New Transparency Obligations Affect Canadian Business

Have you heard? Big changes have come to the information collection and disclosure obligations of federal companies and their shareholders, and similar obligations will soon be imposed respecting British Columbia companies too.  If you are director, officer, or shareholder of a Canadian corporation, you’ll want to read this.

On June 13, 2019, federal companies became obligated to keep and update a Register of Individuals with Significant Control over the company. If you’re a shareholder of a federal corporation, you are obligated to disclose prescribed information to  keep the Register up to date. Although currently applicable only to federal companies (CBCA), it is anticipated that BC’s legislation will be amended by July 1, 2019 to adopt similar requirements for BC companies.

So why the new obligations? The purpose of the new disclosure is to prevent the misuse of corporate entities for tax evasion, money laundering, and other criminal acts by increasing ownership and control transparency.

Overview of the Obligations

Who is An Individual with Significant Control (“ISC”)?

An ISC is an individual who:

  • owns a significant number of shares;
  • controls or directs a significant number of shares;
  • has significant influence over the company without necessarily owning a significant number of shares; or
  • has any combination of any of these factors

A significant number of shares is:

  • 25% of the voting shares of the company; or
  • 25% of all the shares based on the fair market value of the shares.

An individual can also be an ISC if in combination with another individual they own or control a significant number of shares.

What information needs to be included in the Register?

The register must contain the following about each ISC: i) name, date of birth, address, ii) jurisdiction for tax purposes, iii) date on which the individual became or ceased to be an ISC, and iv) a description of the nature of their significant control.

The company must take “reasonable steps to ensure that it identifies all ISCs and that the information in the register is complete and up-to-date”. However, corporations don’t hold on to the information indefinitely. The corporation must dispose of any personal information relating to an individual within one year following the sixth anniversary of the day the individual ceases to be an ISC. Make sure to set your watch!

A corporation’s failure to comply with the Register requirements may result in a fine of up to $5,000. Although relatively modest, directors, officers and shareholders may be subject to significantly greater penalties, including fines up to $200,000 or imprisonment.

Access to the ISC Register

Disclosure to Director and Shareholders

If the Director of Corporations Canada (“Director”) makes a request, a corporation must disclose any information in its ISC Register to the Director. A shareholder or creditor may also request access, though the CBCA only permits use of such information from the Register for limited purposes. If noncompliant, shareholders and creditors may be fined up to $5,000, or subject to imprisonment not exceeding six months.

III.   Proposed access by investigative bodies.

Budget Implementation Act 2019 (Bill C-97) intends to provides investigative bodies (defined as any police force, the CRA, and provincial equivalents) access to the register without a warrant if such information is required for investigative purposes.

Implications for Businesses

These new collection, retention, and disclosure obligations can be complicated, but with a solid game plan and sound legal advice, a company and its stakeholders can minimize their risk of liability. Notify your company’s shareholders of the new Register requirements and request the required information. Use the disclosed information to determine who constitutes an ISC. Investigate further as necessary. Record the required information and steps taken to acquire it in your company’s Register. Six years after an individual ceases to be an ISC, remove their personal information from the Register and destroy it, unless otherwise required by law.

The above is, of course, a simplification of the process – obtaining legal advice is recommended. If your company needs assistance with compliance, Segev LLP is happy to help!

This article is for informational purposes only, does not constitute legal advice, and should not be relied upon as such.