As of June 13, 2019, private corporations governed by the Canada Business Corporations Act are obliged to establish a new security register detailing all individuals with significant control over the corporation. These new requirements will be in effect, although no guidelines or detailed regulations to assist in the interpretation of them are yet published by Corporations Canada.
Meaning of Significant Control
The new share register requirements pertain to all individual shareholders, registered or beneficial, who have significant control, direct or indirect, over the corporation.
An individual will be considered to have significant control over a corporation if he or she owns, controls or directs (whether directly or indirectly, such as through a personal holding company or otherwise) a number of shares:
- carrying 25% or more of the voting rights attached to the corporation’s outstanding voting shares, or
- constituting 25% or more of the fair market value of the corporation’s outstanding shares.
It is to be noted that there is currently no guideline concerning the application of these new rules to trusts, estates, nominees and other forms of ownership.
The new share register must contain the following information concerning significant controlling shareholders:
- their name, address and birthdate;
- their residential jurisdiction for tax purposes;
- the date when significant control was obtained and, if applicable, the date when significant control ceased;
- a description of how the individual qualifies as having significant control; and
- any other prescribed information that may be set forth in future regulations.
It is to be noted that there is no mandatory form for this new register. Accordingly, GWBR has proposed its own format.
Personal Liability for Non-compliance.
Severe fines are being implemented to apply in the event of non-compliance with the rules. Upon conviction, a director, officer or shareholder may be liable for a fine of up to $200,000 or to imprisonment for a maximum of six months, or both.
Although Corporations Canada has indicated that they do not intend to audit the compliance with these new rules on a short-term basis, due to the magnitude of the consequences for non-compliance, we recommend the immediate implementation of a form of register that will contain the required information and, when possible, a corporate chart, in order to comply with the new rules and to initiate good corporate compliance practices.