Effective January 1, 2023, Ontario corporations governed by the Business Corporations Act (Ontario) will be required to maintain a register of individuals with significant control.
This change arises from Bill 43, which was passed by the Ontario government in 2021. Those familiar with federal corporations will be aware that a similar requirement has existed under the Canada Business Corporations Act since 2019. These changes to Ontario corporate law are intended to increase transparency regarding ownership and control of privately owned corporations, with a view to combating corporate crime (including tax evasion and money laundering).
The requirement to create and maintain a register of individuals with significant control ("ISC register") does not capture public corporations or private corporations that are wholly owned subsidiaries of a public corporation; it applies only to Ontario private corporations.
Individuals with significant control
As suggested by its name, the ISC register is intended to identify individuals who have significant control over the corporation. As a starting point, an individual who owns a significant number of shares of a corporation is deemed to be an individual with significant control. The threshold used for determining a significant number of shares is 25%, being shares that either:
- carry 25% or more of the voting rights attached to all of the corporation's outstanding voting shares; or
- amount to 25% or more of the fair market value of all of the corporation's outstanding shares.
An individual does not need to be a direct shareholder (that is, a registered owner of such shares) to be considered an individual with significant control. The ISC register looks beyond simple direct share ownership (and past a typical shareholder register) to identify the other individuals who are in a position to exert meaningful influence over the corporation. Specifically, an individual must also be listed in the ISC register if they:
- are the beneficial owner of a significant number of shares;
- have direct or indirect control over a significant number of shares; or
- have direct or indirect influence that, if exercised, would result in "control in fact" of the corporation.1
Joint ownership or control
Groups who have joint ownership or control over a significant number of shares must also be listed on the ISC register, even if individually they do not meet the 25% threshold described above. With respect to a significant number of shares, if two or more individuals:
- jointly hold rights or interests in the shares;
- are subject to an agreement or arrangement under which the rights concerning such shares are to be exercised jointly or in concert by them; or
- are "related persons" as determined pursuant to the Business Corporations Act (Ontario), then each individual forming part of the group must be listed on the ISC register.
Control in fact
Determining whether an individual's influence would result in "control in fact" of the corporation requires taking into consideration all factors that are relevant in the circumstances. While this creates an interpretational challenge, the amendments do clarify, at a minimum, that the ability to effect a change in the board of directors is not determinative (though this factor may be considered). In addition, an exception provides that arm's length relationships will not be captured where the individual's influence over the corporation results from a franchise, licence, lease, distribution, supply or management agreement or other similar agreement or arrangement. This exception eliminates several types of commercial relationships that could be considered to involve "control in fact", but that are not the focus of the intention behind the ISC register.
ISC register requirements
The following information must be recorded in the ISC register in respect of each individual with significant control:
- name, date of birth and latest known address;
- jurisdiction of residence (for tax purposes);
- the date when the individual became and, if applicable, ceased to be an individual with significant control;
- a description of how the individual qualifies as an individual with significant control.2
The ISC register must be kept up to date. At least once during each fiscal year, the corporation must take reasonable steps to ensure it has identified every individual with significant control and that the ISC register's information is accurate, complete and up to date. The ISC register must be updated with a description of the steps taken each fiscal year to satisfy these requirements. However, updating the ISC register is not only an annual task; the register must be updated within 15 days of discovering new information required to be included in the register.
Penalties for non-compliance
An Ontario corporation can be fined up to $5,000 for failing to establish or update its ISC register, or for failing to respond to requests from public officials with authority to require disclosure of information contained in the ISC register.
The penalties at the director, officer and shareholder level are more severe. Directors and officers can be fined up to $200,000 or sentenced to imprisonment for up to six months, or both, in connection with:
- failure to maintain an ISC register;
- recording of false or misleading information in the ISC register; and
- providing any person or entity with false or misleading information relating to the register.
Similarly, a shareholder who does not reply accurately and completely (to the best of their knowledge) to a request from the corporation to provide the information required for the ISC register can receive the same penalties available for violating directors and officers.
1. Bill 43 leaves the possibility open for additional categories to be prescribed by regulation.
2. Additional detail requirements may be imposed by regulations in the future.
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.