New Shareholder Information Requirements for CBCA Companies
Corporations incorporated under the Canada Business Corporations Act (the “CBCA”) are about to face a significant increase in the share ownership information that they are required to collect.
Bill C-86, an implementation bill for the 2018 federal budget that includes the Federal government’s amendments to the CBCA, received Royal Assent on December 13, 2018. The CBCA amendments are set to come into force on June 13, 2019. The changes impose additions to the information that every CBCA corporation is required to record respecting its shareholders, and provides for additional kinds of third party disclosure of that shareholder information in certain circumstances beyond that previously provided under the CBCA.
Under Part IV of the CBCA corporations are currently required to keep a shareholder register, detailing the names and addresses of current and former shareholders of the corporation, the number of shares held by each shareholder, and the date and particulars of any issuance or transfer of shares of the corporation. Under these basic recordkeeping requirements, only the registered ownership of the shares needs to be recorded and tracked and there has been no requirement to look behind holding corporations, trusts or agency / nominee arrangements to identify the individuals who are the beneficial owners of shares.
Commencing June 13, 2019, all CBCA corporations (with limited exceptions) will be required to identify beneficial owners of shares and certain other individuals having ‘significant control’ in relation to the corporation. These individuals include:
- Registered or beneficial shareholders, or individuals with direct or indirect control or direction of 25% or more of the outstanding or voting shares;
- An individual with direct or indirect influence that, if exercised, would result in control in fact of the corporation; or
- An individual to whom prescribed circumstances apply. Such circumstances are to be set out in regulations to be published.
As a result, there are circumstances under which an individual might be deemed to have “significant control” other than through direct or indirect beneficial ownership of shares.
Where two or more individuals jointly own a significant number of shares, they will be treated as an individual for the purposes of determining whether they have ‘significant control’.
The following information will need to be kept in a separate corporate register in relation to individuals who meet the criteria of having ‘significant control’:
- their name, date of birth and latest known address;
- their jurisdiction of residence for tax purposes;
- the date on which the individuals became or ceased to be individuals with significant control;
- a description of how the individuals qualify as individuals with significant control, including their right, title and interest in and to shares of the corporation;
- other prescribed information to be set forth in upcoming regulations; and
- steps taken by the corporation to identify all individuals with significant control and to ensure that information in the new register is accurate, complete and up-to-date.
During each financial year, the corporation must also take reasonable steps to ensure it has identified all individuals with significant control over the corporation, and where it becomes aware of any of the information listed above, the new register must be updated within 15 days of the information regarding individuals with ‘significant control’ becoming known to the corporation.
Significant control information will not be required to be publicly registered or be accessible in the Industry Canada database pursuant to the CBCA; however, the new rules include provisions for disclosure to the Director of Corporations Canada upon request. As well, shareholders and creditors of the corporation will be able, upon application, to require the corporation to provide them with access to this information, where it is to be used for purposes relating to the “affairs of the corporation”.
Non-compliance with the new requirements can result in fines of up to $200,000 and 6 months imprisonment for directors, shareholders, and officers of the corporation.
These new rules have been developed to dovetail with beneficial ownership verification requirements under the federal Proceeds of Crime (Money Laundering) and Terrorist Financing Act. Although the amendments only apply to CBCA companies, it is anticipated that the provinces will amend their existing corporate legislation to bring it in line with the federal changes as Canada seeks to meet its international commitments that have been developed in concert with other countries to address domestic and international money laundering.
What this Means for Corporations
The new rules apply to so-called “private companies” as well as to what are defined under the CBCA as “distributing corporations” that are more commonly referred to as “public companies”, (i.e., corporations which are “reporting issuers” under securities legislation or the securities of which may be traded on a Canadian or international stock exchange).
As a result, private CBCA corporations are advised to seek advice on their obligations and to begin to gather the required information regarding individuals who would be considered to have ‘significant control’ of their corporations. Where such corporations fail to do so, they leave themselves and their directors, shareholders, and officers open to prosecution.
Private provincial corporations would be well advised to monitor proposed changes in their existing corporate regimes and, where amendments are proposed, consult a lawyer to ensure they remain in compliance with their provincial legislation.