New reporting requirements for beneficial ownership of Nova Scotia companies
In the spring sitting of the legislature, the Nova Scotia government introduced Bill 226, which amends the Companies Act (the “Act”) to require companies incorporated under the Act to create and maintain a register to collect information about individuals with significant control over the company. These amendments are part of a worldwide effort to increase corporate transparency and prevent tax-evasion and money laundering. Similar requirements have been implemented under the Canada Business Corporations Act, and in several other Canadian provincial jurisdictions, including Prince Edward Island. All Canadian jurisdictions are expected to have similar requirements soon.
A company incorporated under the Act will be required to prepare and maintain, at its registered office, or another place in Nova Scotia designated by the directors, a register of individuals with significant control over the company.
The requirement will apply to all companies formed under the Act, except certain public companies (reporting issuers and companies listed under a designated stock exchange).
Who has significant control?
An “individual with significant control” over a company is a person holding a significant number of shares, either directly or indirectly, or an individual with direct or indirect influence that, if exercised, would result in control in fact of a company.
Under the amendments, a “significant number of shares” means (1) shares that carry 25% or more of the voting rights attached to all of a company’s outstanding voting shares; or (2) that represent 25% or more of all of the company’s outstanding shares as measured by fair market value.
This will require tracing corporate structures to determine what human beings hold direct or indirect rights and interests. Further consideration will then be required to determine whether they are “significant” for the purposes of the legislation.
Challenges may arise when determining whether a shareholder holds 25% or more of all of a company’s outstanding shares measured by fair market value, as this may change over time. As fair market value of a company changes, changes in who holds 25% of the value will need to be reflected in the registry. As well, for companies with complex share structures, determining who has ultimate significant control may be difficult, and will require considerable analysis of shareholders and share holdings.
Content of the register
For each individual with significant control the registry must include the following information:
- Name, date of birth and last known address;
- Jurisdiction of residence for tax purposes;
- The day when the individual became, or ceased to be, an individual with significant control;
- Description of how the individual has significant control over a company, including a description of any interests and rights they have in shares of the company;
- Description of the steps taken by the company in each financial year to ensure the register is complete and accurate; and
- Any other prescribed information required by regulation.
At least once in each of its financial years, the company 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.
Who will be able to access the register?
Information contained in the register will not be publically available, although this may change in future.
Information contained in the register will be available to directors, shareholders, and creditors of a company. Access must be granted to shareholders or creditors upon payment of a reasonable fee, and upon providing an affidavit setting out identifying information, and a statement that the information provided in the register will not be used to influence the voting of shareholders, in an offer to acquire securities of the company, or for any other matter relating to the affairs of the company.
The Nova Scotia Registrar of Joint Stock Companies, the RCMP, the provincial police, a municipal police department, the Nova Scotia Securities Commission, the Financial Transactions and Reports Analysis Centre of Canada and certain taxing authorities may request a copy of the register, and upon such request, the company must provide a copy of the register.
Companies will be required 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, companies will be required to take “reasonable steps” to discern who the individuals with significant control in the company are, and to ensure the register is complete and accurate. Timeliness is critical – a company that becomes aware of information that must be included in the register has only 15 days to update it. Shareholders also must respond to inquiries from a company for information “accurately and completely as soon as feasible”.
Non-compliance could result in significant fines, imprisonment, or both, for companies as well as their directors, officers, and shareholders. Companies 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. Directors and officers can be fined up to $200,000 or imprisoned for up to six months for failing to maintain the register, failing to respond to a request from an investigative body or allowing false or misleading information to be recorded in the register. Shareholders will also face imprisonment for up to six months and fines of up to $200,000 for failure to meet their obligations to provide information for the register.
Passage of the amendments
The amendments to the Act received Royal Assent on March 10, 2020.
This update is intended for general information only. If you have questions about the above, please contact a member of our Corporate Formation/Reorganization Group.
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