Tracking beneficial owners

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New record-keeping requirements
Louis Vouloukos

In case you missed it, you may be surprised to find out that the Canada Business Corporation Act (the “CBCA”) has recently been amended on a couple of occasions to introduce new record-keeping requirements.

As part of the global movement to enhance beneficial ownership transparency in an effort to curb money laundering and terrorist activities, the CBCA was amended: first, to require all CBCA-incorporated private (i.e. non-public) corporations to create and maintain a new register identifying individuals with “significant control” over the corporation; and, secondly, to permit certain investigative bodies such as the Canada Revenue Agency (the “CRA”) and the police, access to the new register, on request, in certain circumstances.

The amendments include significant penalties for non-compliance, including the potential for substantial personal liability or imprisonment for shareholders, directors and officers of a CBCA corporation.

While these recent amendments currently apply to private corporations incorporated under the CBCA, it is highly anticipated that all provinces and territories in Canada will follow suit shortly, so all provincially incorporated private corporations should take note.

The new “Register of Individuals with Significant Control”

Prior to the enactment of the recent amendments to the CBCA, as you may be aware, CBCA corporations were legally required to maintain a register of legal (or “registered”) owners of shares of a corporation. However, CBCA corporations were not required to disclose information relating to “beneficial” owners of such shares or about those individuals whose influence could be exerted to control the corporation (from behind the scenes if you will).

As a result of the amendments, with few exceptions, every CBCA-incorporated private corporation is now, also, required to prepare and maintain a register identifying individuals (that is natural persons, not corporations, trusts or other legal entities) with “significant control” over the corporation (the “ISC Register”). Currently, an individual will be considered an individual with “significant control” of the corporation if he or she:

  • is the registered holder of, the beneficial owner of or has direct or indirect control or direction over a “significant number” of shares of the corporation, where “significant number” of shares means 25 percent or more of the voting shares of the corporation or 25 percent or more of all shares of the corporation, based on fair market value of the shares; or
  • is an individual who has any direct or indirect influence that, if exercised, would result in that individual having control of the corporation (regardless if he or she owns a “significant number” of shares).
Information to be included on the ISC Register

The ISC Register must contain the following information:

  • the names, dates of birth and the latest known address of each individual with significant control;
  • the jurisdiction of residence for tax purposes of each individual with significant control;
  • • the day on which each individual became or ceased to be an individual with significant control, as the case may be;
  • a description of how each individual is an individual with significant control over the corporation, including, as applicable, a description of their interests and rights in respect of shares of the corporation;
  • any other information required by any future CBCA regulations; and,
  • a description of each step taken by the corporation to comply with the legal requirement to, at least once during each financial year of the corporation, take reasonable steps to ensure that it has identified all individuals with significant control over the corporation and that the information in the register is accurate, complete and up-to-date.

It should be noted that if a corporation requests any of the foregoing information from one of its shareholders, the shareholder is legally obligated to, the best of their knowledge, reply accurately and completely as soon as feasible.

Access to the ICS Register

The ICS Register is not available to the public. However, at this time, the ICS Register may be accessed by both the Director of Corporations Canada, upon request, and, also, by shareholders and creditors of the corporation for certain limited purposes set out in the legislation. Further, and perhaps more to the point of the legislative changes, an “investigative body,” namely the police, the CRA and any provincial body that has responsibilities similar to those of the CRA, may access the ICS register under certain circumstances.

Upon the request of an investigative body, the corporation is required to, as soon as feasible after the request is served on the corporation provide the investigative body with a copy of the ICS Register or disclose to the investigative body any information in the ICS Register specified by the investigative body.

Significant penalties for non-compliance

A corporation that, without reasonable cause, contravenes the ICS Register requirements or contravenes the requirement to provide the disclosure to investigative bodies is guilty of an offence and liable on summary conviction to a fine not exceeding $5,000 and/or imprisonment for up to six months, or to both.

On the personal liability front, every director and officer of a corporation that knowingly authorizes, permits or acquiesces in the contravention of the requirement to create and maintain the ICS Register, who records false or misleading information in the ICS register, or who provides to any person or entity false or misleading information in relation to the ICS register, is guilty of an offence and is liable on conviction to a fine not exceeding $200,000 or to imprisonment for a term not exceeding six months, or to both. A shareholder of the corporation that contravenes the requirement to reply to the corporation’s request for information (as noted above), is also liable on conviction to a fine not exceeding $200,000 or to imprisonment for a term not exceeding six months, or to both.

Maintaining the ICS register is now the law. All CBCA private corporations are required to comply with these new record keeping requirements or risk significant penalties and/or imprisonment. While these amendments currently only apply to CBCA corporations, all provincially incorporated entities need to take note, as provinces are expected to follow suit shortly.

Louis Vouloukos of Brampton, Ont.-based Lawrences, specializes in corporate, commercial and franchise law.