Skip to content

New reporting requirements for beneficial ownership of federal corporations coming this June

Tauna Staniland, Andrea Shakespeare, Kimberly Bungay and Alycia Novacefski

The federal government has introduced new record keeping requirements for private, federally formed corporations governed by the Canada Business Corporations Act (“CBCA”). The amendments to the CBCA are being made in an effort to meet international obligations to increase corporate transparency and prevent tax-evasion and money laundering and will require corporations to track and report the individuals who are beneficial owners of shares with significant control.

The requirements created by the amendments will apply to all private companies formed under the CBCA, with specific exemptions for reporting issuers and corporations listed under a designated stock exchange. The exempted corporations are already subject to disclosure requirements that pertain to beneficial ownership of shares at certain thresholds.

The new beneficial ownership requirements were passed into law with Bill C-86 in December of 2018 and will come into force on June 13, 2019.

Who is an individual with significant control?

The amendments will require corporations to create and maintain a register of individuals who hold “significant control” in the corporation. Individuals will be deemed to hold significant control if they, either by themselves or “jointly or in concert”, own or control 25% or more of the voting rights attached to a corporation’s shares, or 25% or more of a corporation’s shares by value. For the purposes of the legislation, individuals are considered to hold significant control jointly or in concert if they hold an interest that meets this definition with another individual, or if they have an agreement to exercise their rights with another person (for example, a voting agreement or shareholders agreement). Individuals who do not own shares may also be captured by these amendments if they have significant influence over the corporation.

The broad definition of significant control found in the amendments will require organizations to trace corporate structures (including tracing through shareholder entities such as trusts and partnerships) to determine the individual human being who ultimately holds rights and interests in an affected CBCA corporation. Further consideration will then be required to determine whether such individuals are “significant” for the purposes of the legislation.

Challenges may arise when determining whether a shareholder meets the threshold of holding 25% or more of all of the corporation’s outstanding shares measured by fair market value, as this may fluctuate over time. This will be especially true in the case of corporations with complex share structures. As the fair market value of a corporation changes, so might its beneficial owners, those changes will need to be reflected in the registry.

What will the register include?

The amendments require federal corporations to create and maintain a register of current information of a corporation’s beneficial ownership. Corporations Canada has released an example of what a beneficial ownership register could look like, available through their website. However, at this time, there is no prescribed format for the register, so long as it contains the prescribed information. For each individual who holds significant control the register must include the following information:

  • name, date of birth and address;
  • jurisdiction of residence for tax purposes;
  • date when individual obtained significant control and ceased to hold significant control of the corporation;
  • description of how the individual has significant control over the corporation, including a description of any interests and rights they have in shares of the corporation
  • description of the steps taken by the corporation in each financial year to ensure the register is complete and accurate; and
  • any other prescribed information required by regulation.

Who will be able to access the register?

Information contained on the register will not be publicly available but will be available to directors, shareholders and creditors of a corporation. The Canada Revenue Agency, and other regulatory bodies, may also be able to access the information. In the future, registers of beneficial owners may become more widely accessible. Bill C-97, which is currently before Parliament, proposes giving certain investigative bodies involved in investigating crimes related to those listed in a schedule to the CBCA, the authority to request information from registers without a warrant. It is uncertain if, or when, this will become law.

In the interest of protecting privacy, corporations will be required by law to dispose of personal information collected in the process of maintaining a register of beneficial ownership six years after an individual ceases to be an individual with significant control.

Compliance and penalties

Once the amendments are in effect, corporations will be required to take “reasonable steps” to discern who the individuals with significant control in the corporation are, and to ensure registers are complete and accurate. Timeliness is an important requirement of the amendments. A corporation that becomes aware of information that should be included in the register will have 15 days to update it. Shareholders will also have a duty to respond to inquiries from a corporation pertaining to information required for the register “accurately and completely as soon as feasible”.

