreement. We are hopeful that the trend will continue, and the provincial and territorial governments will continue their work toward updates to their corporate statutes which would allow for the development of a pan-Canadian beneficial ownership registry.
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