By Millie Bojic
New Registers Required
Changes are coming for federally incorporated private companies per amendments to the Canada Business Corporations Act (the “CBCA”). As of June 13, 2019, such private companies will require maintenance of a new register for any individuals that possess ‘Significant Control’ over the business (the “New Register”). Each such individual is considered a ‘Control Individual.’ Note that public companies are exempt from such a requirement.
To elaborate, the test under the CBCA amendments for a Control Individual includes registered holders, beneficial owners, and individuals who hold direct or indirect control or direction over the following:
- any number of shares that carry over 25% of the voting rights attached to all of the company’s outstanding voting shares; or
- any number of shares that is equal to over 25% of the fair market value of all of the company’s outstanding shares.
The test also covers:
- an individual who exercises any direct or indirect influence that would result in control in fact of the corporation; or
- an individual to whom prescribed circumstances apply.
The test for a Control Individual also applies if one shareholder acts jointly or in concert with other shareholders, together holding over 25% of the company in the manner as described above.
As it stands, no particulars regarding what constitutes ‘prescribed circumstances’ have yet been released by the government, nor have any supporting regulations yet been passed to provide such clarity.
What does the New Register Contain?
The New Register must contain the name, date of birth, address, residence for tax purposes, and the day on which each Control Individual has come to be or ceases to be. It also must contain other ‘prescribed information’ for each Control Individual – details again, of which have yet to be released by the government. The New Register must also contain the reasonable steps taken by the company at least once on an annual basis to capture all information of the Control Individuals in the New Register. Any changes to the New Register must be recorded within 15 days of said change.
Providing Information to the New Register is Obligatory
Of significance is that if any requests issued to the shareholders are made by the company, the CBCA amendments now obligate the shareholder to provide accurate and complete information – to the best of its knowledge and ‘as soon as is feasible’.
Who has access to the New Register?
While the New Register will not be publicly available, any requests to the company from the Director under the CBCA will require disclosure. As such, the New Register should be kept up to date by the company.
Furthermore, other shareholders and even creditors of the company can request access to the New Register. Creditors can request to search the beneficial ownership record of the New Register, or review the New Register for Know-Your-Client (“KYC”) or anti-money-laundering (“AML”) purposes. Nevertheless, impending creditors do not, on first blush, appear to be able to search the New Register’s beneficial ownership record prior to becoming a creditor of the company. That being said, if the request is made by an impending creditor as part of their due diligence process, companies may wish to consider voluntarily providing such information as is.
Note that the province of BC has introduced similar legislation applicable to BC incorporated companies which received royal assent in the British Columbia legislature as of May 17, 2019 (Bill 24, Business Corporations Amendment Act, 2019). The BC legislative amendments are similar to the CBCA amendments, with some variation around accessibility rules to the register. The CBCA amendments are expected to impact the direction other Canadian provinces take with respect to disclosure and accessibility requirements for private companies across Canada.
Officers or directors, as well as shareholders, who knowingly contravene the requirements or knowingly allow the record of fake or misleading information are subject to a fine of up to $200,000 and jail time of not more than six months.