“Register for Individuals with Significant Control”: 5 Key Facts CBCA Corporations Need to Know to Comply
Published:
May 21, 2019
Author(s):
As of June 13, 2019, private companies incorporated under the Canada Business Corporations Act (CBCA) must prepare and maintain a register of individuals who have “significant control” over the corporation (ISC Register). Corporations Canada states the purposes of the new ISC Register requirement are to increase corporate transparency respecting who owns and controls a corporation, and to help law enforcement agencies expose activities such as money laundering and tax evasion. The federal government originally introduced the new requirement through amendments to the CBCA in the Budget Implementation Act, 2018, No. 2 (Bill C-86) passed in December 2018 and recently introduced, but hasn’t yet passed, further amendments respecting the ISC Register in the Budget Implementation Act, 2019, No. 1 (Bill C-97).
Corporations subject to the new ISC Register requirement must act quickly to notify their beneficial owners of the new requirement and to gather the information required to fulfill it by June 13. Here are five key facts that CBCA corporations need to know about the new register of “individuals with significant control” requirement.
1. To what corporations does the new ISC Register requirement apply?
The requirement to prepare and maintain an ISC Register applies to all corporations incorporated under the CBCA with the exceptions of reporting issuers and publicly listed corporations.
2. Who has “significant control”?
The CBCA amendments define an individual with “significant control” as one who has certain interests or rights in respect of a “significant number” of the corporation’s shares. Individuals with significant control can include:
- Registered shareholders.
- Beneficial owners.
- Individuals with direct or indirect control over the shares.
- Individuals who have direct or indirect influence that, if exercised, would result in control in fact of the corporation.
- Individuals to whom “prescribed circumstances” apply (as determined by regulation).
Individuals are deemed to have “significant control” if they have any of these interests or rights in the following amounts:
- Any number of shares that carry 25% or more of the voting rights attached to all of the corporation’s outstanding voting shares, or
- Any number of shares that is equal to 25% or more of all of the corporation’s outstanding shares measured by fair market value
3. What information must the ISC Register include?
A corporation must record and maintain in the ISC Register all of the following information for each person who has significant control over the corporation:
- Their name, date of birth, and latest known address.
- Their jurisdiction of residence for tax purposes.
- The day on which they became and ceased to be an individual with significant control over the corporation.
- A description of how they fall within the definition of an individual with “significant control”, including, as applicable, a description of their interest and rights in respect of shares of the corporation.
- Any other information prescribed by regulation.
- A description of each step taken in accordance with the corporation’s obligation to maintain the ISC Register.
A corporation also has an ongoing obligation to take reasonable steps to ensure the ISC Register is maintained accurately and completely. The corporation must update the ISC Register annually, as well as within 15 days of becoming aware that any information in it ought to be recorded or updated. Within one year after the sixth anniversary of the day on which an individual ceases to have significant control over the corporation, the corporation must dispose of that individual’s personal information contained in the ISC Register, unless another law requires a longer retention period.
4. What are the non-compliance risks?
A corporation that contravenes the new ISC Register requirements without reasonable cause is liable for a fine of up to $5,000. Furthermore, a corporation’s director, officer, or shareholder who knowingly authorizes, permits, or acquiesces in the contravention of the new requirements or knowingly records or provides false or misleading information in relation to the ISC Register is personally liable for a fine of up to $200,000, to imprisonment for a term of up to six months, or to both.
5. Who can access the ISC Register?
Several groups can now, or may be able to in the future, access the ISC Register:
Shareholders and Creditors. Shareholders and creditors of the corporation may, on application, have access to the ISC Register provided the information obtained is only used: to influence the voting of the corporation’s shareholders; in connection with an offer to acquire securities of the corporation; or “any other matter relating to the affairs of the corporation”.
Director of Corporations Canada. The corporation must make the information contained in the ISC Register available to the Director of Corporations Canada upon request.
Investigative Bodies. If passed, Bill C-97 will further amend the CBCA to require a corporation to provide, upon request, a copy of the ISC Register to police, tax authorities or any other listed body with investigative authority in relation to offences set out in a new CBCA schedule, a draft of which Bill C-97 provides. Investigative bodies, however, would only be authorized to request the ISC Register if there are reasonable grounds to suspect the corporation, or an individual with significant control over it, has committed or been involved in the offences detailed in the new schedule. The list of offences will be wide-ranging, and includes offences under the Criminal Code of Canada, the Canadian Environmental Protection Act and the Cannabis Act.
Please contact your McInnes Cooper lawyer or any member of our Corporate & Business Law Team @ McInnes Cooper to discuss this topic or any other legal issue.
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