Business Law Blog

Corporations governed by the Canada Business Corporations Act (the “CBCA”) will be required to maintain a securities register of all individuals with “significant control” over the corporation pursuant to new legislation coming into force on June 13, 2019. The Budget Implementation Act, 2018, No. 2 (Bill C-86) introduces amendments to the CBCA (the “CBCA Amendments”) that are intended to further align Canada with the standards for corporate transparency set by the Financial Action Task Force.[1] It is expected that the provinces and territories will adopt similar amendments to their corporate statutes in the near future.

Currently, CBCA corporations are only required to maintain a securities register of registered or legal shareholders, which may include holding companies or trusts that are ultimately controlled by an individual or a group of individuals as the beneficial owner(s) of such shares. Under the CBCA Amendments, CBCA corporations will be required to actively collect and maintain certain information regarding both registered and beneficial shareholders with “significant control” over the corporation. The CBCA Amendments exempt reporting issuers, public companies and companies listed on a stock exchange.  

New Requirements

An individual will be deemed to have “significant control” if they own 25% or more of the voting rights attached to the corporation’s outstanding voting shares or 25% or more of the corporation’s outstanding shares measured by fair market value. Individuals acting “jointly or in concert” that meet the 25% threshold as a group and individuals who have the ability to exert influence that would result in “control in fact” over the corporation will also be considered individuals with “significant control”. Further guidance on how “significant control” and “control in fact” will be determined is expected in the accompanying regulations to the CBCA Amendments (the “Regulations”), which have yet to be released.

Corporations will need to identify those individuals with “significant control” and track them on a new securities register (the “Control Register”). The Control Register must include the following information regarding those individuals with “significant control”:

• names, dates of birth and latest known address;
• jurisdiction of residence for tax purposes;
• the day on which the individuals became or ceased to be an individual with “significant control”;
• a description of how the individuals qualify as individuals with “significant control” over the corporation (for example, if they are a beneficial shareholder that holds their shares through an intermediary);
• any other prescribed information (to be included in the Regulations); and
• a description of how the corporation has kept the Control Register up to date each financial year.

Corporations will be required to update the Control Register within 15 days of the date the corporation becomes aware of any changes to that may be required and shareholders will be obligated to provide prompt and accurate responses to any of the corporation’s requests for Control Register information. CBCA corporations will need to take an active role in the maintenance of the Control Register to comply with the CBCA Amendments. Directors and officers that contravene the new provisions can face fines and possible imprisonment of up to six months.

Disclosure of Controlling Shareholders

The Control Register will not be available to the public, however the Director of Corporations Canada may request the information. Shareholders and creditors of a CBCA corporation will be able to request access to the Control Register but must provide an affidavit swearing only to use the information contained therein in connection with:

• an effort to influence the voting of shareholders of the corporation;
• an offer to acquire securities of the corporation; or
• any other matter relating to the affairs of the corporation.

Personal information (as defined under the Personal Information Protection and Electronic Documents Act) must be removed from the Control Register within one year after the sixth anniversary of the day on which an individual ceases to be an individual with “significant control”.

Takeaway

CBCA corporations should notify their shareholders of the new requirements and begin to institute processes to track information pertaining to shareholders with “significant control”. Maintaining an accurate and up to date Control Register will allow CBCA corporations to respond to requests for information in a timely manner and ensure that the corporation, its officers and directors are not subject to any liability under the new provisions.

Lawson Lundell LLP looks forward to assisting our clients with the CBCA Amendments and their ongoing obligations to maintain Control Registers, including following up with those existing CBCA clients where Lawson Lundell LLP acts as registered and records office for the purposes of preparing a Control Register. We will continue to monitor developments with respect to Bill C-86 and the forthcoming Regulations.

Please feel free to contact Jag Shergill or Andrew Kemp at Lawson Lundell LLP for further information.

A full copy of Bill C-86 can be found here.

[1] The Financial Action Task Force (the “FATF”) is an intergovernmental body created to set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system. There are currently 38 member jurisdictions of the FATF, including Canada.