NEW DISCLOSURE REQUIREMENTS: CANADA BUSINESS CORPORATIONS ACT AMENDMENTS
As of June 13, 2019, all private, federally-incorporated corporations must comply with new disclosure requirements in the Canada Business Corporations Act, which include that a register must be established containing current information on individuals with significant control of the corporation.
Amendments to the CBCA
The federal government is turning its focus to corporate governance and transparency, as is evident from a review of Bill C-86, which implements certain budgetary measures from 2018’s federal budget. On December 13, 2018, Bill C-86 received royal assent and will come into force June 13, 2019. Several statutes, including the Canada Business Corporations Act (the “CBCA”), will also be amended effective June 13, 2019.
What Needs to be Disclosed?
As of June 13, 2019, all private CBCA corporations must establish a detailed register listing all individuals (just natural persons) with “significant control” of the corporation. This information is in addition to the existing director and shareholder registers that a corporation must maintain.
An individual with significant control is someone who:
- is a registered or beneficial owner of, or has control or direction over, directly or indirectly, a “significant number of shares” of the corporation; or
- has any direct or indirect influence that, if exercised, would result in control in fact of the corporation.
A “significant number of shares” is defined as being 25% or more of the outstanding shares of the corporation, measured by the fair market value or voting rights.
Additionally, if an individual is acting jointly or in concert with one or more shareholders who collectively own or control a significant number of shares of the corporation, each of these individuals must also be included in the register and are deemed to have “significant control.”
The register must contain the following information about each individual with significant control of the corporation:
- name, birthdate and latest address;
- jurisdiction of residence for tax purposes;
- the date when the individual obtained significant control and/or ceased to hold significant control of the corporation;
- description of how the individual has significant control of the company; and
- description of the reasonable steps taken by the corporation in each financial year to ensure the register is complete and accurate.
Although the information contained in the register is not generally available to the public, it must be available for inspection by shareholders and creditors of the corporation and it may have to be disclosed to the Director of Corporations Canada upon request. Certain other parties may gain access to the register, however, they must first submit an application that contains an affidavit affirming that the information obtained from the register will only be used:
- in an effort to influence the voting of shareholders;
- for an offer to acquire securities of the corporation; or
- for any other matter relating to the affairs of the corporation.
Obligation to Maintain Register
The corporation itself is obligated to prepare and update its register’s information at least annually. Specifically, the corporation must take “reasonable steps” to ensure that all individuals with significant control over the corporation have been identified and that the information in the register is complete and accurate. The corporation must, in any event, revise the register within 15 days of the corporation becoming aware that any information should be updated or recorded.
The CBCA stipulates that failure to comply with the disclosure requirements can result in a director, officer or shareholder being held personally liable for a fine of up to $200,000 or imprisonment for a term of up to six months, or both. This is whether or not the corporation is prosecuted for a related offence.
How Does This Affect You?
The amendments to the CBCA signal that corporate governance best practices is a significant focus for our current federal government. The purpose of the additional disclosure requirements is, in part, to promote corporate transparency, to help inform potential investors in their decisions, to provide additional tools to law enforcement agencies, and to prevent misuse of corporate and other legal entities for tax evasion and other criminal acts such as money laundering, financing of terrorist activities, corruption and so on.
The Province of British Columbia has introduced a similar piece of legislation, Bill 24, to amend its Business Corporations Act, which governs provincially-incorporated companies. The BC legislation is very similar to the federal legislation and requires private companies to prepare and maintain a “transparency register” of information concerning “significant individuals.” It is expected that provincial/territorial legislators across Canada will similarly follow the federal government’s example.
For more information on this subject, and for all your corporate and business law needs, please contact SHK and one of our experienced lawyers will be pleased to speak with you.