As of June 13, 2019 private corporations incorporated under the Canada Business Corporations Act (“CBCA”) will be required to keep track of individual shareholders with “significant control.” The new requirement applies only to private corporations incorporated under the CBCA*, expands the record keeping obligations well beyond the current regime which only requires a CBCA corporation’s minute book to record information of registered shareholders. The new legislation requires certain information of shareholders, whether registered or beneficial, who have significant control, directly or indirectly, to be kept by the corporation.
The new record keeping obligations will apply to shareholders who have significant control. A shareholder will have significant control over a corporation if he or she owns, control or directs, whether directly or indirectly, an amount of shares:
carrying greater than or equal to 25% of the voting rights attached to the corporation’s outstanding voting shares; or
constituting greater than or equal to 25% of the fair market value of the corporation’s outstanding shares.
The new legislation is aimed at greater transparency in the business world and compliance with tax laws in Canada. The new legislation will require tracking information of individuals having significant control through a holding company be tracked. Individuals who act in concert with others in respect of shares to reach the significant control thresholds outlined above will be subject to the requirement. Significant control will also be deemed to exist in situations where a shareholder has the right to nominate a majority of the board of directors.
New Share Register Requirements
A private CBCA corporation will be required to record the following information about its shareholders with significant control:
Name, address and birthdate;
Jurisdiction for tax purposes;
Date when significant control was acquired, and the date when it ceased (if applicable); and
Description of how the individual has significant control.
The new legislation requires that corporations update its share registers once a year and provide information on the steps undertaken to ensure information is accurate and up to date. A corporation needs to record any change within 15 days of becoming aware of new information regarding shareholders with significant control. Shareholders must provide any information requested of them in order to comply with the record keeping obligations and reply as soon as possible.
There is no requirement for CBCA corporations to disclose the significant control register to the public. However, corporations must disclose the new register upon the request of Corporations Canada or shareholders or creditors of the corporation. In order to obtain the register these parties must submit an affidavit and a statement that the information will not be used for matters unrelated to the affairs of the corporation.
Penalties for Non-Compliance
Notably, there are significant penalties for not complying with the new record keeping requirements pertaining to shareholders with significant control. Any knowing authorization, permission or acquiescence in a contravention of the duties set out above by a director, officer or shareholder, would constitute an offence, and could result in a fine of up to $200,000, up to six months of jail time, or both.
Private companies incorporated under the CBCA need to take steps immediately to ensure they are in compliance with the new record keeping obligations when they come into force on June 13, 2019. If you are a shareholder, officer, or director of a CBCA corporation and you believe that the minute book is not up to date you should speak to someone immediately. While the new record keeping requirements only apply to private CBCA corporations, it is widely expected that the same requirements will be applicable to corporations incorporated provincially across Canada in the not too distant future.
* Does not apply to distributing corporations. Does not apply to CBCA corporations that are listed on a stock exchange designated under the Income Tax Act.
About the author: Adam Holmberg
Adam Holmberg’s practice encompasses a broad range of business practice including the purchase and sale of businesses, corporate and commercial lending, private equity transactions, business reorganizations, employment issues related to the operation of a business, succession planning, and estate administration.
Adam has an extensive business and finance background which allows him to better understand the often complex problems facing clients in order to better provide legal solutions.