New Compliance Requirements for Federally Incorporated Companies
To combat activities such as money laundering and tax evasion, the Federal Government has made changes to the Canada Business Corporations Act (CBCA) which came into effect on June 13, 2019. In addition to the shareholders’ and directors’ registers they already maintain, federally incorporated companies are now required to maintain a register of “Individuals with Significant Control (ISC).” The ISC register will contain these individuals’ names and other information, even if they do not personally hold shares in the corporation. This could include, for example, individuals who control a trust or another company that owns the shares.
These changes only apply to federally incorporated companies, so they do not affect corporations incorporated under provincial legislation, such as the Ontario Business Corporations Act.
Who is considered an “Individual with Significant Control”?
To qualify as an ISC, an individual must own, control, or direct a “significant number” of shares; have significant influence over the corporation; or meet any combination of these criteria. For this purpose, a significant number of shares means at least 25% of all shares of the corporation, based on fair market value, or at least 25% of the voting shares. Shareholders may need to consult their corporate lawyer or accountant to determine the fair market value of the corporation’s shares.
An individual may be considered an ISC even if he or she does not qualify independently. If two or more individuals together meet the requirements, and they have entered into an arrangement to exercise their corporate rights jointly, then each of these individuals must be recorded in the ISC register.
What are the requirements for the ISC register?
The ISC register must contain information about each ISC, including date of birth, address, tax jurisdiction, and how they meet the criteria for significant control. The Register must be kept with all of the corporation’s other records, and it must be updated at least annually. If changes that would affect the ISC register occur during the year, it must be updated within 15 days of the corporation becoming aware of those changes.
Corporations must request information from their shareholders to determine who qualifies as an ISC and to maintain their Registers. Shareholders are obligated to provide complete, accurate information to the corporation to allow it to create and maintain the ISC register.
Who has access to the ISC register, and what if a corporation does not comply?
The ISC register must be provided to Corporations Canada upon request, and a corporation’s shareholders and creditors may apply to review it at any time. However, information in the ISC register does not have to be disclosed to the public, and it does not have to be filed regularly.
Creating and maintaining an ISC register is important because failure to do so may result in serious penalties for the corporation and its directors, officers, and shareholders, up to and including fines and imprisonment.