Federal Companies Must Keep a Register of Individuals with Significant Control

Commencing June 13, 2019, Canada Business Corporations Act (CBCA) corporations will be required to create and maintain a register of individuals with significant control (ISC Register). The ISC Register is part of the government's efforts to provide greater transparency over the ownership and control of CBCA corporations, assisting investigative bodies to expose activities like money laundering and tax evasion.

Definition of "Significant Control"

An individual will be considered to have significant control over the corporation if he/she owns, controls or directs (whether directly or indirectly) a significant amount of shares. A significant amount of shares is defined as either (i) 25% or more of the voting shares, or (ii) 25% or more of the fair market value of the corporation's outstanding shares.

Each individual who is acting jointly with others in respect of shares and meets the 25% threshold will also be considered a significant controlling shareholder.

Significant control also means an individual who has significant influence over the corporation without necessarily owning a significant number of shares. The CBCA does not provide a definition for significant influence (i.e. control in fact). Courts will use a fact-based approach when determining if "control in fact" exists.

Contents of the ISC Register

The ISC Register must contain the following information pertaining to the individuals with significant control:

  • Name, address and birthdate;

  • Residence for tax purposes;

  • Date when significant control was obtained;

  • Date when significant control ceased; and

  • Description of how the individual meets the definition of significant control.

Maintaining the ISC Register

Corporations must update the ISC Register at least once a year. If during the corporation's financial year, the corporation becomes aware of a change affecting the ISC Register, the corporation needs to record the change within 15 days of becoming aware of the new information. Corporations are entitled to ask their shareholders for any information it needs to complete the ISC Register and shareholders must reply accurately as soon as possible.

Access to the ISC Register

Upon request, corporations must disclose the ISC Register information to (i) shareholders and creditors of the corporation, and (ii) Corporations Canada.

If shareholders and creditors request for the ISC Register information they must follow the proper procedure. They can apply to obtain access to the ISC Register if the information is required for the affairs of the corporation including influencing the voting at a shareholder's meeting, and offering to acquire the corporation's shares. The applicants must submit certain documents to obtain the ISC Register.

Exemption for Public Companies

Distributing corporations, which typically include public companies and reporting issuers under Canadian securities laws, are exempt from the new CBCA requirements. Generally speaking, these companies are already required to disclose this type of information under securities legislation.

DISCLAIMER: This post is intended to convey general information about legal issues and developments as of the date above. It does not constitute legal advice and must not be treated or relied on as such.