As you may be aware, as part of a multinational initiative to combat money laundering and tax evasion, there are new requirements under the Canada Business Corporations Act regarding beneficial ownership of federal corporations which came into effect June 13, 2019.
All federal corporations are now required to keep an additional register called an Individuals with Significant Control Register (ISC Register). We will prepare and keep the ISC Register for our clients, but we require some information from our clients in order to do so.
An individual with significant control is defined as an individual who owns, controls or directs, who has significant influence over the corporation without necessarily owning a significant number of shares, or has a combination of any of these factors. A significant number of shares is either, 25% or more of the voting shares, or 25% or more of all shares based on fair market value of the shares.
If an individual owns or controls a significant number of shares with one or more other individuals, while each of them may not be an individual with significant control on their own, together they become an individual with significant control when they own or control shares. In such a case, each individual must be recorded on the ISC Register.
Importantly, an individual with significant control need not be a shareholder at all – the direct or indirect influence giving rise to “control in fact” could arise from any kind of influence based on a legally enforceable right to effect a change to the board of directors or its powers. This could take a variety of forms and may include:
- each individual who, jointly with one or more other individuals, holds shares meeting the “significant number of shares” threshold;
- each individual who, by an agreement to act together with one of more other individuals (such as through a Shareholders’ Agreement), jointly meets the “significant number of shares” threshold; and
- individuals with the right to nominate or remove a majority of the board of directors (whether such individuals are shareholders or not).
The ISC Register must include the following information for any individuals with significant control of the corporation:
- name of individual with significant control of the corporation
- individual’s date of birth
- last known address
- jurisdiction of residency for tax purposes
- date on which the individual acquired significant ownership or control
- date on which the individual ceased to have significant ownership or control
- description of how the individual meets the definition of “significant control”, including their right, title and interest in and to the shares of the corporation.
The ISC Register must include whether shareholders own the shares directly or if they are holding them on behalf of someone else.
As well, if a corporate entity or a trust holds 25% or more of the voting shares or fair market value, we need to include the names of the individuals who have significant control of the corporate entity or in the case of a trust, the trustees and possibly the beneficiaries.
Directors, officers and shareholders have obligations to provide accurate information for their ISC Register. Fines of up to $200,000 or imprisonment for a term up to six months may apply for providing false or misleading information.
Note that similar changes are coming for companies incorporated under the British Columbia Business Corporations Act.
If you wish to discuss this matter or if you have any questions, please feel free to contact us.
Paul Tonita is a solicitor practicing in the areas of business law, real estate, estate planning and estate administration. His business experience includes assisting clients right from the beginning by discussing the different business structures and incorporating, buying and selling businesses, assisting with lending or financing needs, drafting and advising on contracts, and providing general advice to business owners.
His real estate practice involves assisting both residential and commercial clients with purchases, sales, financing and leasing.
Paul also assists clients planning for their future with estate and incapacity planning as well as assisting executors navigate the waters following the loss of a loved one. This can involve determining whether a grant of probate is required and applying for one if necessary, calling in assets, paying out debts, transferring real estate to surviving joint tenants and determining whether additional steps may be required in order to wind up an estate and transfer the balance of assets to the deceased’s beneficiaries.
For more information please contact Paul Tonita at 250-869-1126 (direct line) or email him at [email protected].
