Who controls the corporation? Canadian corporate transparency registers

In an effort to crack down on tax evasion, criminal activities, money laundering, corruption and terrorism financing, legislation has been introduced federally and in many Canadian provinces requiring that private corporations maintain a register of individual(s) who “significantly control” a corporation (a Register). 

The recent increase in transparency legislation follows on the 2017 commitment of federal, provincial and territorial finance ministers to strengthen beneficial ownership transparency to align the Canadian regulatory framework with the G20 principles relating to ultimate beneficiaries. This update outlines the principal requirements of the legislation federally and in Ontario, British Columbia and Quebec and highlights some of the key differences between Quebec and the other jurisdictions.

Major takeaways

Canadian businesses should be aware of the following matters.

• Private corporations incorporated or continued under the Canada Business Corporations Act (CBCA), have been required to maintain a Register since June 13, 2019.
• Private corporations incorporated or continued under the Business Corporations Act (British Columbia) (BCBCA) have been required to maintain a Register since October 2020.
• Private corporations incorporated or continued under the Business Corporations Act (Ontario) (OBCA) will be required to maintain a Register effective January 1, 2023.
• Quebec has taken a different approach to corporate transparency. Rather than amending its corporate legislation, Quebec assented to Bill 78,An Act to mainly improve the transparency of enterprises (Bill 78) on June 8, 2021, and the obligation to maintain a Register is currently anticipated to come into force in March 2023. Bill 78 amends the Act respecting the legal publicity of enterprises (the LPA). The Quebec approach is unique in that:
  • it applies to all “enterprises” required to register under the LPA,  not just corporations;
  • “enterprise” is broadly defined. All enterprises will be required to maintain a register of individual beneficial owners regardless of whether they are a corporation or another enterprise such as a partnership or trust, although reporting issuers, non-profit organizations, financial institutions, legal persons established in the public interest and associations within the meaning of the Civil Code of Quebec will not have to declare their ultimate beneficiaries; and
  • “enterprise” is defined to include private corporations, partnerships and trusts formed in Quebec as well as in a jurisdiction other than Quebec but that are domiciled in Quebec, carry on activity in Quebec or own real property in Quebec. Persons are presumed to be carrying on an activity or operating an enterprise in Quebec if they have an address in Quebec or, either directly or through a representative, have an establishment, a post office box or the use of a telephone line in Quebec, or perform any act for profit in Quebec.
• Businesses should ensure they are in compliance with their own corporate statutes as well as the Quebec legislation to the extent they are carrying on activities in the province that trigger the requirement to maintain a Register.
• In addition to the above provinces, Manitoba, Newfoundland and Prince Edward Island have passed similar legislation, while Nova Scotia and Saskatchewan have introduced similar legislation that has yet to be enacted.

Basic features

While the rules differ slightly from jurisdiction to jurisdiction, they all share the same basic features.  The CBCA provides as follows:

• individuals with ultimate significant control over a private corporation must be identified and information about such individuals must be recorded on the Register, including the name of the individual, their jurisdiction of residence for tax purposes and how they qualify as an individual with significant control over the corporation;
• significant control is generally defined as an individual
  • holding or controlling, directly or indirectly:
    • shares of the corporation that carry 25% or more of the voting rights attached to the outstanding shares of the corporation; or
    • shares of the corporation equal to 25% or more of the corporation’s outstanding shares measured by value; or
  • having any direct or indirect influence that, if exercised would result in control in fact of the corporation (including the right or indirect control of the right to appoint or remove a majority of the corporation’s directors).

Similar definitions exist in other Canadian jurisdictions. Indirect ownership will require a corporation to look behind a registered shareholder to its ultimate individual shareholder(s) who exercise significant control.

Who can access the Register?

Under the CBCA, OBCA and BCBCA, a Register is not generally publicly available. For CBCA corporations however, shareholders and creditors may access the information in certain circumstances. Under the BCBCA, CBCA and OBCA, the contents of a Register must be accessible to or disclosed to law enforcement, regulatory or taxation authorities, provided certain conditions are present.

Under the BCBCA and OBCA, a Register must be made available to the director under the relevant corporate statute upon request. CBCA amendments introduced in April 2022 but not yet in effect, require federally incorporated corporations to send a copy of the Register to the director under the CBCA following incorporation and thereafter annually or whenever changes to the Register are made. In addition, the director under the CBCA will be authorized to disclose copies of the Register to the police, the Canada Revenue Agency and the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) once the amendments to the CBCA are in force.

In Quebec, the Register will be publicly available on-line and will allow searches by first and last name, although certain personal information such as birth dates and residential addresses (if a business address is publicly available) will be excluded from the public version of the Register. Searches should become possible in March 2024, which is one year after the obligation to declare ultimate beneficiaries is expected to come into force in Quebec. It remains to be seen whether the federal government and any other provinces or territories move to an open access Register.

Enforcement

Given the global policy rationale behind instituting beneficial ownership register requirements, failure to comply is not likely to be viewed as merely sloppy record keeping and could invite regulatory scrutiny from various quarters. The penalties for not maintaining a Register are significant. Under the CBCA, for example, directors and officers who commit offences under the rules and shareholders who fail to provide information necessary to allow the corporation to comply with its obligations, are liable to a fine of up to $200,000, imprisonment for up to six months or both. In Quebec, the Registraire des entreprises will also be able to apply an administrative penalty that provides for the ex officio cancellation of enterprises as well as penal sanctions.