ARTICLE
24 February 2023

New Requirement For Private Ontario Corporations To Maintain Transparency Register

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Dale & Lessmann LLP

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Dale & Lessmann LLP is a full service Canadian business law firm located in Toronto, Ontario. Our legal expertise includes corporate and commercial, mergers and acquisitions, employment, real estate, franchise, cannabis, tax, construction, immigration, infrastructure and renewable energy, intellectual property, bankruptcy and insolvency, wills and estates law and commercial litigation.
The Ontario government introduced Bill 43, the Build Ontario Act (Budget Measures), 2021 (the "Bill"), on November 4, 2021, and the Bill received royal assent on December 9, 2021.
Canada Corporate/Commercial Law

The Ontario government introduced Bill 43, the Build Ontario Act (Budget Measures), 2021 (the "Bill"), on November 4, 2021, and the Bill received royal assent on December 9, 2021. The Bill introduced changes to the Business Corporations Act (Ontario) (the "Act"), to improve transparency regarding private corporations incorporated under the Act. The changes came into effect on January 1, 2023.

These new requirements are similar to the requirements applicable to federally incorporated corporations that came into effect in 2019. A number of other provinces have also adopted transparency register requirements.

I. Individual with Significant Control

The amendments to the Act require that all private corporations incorporated or continued under the Act (with the exception of corporations that are wholly owned subsidiaries of publicly traded corporations) maintain a register of individuals with significant control (the "ISC Register") over the corporation.

An individual with "significant control" is defined as an individual:

  • who is the registered or beneficial owner of, or has direct or indirect control or direction over:
    • shares that carry 25% or more of the voting rights attached to all of the corporation's outstanding voting shares; or
    • shares that carry 25% or more of all of the corporation's outstanding shares measured by fair market value;
  • who has direct or indirect influence that, if exercised, would result in control in fact of the corporation; or
  • to whom prescribed circumstances apply.

Furthermore, two or more individuals can be jointly or collectively considered to be an individual with significant control over a corporation if:

  • two or more individuals jointly hold rights or interests in shares that are equal to or exceed the 25% threshold;
  • pursuant to any agreements, two or more individuals agree to exercise any rights that they hold in the corporation jointly and in concert, and such rights collectively meet the 25% threshold; and
  • the individuals are "related persons" as defined in the Act, and collectively hold ownership rights or interests in shares that meet the 25% threshold.

Each individual in the scenarios above will be considered an individual with significant control.

The amendments to the Act state that in determining whether or not an individual has indirect or direct control that, if exercised, would result in control in fact of the corporation, they will examine all factors that are relevant in the circumstances, and this shall not be limited to, and the relevant factors need not include, whether the individual has a legally enforceable right or ability to effect a change in the board of directors of the corporation, or its powers, or to exercise influence over the shareholder or shareholders who have that right or ability. It is worth noting that the amendments do not specify what the "relevant factors" might be.

In addition, the amendments outline certain exceptions to this test. Control in fact will not arise solely as a result of the corporation and individual dealing with each other at arm's length pursuant to any of the following relationships:

  • Franchising;
  • Licensing;
  • Leasing;
  • Distribution;
  • Supply; or
  • Management.

II. The ISC Register

The corporation's ISC Register must be maintained at the corporation's registered office or another place in Ontario that is designated by the directors. The information required to be included and maintained in the ISC Register for each individual with significant control is:

  • the full name, date of birth and latest known address;
  • the jurisdiction of residence for tax purposes;
  • the date on which each individual became and ceased to be an individual with significant control (as applicable);
  • a description of how each individual qualifies as an individual with significant control, including, as applicable, a description of their interests and rights in respect of shares of the corporation;
  • any other prescribed information; and
  • a description of the steps taken by the corporation to identify all individuals with significant control and ensure that the information in the register is accurate, complete and up to date.

The ISC Register must be updated at least once during every fiscal year of the corporation but it does not have to be updated on the same date each year. If the corporation becomes aware of any new information that should be recorded in the ISC Register, whether during their review or in the regular course of business, the corporation is required to make the amendments to the register within 15 days of becoming aware of the information. The corporation is to dispose of the personal information of an individual who ceases to be an individual with significant control within one year after the sixth anniversary in which the individual ceased to be an individual with significant control.

III. Access to the ISC Register

The register is not publicly filed or available to the public. In addition, there is no requirement to disclose the register to creditors, shareholders or employees of the corporation. However, a corporation may be required to disclose the register for law enforcement purposes, tax purposes, and certain other sanctioned regulatory purposes. The corporation must respond and comply with the requests within the time period that may be specified in the requests, and the response must comply with any prescribed requirements, conditions or restrictions.

IV. Penalties for Non-Compliance

  1. Corporation. The failure of a corporation, without reasonable cause, to comply with any of the requirements to prepare and maintain the ISC Register, meet disclosure obligations under the legislation and/or respond to ministry inquiries will be guilty of an offence and can be subject to fines of up to $5,000.
  2. Directors and Officers.Any director or officer of a corporation who knowingly authorizes, permits, or acquiesces in a corporation's failure to perform any of its duties relating to the preparation and maintenance of the ISC Register and/or the disclosure requirements, or if the director or officer of the corporation records or provides false or misleading information relating to the ISC Register is guilty of an offence and the penalties for such offences are fines of up to $200,000 and/or up to 6 months of imprisonment.
  3. Shareholders. Every Shareholder who knowingly fails to reply to any requests by the corporation in regard to the ISC Register as required by the legislation is guilty of an offence and can be subject to fines of up to $200,000 and/or up to 6 months of imprisonment.

As the above-described amendments to the Act are now in effect, private Ontario corporations should begin preparing their transparency register for inclusion in the corporation's minute book.

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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