New amendments to the CBCA require private corporations to record all individuals with "significant control" over the corporation.

Are you a privately held federal corporation? New amendments to the CBCA require private corporations to record all individuals with "significant control" over the corporation.

By June 13, 2019, certain private corporations incorporated under the Canada Business Corporations Act (the "CBCA") will be required to prepare and maintain a register (the "ISC Register") of each individual with "significant control" over the corporation (an "ISC"). It is expected that the provinces and territories will implement similar requirements at a later time.

The new requirements impact all CBCA corporations, except reporting issuers and corporations listed on a designated stock exchange. Additional exemptions may also be made under the regulation from time to time.

What are the new requirements?

Each CBCA corporation that is not exempt must prepare and maintain a register of all ISCs. Individuals will be considered to have "significant control" over a corporation if the individual:

1. has direct or indirect control or direction over, or is a registered or beneficial owner of, at least 25% of all the outstanding shares measured by fair market value or voting rights. This also applies to joint ownership or joint control;

    

2. has direct or indirect influence that could result in de facto control of the corporation. Although "influence" is not defined, it appears that individuals other than shareholders may be considered ISCs. For example, if an individual has influence that could result in de facto control by way of a financing agreement or purchase agreement, this individual should be recorded on the register; or

    

3. falls under prescribed circumstances.

What must be included in the register?

The ISC Register must contain:

1. the names, dates of birth, latest known address, and jurisdiction of residence for tax purposes of each ISC;

    

2. the day on which each individual became or ceased to be an ISC, as the case may be;

    

3. a description of how each individual is an ISC, including a description of their interests and rights in respect of shares of the corporation (if applicable);

    

4. a description of each step taken to identify all ISCs and to ensure that the ISC Register is accurate, complete and up-to-date; and

    

5. other information which may be set out by regulation from time to time.

What are the requirements for ongoing maintenance of the ISC Register?

The CBCA amendment may present a significant administrative burden for some CBCA corporations, as the ISC Register must be continually updated and maintained. At least once during each financial year of the corporation, the corporation must take reasonable steps to identify all ISCs and to ensure that the ISC Register is accurate, complete and up-to-date. As well, any new information must be recorded in the ISC Register within 15 days of becoming aware of it.

To facilitate the continuous maintenance of the ISC Register, the CBCA amendment requires shareholders to respond as soon as feasible to any request for information by the CBCA corporation.

Finally, within one year after the sixth anniversary of an individual ceasing to be an ISC, the corporation must dispose of any of the individual's personal information (as defined in subsection 2(1) of the Personal Information Protection and Electronic Documents Act) that is recorded in the register.

Where should the ISC Register be stored?

The ISC Register may be stored at its registered office or at any other place in Canada designated by the corporation's directors, such as a lawyer's office. As the register must be continuously updated and maintained, best practice would be to store the ISC Register at the corporation's office and to establish a protocol for collecting information and updating the register. The protocol would set out, among other things: the process for requesting information, who is responsible for carrying out the protocol and the process for updating the register. If the register is stored at a lawyer's office, the corporation must ensure there is a protocol in place regarding the passing of information between the corporation and law firm to ensure the maintenance requirements are followed. The corporation, and not the law firm, would be responsible for a failure to update the register.

What is the intention behind the new record-keeping requirements?

The ISC Register is intended to minimize inappropriate corporate cash flows and conduct, such as money laundering and terrorist financing by preventing CBCA corporations from using nominee shareholders or trusts to conceal the identity of beneficial owners and/or the source of funds.

What are the consequences for failure to comply?

Failure to maintain the ISC Register, without reasonable cause, is an offence which may attract a fine against the corporation of up to $5,000.

In addition, it is an offence for any shareholder, director or officer to contravene the new requirements. It is also an offence for a director or officer to knowingly provide or record false or misleading information, or authorize such false or misleading information to be provided or recorded. These offences may attract a fine of up to $200,000 against the shareholder, director or officer, personally. They may also be subject to imprisonment for up to six months.