Register of Individuals with Significant Control – New Record Keeping Requirements for Federal Corporations
On June 13th, 2019, new amendments to the Canada Business Corporations Act (the “CBCA”) will come into force requiring private CBCA corporations to maintain an additional register for individuals who, directly or indirectly, have “significant control” over the corporation (the “ISC Register”). Previously, CBCA corporations were not required to look behind the names of their registered shareholders (i.e. the names that appear on share certificates) to determine beneficial ownership or control.
According to Corporations Canada, the objective of the ISC Register is to provide greater transparency over who owns and controls a corporation, and to help law enforcement agencies expose activities like money laundering and tax evasion.
Who is an Individual with Significant Control (the “ISC”)?
An individual (i.e. a natural person and not a corporation or other type of entity) has “significant control” over a corporation if:
- the individual is the registered holder, beneficial owner, or has direct or indirect control or direction over shares carrying 25% or more of the voting rights of the corporation or 25% or more of the corporation’s shares measured by fair market value; or
- the individual has any direct or indirect influence that, if exercised, would result in control in fact of the corporation.
The CBCA doesn’t offer up a definition for “control in fact” unfortunately, so corporations will need to undergo a fact-based analysis of whether certain individuals hold a sufficient degree of influence over the decision-making power in the corporation. An individual may have influence giving rise to “control in fact” if, for example, that individual has a contractual right in a shareholder agreement to elect a majority of the board of directors or a right to buy enough shares to elect a majority of the board.
Two or more individuals may each be considered an ISC if they jointly own or control a “significant number of shares” of the corporation. In the case of an agreement or arrangement between two or more individuals under which they agree to exercise any rights they have in the corporation jointly or in concert with one another, all of those individuals will generally be considered ISCs.
What information is required to be kept in the ISC Register?
The ISC Register must contain the following information about each ISC:
- their name;
- their date of birth;
- their last known address;
- their jurisdiction of residence for tax purposes;
- the date on which the individual became or ceased to be an ISC; and
- a description of how that individual is an ISC including, as applicable, a description of their interests and rights in respect of shares of the corporation.
The corporation must also record the steps taken each year to reconfirm the accuracy of the information required to be maintained in the ISC Register.
What does a CBCA corporation need to do to be compliant?
Corporations must identify all of their ISCs, which may involve questioning shareholders to identify who controls them and reviewing shareholder agreements to identify who may have “control in fact” over the corporation. Corporations must also update the ISC Register at least once each year and take reasonable steps to ensure that the information in the register is accurate, complete, and up-to-date.
If the Corporation becomes aware that any of the information in the ISC Register has changed or otherwise needs to be updated, the corporation needs to record the change within 15 days of becoming aware of it. Shareholders are required to provide the details requested by the corporation to the best of their knowledge as soon as feasible and can face penalties (including fines and/or imprisonment) for failing to do so.
The corporation is required to dispose of any personal information about an ISC within one year after the sixth anniversary of the day on which an individual ceases to be an ISC.
Who has access to the ISC Register?
Shareholders and creditors of the corporation may view the ISC Register, upon application to the corporation, only for the following permitted uses:
- in an effort to influence the voting of shareholders of the corporation;
- in an offer to acquire securities of the corporation; or
- in any other matter relating to the affairs of the corporation.
Corporations Canada may also view the ISC Register, upon request to the corporation.
What could happen if a corporation doesn’t create or maintain the ISC Register?
If the corporation fails to prepare or adequately maintain the ISC Register, without reasonable cause, it is guilty of an offence and could be liable to a fine of up to $5,000.
Directors and officers of the corporation can be liable to a fine of up to $200,000 or imprisonment for up to six months, or both, for committing any of the following offenses:
- knowingly authorizing, permitting or acquiescing in the corporation’s failure to prepare and maintain the ISC Register;
- knowingly recording, authorizing, permitting or acquiescing in the recording of false or misleading information in the ISC Register; or
- knowingly providing, authorizing, permitting, or acquiescing in the provision to any person or entity of false or misleading information that is required to be recorded in the ISC Register.
Please contact us today if you have questions about whether these new amendments apply to your CBCA corporation and whether we can assist you in preparing your ISC Register.