Corporate Transparency: What’s Happening in Canada? | Davies Ward Phillips & Vineberg LLP

Recent amendments to the Canada Business Corporations Act (BCSA) will require private corporations to report information about persons with significant control to Corporations Canada. These changes are part of the federal government’s long-term corporate transparency goal of creating a national, public and searchable registry of beneficial owners (which will require provincial cooperation).

CBCA Amendments Will Require Regular Reporting of Beneficial Ownership Information

On June 23, 2022, amendments to the CBCA that will require private corporations to regularly report beneficial ownership information to Corporations Canada received Royal Assent. These changes, which will come into effect at a later date, are part of the federal government’s broader initiative to create a searchable public registry of beneficial owners to combat the misuse of shell companies incorporated under a federal law for illegal activities such as money laundering and tax evasion. As the international community takes increasing interest in financial crimes and the effectiveness of economic sanctions, the Canadian government reaffirmed in the 2022 federal budget its commitment to transparency in the ownership of federal enterprises by advancing from 2025 the end of 2023 the previously set deadline for the launch of the registry. The CBCA amendments are included in Budget Implementation Act No. 1 of 2022 (Bill C-19).

Current CBCA Requirement to Maintain a Register of Persons with Significant Control

As discussed in our newsletter, since June 2019, CBCA-regulated companies (excluding companies that are reporting issuers or whose securities are listed on a “designated exchange” within the meaning of the income tax law) were required to prepare and maintain a register (a RISC) of the persons important control (generally, natural persons who have de facto control of a company, or who control or beneficially or legally own shares carrying 25% or more of the voting rights of the voting shares of the company or of the shares representing 25% of the fair market value of the company’s shares outstanding). At least once a year, a company must take reasonable steps to ensure that it has identified all persons exercising significant control over the company and that the information in the register is accurate, complete and up-to-date. Companies are also required to update their RISC within 15 days of becoming aware of any information that must be declared to the register.

Offenses for non-compliance carry severe penalties – a fine of up to $200,000 and/or six months imprisonment – ​​and apply to corporations and their directors, officers or shareholders who knowingly violate according to the requirements.

New CBCA requirement for sending RISC information to Corporations Canada

Once in force, Bill C-19 will require companies required to maintain a RISC to

  • send the information contained in the RISC to Corporations Canada receiving a certificate of incorporation, amalgamation or continuance of the CBCA;
  • annually transmit to Corporations Canada the information contained in the RISC; and
  • within 15 days of any updates to the RISC, send such updates to Corporations Canada.

The form in which this information must be transmitted to Corporations Canada and, in the case of the first two requirements, the time period within which it must be transmitted, will be prescribed by regulation, which has not yet been published.

In order to tie beneficial ownership collection to the underlying purposes of enforcing the Amendments, the Amendments also authorize Corporations Canada to disclose any or all CRIS information to the Financial Transactions and Reports Analysis Center of Canada (FINTRAC). , investigative agencies, such as the police and the Canada Revenue Agency, or any other prescribed entity.

Public companies subject to the CBCA will continue to be exempt from the listing requirement due to current insider and major shareholder public reporting requirements imposed by Canadian securities laws. Bill C-19 includes a clarifying amendment, effective June 23, 2022, confirming that the “designated stock exchange” exemption only applies to a corporation whose securities are listed and displayed for trading on a designated exchange.

Additional CBCA Amendments Coming Soon

The changes introduced in Bill C-19 represent the first of two phases of CBCA amendments to launch the public registry. The second phase will consist of changes needed to make the beneficial ownership information collected by Corporations Canada public and searchable through a publicly accessible interface. We understand that Innovation, Science and Economic Development Canada and others are currently working on issues relevant to launching the registry, including privacy issues, designing easy-to-follow regulations, and building the interface. We expect that stakeholders will be consulted during the drafting of this second phase of changes.

Corporate transparency advocates hope the next set of changes, which are expected to be released in a second budget implementation act later this year, will address concerns raised during House of Commons and Senate debates on the Bill C-19. These concerns include establishing a public registry system that effectively combats financial crime, verifying data in a timely manner, allocating sufficient resources to create meaningful investigative and enforcement capabilities, and reducing the use of attorneys as agents to protect the identity of beneficial owners through attorney-client privilege assertions. This latest initiative may prove contentious in light of successful legal challenges by Canadian governing bodies to aspects of FINTRAC’s anti-money laundering reporting requirements.

Provincial Corporate Transparency Initiatives

The CBCA Registry, although initially launched to capture federal corporations, is designed to be scalable to allow access to beneficial ownership data collected by provinces and territories that wish to participate in what the federal government hopes to become a national registry. Most provinces have already passed some form of corporate transparency legislation.

As discussed in our newsletter, in August 2021, the National Assembly of Quebec passed Bill 78, A law mainly aimed at improving corporate transparency (Bill 78), which has not yet been declared in force. When enacted, the requirements of Bill 78 will greatly exceed those of the CBCA in that they will require any person or group, including a corporation, partnership or trust, that carries on a commercial enterprise registered with the Registrar of companies in Quebec (REQ) and doing business in Quebec to disclose to the REQ information on their ultimate beneficial owner (but excluding reporting issuers and other specified entities). The public can in turn read the information disclosed to the REQ. Bill 78 is much broader in scope than the CBCA and corporate beneficial ownership registry provisions of other provinces. It extends not only to corporations, but also to other business entities. Moreover, it applies not only to entities incorporated under Quebec law, but also to those that do business in Quebec but are incorporated or formed outside Quebec. It remains to be seen whether Quebec’s expansive regime could be integrated into a national registry or whether corporations will have to adapt to overlapping beneficial ownership reporting regimes.

Amendments to the Ontario Act Business Corporations Act adopted in the Build Ontario Act (Budget Measures), 2021 require private companies to create and maintain a register of persons exercising significant control; allow authorities and other investigative bodies to access this information; and impose sanctions on companies, directors, officers and shareholders for non-compliance. These rules, largely modeled on the provisions of the CBCA, will come into force on January 1, 2023.

Most other provinces, including British Columbia, Saskatchewan (not yet in force), Manitoba, Nova Scotia (not yet in force), New Brunswick, Prince Edward Island and Newfoundland and Labrador have also passed laws requiring private corporations to maintain profit ownership records. Their provisions largely follow those of the CBCA (without, to date, the regular reporting requirement that will apply to federal corporations under Bill C-19).

Alberta, Yukon, Northwest Territories and Nunavut have not yet introduced legislation requiring private companies to maintain beneficial ownership records.

What this means for private companies (and others) in Canada

Private CBCA corporations will soon be required to regularly report beneficial ownership information contained in their RISC to Corporations Canada. The effective date for this requirement has not yet been announced and crucial details will be implemented in regulations that have yet to be published. Further amendments to the CBCA to create a public registry of beneficial ownership information for federal corporations are expected later this year.

With the provinces gradually adopting similar beneficial ownership registries, a potential structure for a multilateral federal-provincial-territorial registry, even if not national, is beginning to emerge. Privacy concerns and practical implications, including administrative burdens placed on government agencies and private commercial entities, will likely shape the actual implementation in Canada of RISC requirements and publicly available RISC registries.

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