Canada: New Requirement: CBCA Corporations Required To Keep A Register Of Individuals With Significant Control

Last Updated: April 15 2019
Article by Houser Henry & Syron LLP

Canada Business Corporations Act (CBCA) corporations, except for some distributing corporations, will soon have to maintain an additional register for individuals with "significant control" over the corporation. The new regulations under Bill C-86 Budget Implementation Act, 2018, No. 2 will come into effect on June 13, 2019.

The existing shareholder register requirements pertain to registered shareholders only (i.e. those named on the corporation's share certificates). The new regulations include disclosure of all individuals, whether they are registered or beneficial shareholders who have significant control over the corporation, both directly and indirectly. The new rules represent the government's desire for greater transparency of corporate ownership to help expose issues like tax evasion and money laundering.

Definition of "significant control"

An individual will be considered to have significant control over the corporation if he/she owns, controls or directs (whether directly or indirectly) a significant amount of shares. A significant amount of shares is defined as either (i) 25% or more of the voting shares, or (ii) 25% or more of the fair market value of the corporation's outstanding shares.

Each individual who is acting jointly with others in respect of shares and meets the 25% threshold will also be considered a significant controlling shareholder.

Significant control also means an individual who has significant influence over the corporation without necessarily owning a significant number of shares. The CBCA does not provide a definition for significant influence (i.e. control in fact). Courts will use a fact-based approach when determining if "control in fact" exists. While there are no set factors to find control in fact, the facts must show that decision making power over the corporation lies with the individual in question.1

Contents of the new register

The register must contain the following information pertaining to the individuals with significant control:

  • Name, address and birthdate;
  • Residence for tax purposes;
  • Date when significant control was obtained;
  • Date when significant control ceased; and
  • Description of how the individual meets the definition of significant control (i.e. shareholder in a holding company etc.).

Maintaining the new register

Corporations must update the register at least once a year. This means corporations must take reasonable steps to find out whether any of the information in the register has changed and if any new individuals are to be added.

If during the corporation's financial year, the corporation becomes aware of a change affecting the register, the corporation needs to record the change within 15 days of becoming aware of the new information. Corporations are entitled to ask their shareholders for any information it needs to complete the register and shareholders must reply accurately as soon as possible.

Access to the register

Upon request, corporations must disclose the register information to (i) shareholders and creditors of the corporation, and (ii) Corporations Canada.

If shareholders and creditors request for the register information they must follow the proper procedure. They can apply to obtain access to the register if the information is required for the affairs of the corporation including influencing the voting at a shareholder's meeting, and offering to acquire the corporation's shares. The applicants must submit the following documents to obtain the register:

  • An affidavit containing the name and address of the applicant, and
  • A statement that the information obtained will not be used for matters not related to the affairs of the corporation.

Otherwise, corporations are not required to disclose the information in the register to the public.

Exemption for public companies

Distributing corporations, which typically include public companies and reporting issuers under Canadian securities laws, are exempt from the new CBCA register requirements. These companies are already required to disclose this type of information under securities legislation. CBCA corporations that are listed on a stock exchange under the Income Tax Act are also exempt from this new requirement.

Footnote

[1] Transport M.L. Couture Inc. c. R., 2004 CarswellNat 140 (F.C.A.), at paragraph 24.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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