CBCA Private Corporations Subject to New Shareholder Record-Keeping Requirements

February 11, 2019

Written By Andrew Pollock

In December 2017, Canadian finance ministers announced their agreement in principle to “pursue legislative amendments to federal, provincial and territorial corporate statutes or other relevant legislation to ensure corporations hold accurate and up to date information on beneficial owners that will be available to law enforcement, and tax and other authorities.”

Changes to the Canada Business Corporations Act (CBCA) are coming soon to ensure compliance with these goals, at least at the federal level. For context, these requirements are in line with current rules in the UK and EU. Despite the ministers' agreement in principle, we are not aware of any Canadian province or territory following suit at this time.

As of June 13, 2019, private CBCA corporations will need to maintain a register of their Individuals With Significant Control (each a Control Individual). This requirement will not apply to public companies incorporated under the CBCA.

A Control Individual is someone who is:

1. any of (i) a registered holder of; (ii) a beneficial holder of; or (iii) an individual who has direct or indirect control or direction over:
   • any number of shares that carry 25 percent or more of the voting rights attached to all of the corporation's outstanding voting shares; or
   • any number of shares that is equal to 25 percent or more of all of the corporation's outstanding shares measured by fair market value;
2. an individual with any direct or indirect influence that, if exercised, would result in control in fact of the corporation; or
3. an individual to whom prescribed circumstances apply.

Each individual shareholder is considered a Control Individual if that shareholder is acting jointly or in concert with others regarding the 25 percent thresholds noted above.

The federal government has not passed supporting regulations so there are several questions about interpreting the amendments—for example, what “prescribed” circumstances may apply to an individual to make him or her a Control Individual.

The Control Individual register must contain:

1. the name, date of birth and latest known address of each Control Individual;
2. the jurisdiction of residence for tax purposes of each Control Individual;
3. the day on which each Control Individual became or ceased to be such;
4. a description of how each individual is a Control Individual, including a description of their interests and rights regarding shares of the corporation; and
5. any other prescribed information (which, again, is expected to be detailed in the related regulations).

The register must also include information relating to steps the corporation has taken at least once during each financial year of the corporation to ensure that it has identified all Control Individuals. If the corporation becomes aware of any information that should be recorded in the register it must be recorded within 15 days of the corporation becoming aware of it. The corporation may request the required information from its shareholders' who must reply, to the best of their knowledge, as soon as feasible.

The register is to be maintained by the corporation and held with its books and records and the director under the CBCA may request any information contained in it. In addition, creditors and shareholders of the corporation are entitled to view the register under specified circumstances.

We are expecting to see more details once regulations have been issued. Meanwhile, CBCA corporations with complex holding structures should assemble the information they will need to comply with the amendments.