Concerns of the ease of money laundering and tax evasion have haunted Canadian companies and the government for years. In response to those concerns, the Canadian government is implementing new rules on corporate governance through two new pieces of legislation. The new rules apply to private, non-distributing companies created under the federal Canada Business Corporations Act (“CBCA”).
The new legislation
In late 2018, the Canadian federal government passed Bill C-86, or the Budget Implementation Act, 2018, No. 2, (“Bill C-86”). Bill C-86, among other things, amends the CBCA and will come into force and effect on June 13, 2019.
Then, on April 8, 2019, Bill C-97, the budget implementation legislation for 2019 went through its first reading in Ottawa (“Bill C-97”). Bill C-97 also includes amendments to the CBCA.
Together, Bill C-86 and Bill C-97 will provide greater transparency over company ownership, and will assist with exposing and prosecuting financial crimes.
What are the new corporate governance rules?
When Bill C-86 comes into force on June 13, 2019, non-distributing CBCA companies will be required to create and maintain a new type of register – a Register of Individuals with Significant Control.
This new register, otherwise known as the “ISC Register”, is a document kept at the company’s registered office. It will provide information on all individuals with significant control over the company. This includes:
- Date of birth;
- Last known address;
- Jurisdiction for tax purposes;
- Date on which the individual acquired significant ownership or control; and
- Description of how the individual meets the definition of significant control.
An individual with “significant control” who must be listed on the ISC Register is defined as someone who:
- Owns a significant number of shares;
- Controls or directs a significant number of shares;
- Has significant influence over the corporation without necessarily owning a significant number of shares; or
- Has a combination of the above factors.
A “significant number of shares” is defined as:
- A number of shares with at least 25% of the company’s voting rights; or
- A number of shares that is equivalent to at least 25% of the company’s fair market value.
What does this mean for new and existing companies created under the Canadian Business Corporation Act?
For new and existing CBCA private, non-distributing companies, the following are some key points to keep in mind in order to comply with the new rules:
- Companies must identify the “individuals of significant control” in their company.
- Companies must obtain the necessary information on their “individuals of significant control” for inclusion in the ISC Register.
- Shareholders must provide the information necessary to fulfil the ISC Register’s requirements.
- The ISC Register must be updated at least once a year to ensure accuracy.
- When new information affecting the ISC Register becomes known to the CBCA company, the company’s ISC Register must be updated within 15 days.
Who has access to the ISC Register?
Subject to prescribed procedures, information within ISC Registers may be disclosed to shareholders and creditors of the CBCA company and Corporations Canada.
Although it has not been passed yet, if it comes into force, Bill C-97 will allow enforcement agencies including the police, the Canada Revenue Agency or equivalent provincial entities, to access a CBCA company’s ISC Register.
Access will be allowed where the enforcement agency has reasonable grounds to suspect that an offence has been committed.
What are the consequences of non-compliance?
Failing to comply with the new obligations to create and maintain an ISC Register may mean the imposition of fines and/or imprisonment.
The CBCA company itself may be liable to a fine up to $5,000. Directors, officers and shareholders may be liable to a fine up to $200,000 and/or up to six months of imprisonment.
These new rules mark the beginning of a renewed effort in Canadian corporate law towards more transparency, and better corporate governance and responsibility. With Bill C-86 coming into force in June 2019 and Bill C-97 still in development, more changes may be coming down the pipeline.
Please contact us if you have any questions or wish to discuss the creation and maintenance of ISC Registers, complying with the new legislation and their implications for your company.