On June 13, 2019, sections of Bill C-86, or the Budget Implementation Act, 2018, No. 2, that amend the Canada Business Corporations Act (“CBCA”), will come into force. You can read more about the new changes and how they affect federally incorporated private companies here.
In light of the changes at the federal level to tackle concerns of money laundering and tax evasion, British Columbia is also moving ahead with similar legislative amendments. Along with launching a new land registry to track beneficial ownership of real property through the Land Owner Transparency Act, the province has tabled amendments to its own corporate statute that closely align with the changes to the CBCA.
Once passed, these changes will affect private, non-distributing companies created under the British Columbia Business Corporations Act (“BCBCA”).
The new legislation
Bill 24, or the Business Corporations Amendment Act, 2019 (“Bill 24”), proposes to amend the BCBCA with provisions similar to those enacted for the federal level CBCA. Bill 24 recently went through its first and second reading stages in Victoria, and a date for its enactment may be coming soon.
What are the new corporate governance rules?
- Transparency Register
Presently, the BCBCA requires companies to maintain a Central Securities Register (“CSR”). The purpose of the CSR is to identify the registered shareholders of a company, along with the types and number of shares they own.
If Bill 24 comes into force, in addition to maintaining a CSR, private, non-distributing BCBCA companies will be required to create and maintain a new type of register – a “Transparency Register”.
The Transparency Register’s purpose is to identify the beneficial owners of a company. Coupled with the CSR, auditors of private BCBCA companies will have the ability to identify both nominal and actual owners of a company once Bill 24 is passed.
The Transparency Register is a document kept at the company’s records office, or at an otherwise accessible location. It will provide information on all “significant individuals” related to the company. This includes:
- date of birth;
- last known address;
- citizenship status for tax purposes;
- date on which the individual became or stopped being a “significant individual” within the company; and
- how the individual falls within the definition of “significant individual”.
A “significant individual” who must be listed on a BCBCA company’s Transparency Register is defined as someone who:
- owns at least 25% of the company’s shares;
- owns shares that equate to at least 25% of the company’s voting rights; and/or
- has rights or indirect ability to elect, appoint or remove the company’s director(s).
If the “significant individual” is a non-individual entity such as a company or trust, then the individuals behind that entity must be listed on the Transparency Register as well.
2. Bearer Share Certificates
Bill 24 proposes to do away with “bearer share certificates”, which aligns with the government’s goal to promote corporate transparency. “Bearer share certificates” are used to prove ownership to a company’s shares.
While they had a ‘registered owner’, the buying and selling of shares through these certificates was undocumented. Bill 24 will force “bearer share certificate” holders to replace their certificates if they wish to rely on the rights attached to the shares they own.
What does this mean for new and existing companies created under the British Columbia Business Corporations Act (“BCBCA”)?
For new and existing BCBCA private, non-distributing companies, the following are some key points to keep in mind if Bill 24 comes into force:
- BCBCA companies must identify and obtain the necessary information on the “significant individuals” in their company for inclusion in the Transparency Register.
- Companies must notify “significant individuals” of their inclusion or removal from the Transparency Register within 10 days of doing so.
- Shareholders must provide the information necessary to fulfil the Transparency Register requirements.
- The Transparency Register must be updated at least once a year to ensure accuracy.
- When new information affecting the Transparency Register becomes known to the BCBCA company, the company’s Transparency Register must be updated within 30 days.
Who has access to the Transparency Register?
A BCBCA company’s CSR is relatively accessible, being open to former and current directors and shareholders, along with the general public for a fee. In comparison, the same company’s Transparency Register is less open.
Subject to prescribed procedures, information within a Transparency Register may be disclosed to directors of the BCBCA company, government tax agency officials, police, and other government regulatory authorities.
What are the consequences of non-compliance?
Failing to comply with the proposed requirements to create and maintain a Transparency Register may mean the imposition of fines. The BCBCA company itself may be liable to a fine up to $100,000, while individuals may be fined up to $50,000.
It is still unclear when Bill 24 will come into force since it is still in the early stages of the legislative process. However, with the CBCA amendments coming into force in June 2019 and similar efforts across other Canadian provinces, we are seeing a combined push in Canada to improve corporate transparency and reduce financial crime. The obligations in Bill 24 will likely become relevant in the near future.
Please contact one of our lawyers in our Corporate/Commercial Practice Group if you have any questions or wish to discuss the creation and maintenance of Transparency Registers, replacing bearer share certificates, complying with the new legislation and their implications for your company.