On June 13, 2019 amendments to the Canada Business Corporations Act (“CBCA”) came into force which set out new requirements for most federally incorporated businesses. Subject to limited exceptions under the CBCA, private corporations must now keep a register of “individuals with significant control” (“ISC”s), as explained in greater detail below. This initiative is intended to provide greater transparency regarding corporate ownership and control within the federal corporate sector.
Definition of an ISC
To understand this term, we will deconstruct it to its three main components.
As defined in the CBCA, an “individual” means a natural person, and therefore corporate shareholders would not be captured by these amendments.
However, an “individual” for these purposes can be a group of individuals in certain circumstances. This relates closely with how the shares are controlled; if there is an agreement or common right over any shares between a group of individuals, each member of the group will be considered an ISC if the number of shares is significant.
In order to have “significant” control, the ISC must control a specific number of shares. This occurs in two situations,
- By controlling shares carrying at least 25% of the voting rights from all outstanding voting shares; or
- By controlling shares equalling at least 25% of the fair market value of all outstanding shares of the corporation.
An individual could have the requisite control in a variety of situations without necessarily needing to be the registered holder of the shares. The individual could be the beneficial owner of the shares or could simply have the right to control or direct the shares. Control will also be found where individuals can influence the corporation in a way that results in control in fact. Effectively, the legislation is trying to capture individuals who control the shares not only on paper, but also in reality.
The ISC Register
The ISC Register of a corporation is to be kept with the corporate records and should be maintained by all corporations to whom the legislation would apply – even if there are no ISCs identified. This is because the ISC Register must include information outlining the steps taken by the directors and officers of a corporation to identify any ISCs, along with specific information if any ISCs exist.
Where any ISCs are identified, the following information must be included in the ISC Register,
- Personal information: name, date of birth, address, and jurisdiction of residence for tax purposes;
- Control information: the date(s) when their status as an ISC commenced and concluded; and a description of said control.
Again, this is in addition to a description of the steps taken to identify ISCs and obtain their information. Corporations Canada has provided ISC Register templates which can be accessed online.
The ISC Register does not need to be publicly accessible, however, certain prescribed persons must be given access upon request. This includes investigative bodies, Corporations Canada, and, to a limited extent, creditors and shareholders who supply an affidavit as prescribed in the CBCA.
The corporation has an obligation to prepare and maintain the ISC Register, which must be updated at least once per financial year. However, if a corporation becomes aware of any changes that need to be made to the ISC Register, the changes must be made within 15 days of obtaining this information. Further, after an individual has ceased to be an ISC for 6 years, the corporation must remove that individual’s personal information from the ISC Register within one additional year.
The shareholders have a responsibility to respond to any inquiries related to the ISC Register fully, accurately, and within a reasonable amount of time. Otherwise, they could be subject to fines or jail time.
The CBCA outlines the consequences applicable where these amendments are breached. These are listed below.
- Directors and officers who authorize, permit, or acquiesce to an improperly maintained ISC Register, or to the provision or recording of false or misleading information within the ISC Register – fines up to $200,000 and/or imprisonment up to 6 months;
- Corporations who fail to maintain and update the ISC Register – fines up to $5,000.
- Shareholders who fail to provide accurate and complete information within a timely manner – fines up to $200,000 and/or imprisonment up to 6 months;
- Shareholders and creditors who misuse information obtained from the ISC Register – fines up to $5,000 and/or imprisonment up to 6 months.
The latest amendments to the CBCA may result in significant consequences if not complied with. However, spotting an ISC might not be as difficult as it appears. For more information, including whether your corporation is affected by these amendments and for help identifying an ISC, please contact one of our Business Law lawyers.
The content of this article is intended to provide a general guide to the subject matter and is not legal advice. Specialist advice should be sought regarding your specific circumstance.