Margaret Anne Walsh and Graeme Stetson

Beneficial Ownership and Corporate Transparency

On September 1, 2020, the Government of Prince Edward Island proclaimed into force Bill no. 34 which amends the Business Corporations Act (“BCA”). The amendments place additional record keeping requirements upon privately held Prince Edward Island corporations. All corporations formed under the BCA, aside from public corporations, are now required to maintain a register of individuals with significant control (“ISC Register”) which must be updated annually.

An “individual with significant control” over a corporation is an individual who:

1. directly or indirectly holds a significant number of shares;
2. has direct or indirect control or direction over a significant number of shares of the corporation; or
3. has direct or indirect influence that, if exercised, would result in control in fact of the corporation.

Under the BCA, a “significant number of shares” means (1) shares that carry 25% or more of the voting rights attached to all of the corporation’s outstanding voting shares; or (2) shares that represent 25% or more of all of the corporation’s outstanding shares as measured by fair market value.

At least once during each of its financial years, a corporation must take reasonable steps to ensure that it has identified all individuals with significant control, and ensure that the information in the register is accurate, complete and up to date.

The ISC Register must contain the following information about every individual with significant control:

1. full name, date of birth and last known address;
2. the jurisdiction of residence for tax purposes;
3. the day they became, or ceased to be, an individual with significant control;
4. a description of how each individual has significant control over the corporation;
5. a description of each step taken to ensure the information is accurate; and
6. any other prescribed information.

Non-compliance can result in fines up to $200,000, imprisonment up to six months, or both, for directors, officers and shareholders. Corporations may be fined up to $5,000 for failing to maintain a register or for failing to comply with a request for information from an investigative body.

Transition from the Companies Act to the Business Corporations Act

All companies incorporated under the Companies Act must be transitioned to the BCA by May 3, 2023. Any company that fails to be continued to the BCA by this deadline may be dissolved after 120 days’ notice to the company and publication of the notice in a publication generally available to the public.

To continue under the BCA, Companies Act companies must apply to the Provincial Director of Corporations. If this application has fulfilled all of the necessary requirements, a certificate of continuance will be issued.

Notably, the exercise of transitioning a company to the BCA provides a company with the opportunity to increase its share capital at no additional cost; otherwise, to increase the share capital of a Companies Act company, supplementary letters patent are required and a filing fee of $265 must be paid. In order to properly transition a company to the BCA, the specific share capital schedule for the company must be input into the province’s online corporate registry. We encourage you to reach out to us to assist with this process.

The BCA introduces significant protections for minority shareholders which are not provided for under the Companies Act. These protections mirror those available under the federal Canadian Business Corporations Act and under most other provincial legislation. Some examples of these protections are:

1. individual shareholders have the right to bring a “derivative action”, meaning that a shareholder can bring an action for a legal wrong committed against a corporation by a third party when management of the corporation chooses not to bring one;
2. the inclusion of the “oppression remedy”, which allows certain individuals to bring actions against the corporation if it has acted in a manner that has unfairly prejudiced their rights; and
3. shareholders may dissent when corporations undergo “fundamental changes” entitling the dissenting shareholders to receive fair market value for their shares.

The BCA, like the Companies Act, does not require directors of a corporation to be residents of PEI, or Canada. However, if a corporation does not have directors who are residents of PEI, they will be required to have a certificate completed by a lawyer authorized to practice in PEI in order to incorporate.

The BCA also offers corporations increased flexibility over the Companies Act as it contemplates holding shareholder meetings via teleconference as opposed to requiring in-person meetings, allowing for director resolutions to replace director meetings and making it easier for corporations to provide loans to, or guarantees on behalf of, affiliated individuals.

This client update is provided for general information only and does not constitute legal advice. If you have any questions about the above, please contact a member of our Corporate Formation/Reorganization group.

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