Martin Aquilina, International Business Lawyer
Brian Benford, Legal Intern
The Federal Minister of Finance recently introduced Bill C-86, Budget Implementation Act, 2018, No 2. Amongst other amendments outside of the scope of this article, Bill C-86 makes important changes to the Canada Business Corporations Act (the “Act”) in relation to corporate transparency. These changes will require private corporations to retain and provide information relating to the beneficial ownership of the corporation.
The recent amendments provide criteria for identifying the individuals (or groups of individuals) who exercise “significant control” over a private corporation. If it is determined that an individual possesses significant control, a register must then be kept with the individual’s personal information that will be accessible by specified parties.
Similar identification rules have been implemented in Belgium recently. To learn how these rules apply to Belgium subsidiaries, click here.
The amendments of Bill C-86 only apply to private corporations. The requirement for creating a register does not apply to a corporation that (i) is a reporting issuer under provincial or territorial securities legislation, (ii) is listed on a designated stock exchange, or (iii) is a member of a prescribed class.
Who is an Individual with Significant Control?
The phrase “individual with significant control” is essential to the amended Act. An individual with significant control is defined as an individual who has any of the following interests or rights in respect of a significant number of shares of the corporation:
- The individual is the registered shareholder of the shares;
- The individual is the beneficial owner of the shares;
- The individual has direct or indirect control or direction over shares;
- An individual who has any direct or indirect influence that, if exercised, would result in de facto control of the corporation; or
- An individual to whom prescribed circumstances apply.
Additionally, two or more individuals are considered to be one individual with significant control if the right or interest regarding a significant number of shares (referred to above) is held in combination between the two parties, or if the right or interest is subject to an agreement wherein it must be exercised jointly or in concert between the two individuals.
What does Significant Control Mean?
The Act states that an individual has “significant control” over a private corporation when a “significant number” of shares of the corporation is held by that person. A “significant number” of shares is defined as 25% or more of the voting shares, or any number of shares that equals 25% or more of the corporation’s fair market value.
For example, if Mrs. H owns 100% of Holdco, and Holdco owns either 25% of the voting shares of Reportco, or a total number of shares equaling 25% or more of Reportco’s fair market value, then although Holdco is the registered owner of the shares, Mrs. H is an individual with significant control over Reportco because of her per se beneficial interest in the shares of Reportco held by the holding company she owns 100% of. Moreover, even if Mrs. H was not considered to hold beneficial interests of the shares of Holdco she would nonetheless be an individual with significant control of Reportco because she satisfies the “direct or indirect control or direction” criteria since she, as the 100% shareholder of Holdco, exerts control over that corporation who in turn influences Reportco due to Holdco’s 25% share ownership in Reportco. Therefore, Mrs. H would need to be included in Reportco’s register since she is the “individual with significant control” who either influences, or holds the beneficial interest of, a “significant number” of shares of Reportco.
How will it affect your corporation?
If you incorporated under the Canada Business Corporations Act your corporation will be required to maintain a register of individuals with “significant control of the corporation”. If you incorporated provincially there is currently no requirement to maintain a register but amendments to provincial legislation are likely to follow in the near future. Simplifying the previous example, if Mrs. H directly owns 25% of the voting shares of your corporation she is an individual with significant control. Therefore, the register, which is to be kept at the registered office of the corporation or at a location deemed acceptable by the directors, must include information detailing Mrs. H’s personal information. The Register must be updated at least once during each financial year. The register is to contain:
- The names, dates of birth, and last known address of each individual with significant control;
- The residence of the individual for tax purposes;
- The date on which the individual acquired or lost significant control status;
- A description of how each individual exercises significant control over the corporation (such as mentioning that Mrs. H owns 30% of the corporation’s voting shares because she owns 30/100 voting Class A Common Shares which carry one vote per share); and
- Any other prescribed information.
The compiled register will not be accessible by the public. However, the information will be available to all shareholders and creditors of a corporation if an affidavit is provided stating the information will not be used for any purposes except as permitted under the Act, similar to the current rules governing access to registered shareholder lists.
A corporation who contravenes these requirements is liable on summary conviction to a fine not exceeding $200,000 or to imprisonment for a term not exceeding 6 months, or both.
As the amendments to the Canada Business Corporations Act are coming into force as of June 2019, the recent Bill C-86 amendments will soon have an impact on your private corporation. If you need legal assistance understanding the new changes and the impact on your corporation, or need assistance in navigating the complexities of corporate governance, please contact Martin Aquilina at Hazlo Law – Business Lawyers to discuss your options.
This article is for informational purposes only and does not constitute legal advice. If you wish to discuss your issue with a lawyer, contact Martin today. 613-747-2459 ext.308, [email protected]