Non-compliance with the new requirements could result in significant monetary penalties, imprisonment, or both, for not only corporations themselves, but their directors, officers and shareholders. Corporations may be fined up to $5,000.00 for failure to meet the requirements to maintain a register of individuals with significant control, or for failure to meet a request for information from an investigative body. Directors and officers can be fined up to $200,000.00 or imprisoned for up to six months for failure to meet the requirements to maintain the register, respond to a request from an investigative body or for allowing false or misleading information to be recorded in the register. Shareholders will face the same penalties for failure to meet their obligations to provide information for the register.

As the amendments are part of a larger plan towards national and international corporate transparency, provincial finance ministers have also pledged to strengthen transparency with respect to beneficial ownership. As such, it is likely that these CBCA amendments will be used as a model for provincial legislation. More information on amendments to provincial legislation is expected in the coming months.


This update is intended for general information only. If you have questions about the above, please contact a member of our Corporate Formation/Reorganization team.

 

Click here to subscribe to Stewart McKelvey Thought Leadership.

SHARE

Archive

Search Archive


 
 

Business interruption insurance: are your business losses covered during the COVID-19 crisis?

March 25, 2020

Colin Piercey and Sam Ward During this unprecedented crisis, almost all businesses have been negatively affected. Some have been forced to shut down entirely while others have been severely curtailed in their ability to earn…

Read More

COVID-19 and contractual review

March 24, 2020

Daniela Bassan, QC and Scott Pike The World Health Organization declared the COVID-19 outbreak as a pandemic on March 11, 2020. Bracing for the strain on health-care systems, authorities have enacted drastic measures designed to…

Read More

Copyright Cases 2019: Back to Basics and Plenty More

March 23, 2020

In volume 35 of the Canadian Intellectual Property Review, Halifax partner Daniela Bassan, QC, has published an article regarding notable cases in Canadian copyright law. Daniela’s piece reviews the key themes and trends from 2019,…

Read More

Reunited and it feels so good: pensions, benefits and New Brunswick’s Unclaimed Property Act

March 20, 2020

Christopher Marr, TEP and Lauren Henderson Each year in New Brunswick, millions of dollars sit in limbo: unpaid wages, forgotten security deposits, overpayments to debt collectors, and benefits from estates, pensions and employee benefit plans,…

Read More

COVID-19 – leading law forward using DocuSign

March 20, 2020

Amid the COVID-19 pandemic, our Firm is focusing on business continuity, including supporting the business continuity of our clients. Practice innovation investments we have made help our business to continue “as usual” even when the…

Read More

COVID-19 public health emergency in Newfoundland and Labrador – what you need to know

March 19, 2020

John Samms and Amanda Whitehead This article sets out to summarize the Newfoundland and Labrador Government’s announcements in respect of its latest response to the COVID-19 pandemic as of approximately 3:00 p.m. on March 19,…

Read More

The Federal economic response to COVID-19

March 19, 2020

Brent McCumber, P.Eng. On March 18, 2020, the Government of Canada announced a significant economic response plan to mitigate the economic impact of COVID-19 on Canadians and businesses.  While this $82 billion plan contains many…

Read More

$82 billion federal government aid package – high points for employers

March 18, 2020

The Federal Government just announced various COVID-19-related measures in its Canada’s Covid-19 Economic Response Plan: Support for Canadians and Businesses.  The full statement can be found here. The following may be of particular interest to…

Read More

Nova Scotia announces mandatory quarantine for public sector staff and students returning from outside Canada

March 13, 2020

Brian Johnston, QC and Jennifer Thompson In an effort to mitigate the spread of COVID-19 in Nova Scotia, Premier Stephen McNeil and Chief Medical Officer, Dr. Robert Strang have announced that all public sector employees…

Read More

Government of Canada announces changes to Employment Insurance and Work-Share Program as part of $1 billion COVID-19 fund

March 12, 2020

Jennifer Thompson As employees and employers grapple with the practical implications of a potential COVID-19 outbreak, the Government of Canada has stepped up to the plate with an announcement of a $1 billion fund to…

Read More

Search Archive


Scroll To Top