Ontario Joins the Club via Bill 43 Re: Register of Individuals with “Significant Control”Tuesday, January 10, 2023
On January 1, 2023, the Ontario Government’s amendments to the Business Corporations Act (Ontario) (the “OBCA”) came into force and, for Ontario corporations, represent a large shift in the record keeping requirements for private corporations. The amendments to the OBCA were contained under Bill 43, the Build Ontario Act (Budget Measures) (“Bill 43”) and require private corporations to prepare and maintain a register of individuals with “significant control” over the corporation (the “ISC Register”). Public OBCA corporations and private corporations that are wholly-owned subsidiaries of Public OBCA corporations will be exempt from this requirement.
In 2017, the federal, provincial and territorial Finance Ministers in Canada agreed to pursue legislative amendments that strengthen the transparency of corporate ownership. The ISC Register requirement is meant to increase corporate transparency regarding who owns and controls a corporation in order to prevent the misuse of corporations for tax evasion, money laundering and financing terrorist activities. The Canada Business Corporations Act (the “CBCA”) was the first corporate statute to adopt an ISC Register requirement for federally incorporated private corporations effective as of June 13, 2019, as discussed in our previous update New CBCA Rules and Risks of Non-Compliance. As expected, the amendments to the OBCA mirror the existing ISC Register requirement under the CBCA. Effectively, all the commentary provided in our previous update (New CBCA Rules and Risks of Non-Compliance) equally applies to the imposition of the ISC Register on private Ontario corporations. This commentary helps to highlight some of the challenges and nuances of the real-world application of the ISC Register.
Individuals with “Significant Control” – 25% Votes, 25% Value, or “Influence”
An individual is considered to have “significant control” over a corporation if the individual:
- is a registered or beneficial owner of, or has direct or indirect control or direction over, any number of shares that carry 25% or more of the voting rights attached to all of the corporation’s outstanding voting shares;
- is the registered or beneficial owner of, or has direct or indirect control or direction over, any number of shares that is equal to 25% or more of all of the corporation’s outstanding shares measured by fair market value;
- has any direct or indirect influence that, if exercised, would result in control in fact of the corporation; or
- is an individual to whom circumstances prescribed by regulation (which have not yet been promulgated) apply.
Bill 43 is generally silent on what factors must be considered when determining whether an individual has direct or indirect influence that, if exercised, would result in “control in fact” of the corporation. Rather, influence is determined by taking into account “all factors that are relevant in the circumstances.” However, Bill 43 expressly states that the ability to change the board of directors of the corporation is not a relevant factor in this determination.
Two or more individuals may be considered an “individual” with significant control if, in respect of ownership of or rights in a significant number of shares of the corporation: (i) the ownership interests or rights are held jointly by those individuals; (ii) rights are exercised jointly or in concert by those individuals; or (iii) the individuals that hold the ownership interests or rights are “related persons” to each other.
Substance of the ISC Register
The ISC Register for individuals with “significant control” over the corporation must contain the following information for each individual:
- name, date of birth and last known address;
- jurisdiction of residence for tax purposes;
- the date on which the individual became (and if applicable, ceased to be) an individual with significant control;
- a description of how the individual meets the definition of significant control;
- any other information that may be provided for in regulations enacted in the future; and
- a description of the steps taken to identify all individuals with significant control and to ensure that the information in the register is accurate, complete and up to date.
Annual upkeep of the ISC Register will be required of corporations at least once during each financial year. Corporations must ensure all individuals with “significant control” over the corporation are identified and their information is accurate and complete.
To ensure the ISC Register is kept up-to-date, Bill 43 requires corporations to update the register within 15 days of becoming aware of information required to be disclosed in the register. Bill 43 further requires shareholders to comply with requests from the corporation for any information required to be recorded in the ISC Register.
Access to the ISC Register
A private OBCA corporation’s ISC Register will not be publicly available. However, Bill 43 provides that law enforcement officers, tax officials and other regulatory bodies will be entitled to access the ISC Register for certain investigatory and enforcement matters.
Penalties for Non-Compliance
Directors or officers of a corporation who (i) knowingly authorize, permit or acquiesce in the contravention of the requirements to prepare and maintain an accurate ISC Register, (ii) record false or misleading information in the ISC Register, or (iii) provide any person or entity false or misleading information relating to the ISC Register, may be liable to a fine not exceeding $200,000, or to imprisonment for a term not exceeding six months, or both.
Every shareholder who knowingly contravenes the requirement to reply accurately and completely as soon as feasible to a corporation’s request for information may also be liable to a fine not exceeding $200,000, or to imprisonment for a term not exceeding six months, or both.
If you have any questions regarding the amendments to the OBCA, please contact Nick Gray by email at firstname.lastname@example.org, Hannah Dodick by email at email@example.com, Alison Sinclair by email at firstname.lastname@example.org or any other member of Wildeboer Dellelce LLP.
This update is intended as a summary only and should not be regarded or relied upon as advice to any specific client or regarding any specific situation.
If you would like further information regarding the issues discussed in this update or if you wish to discuss any aspect of this commentary, please feel free to contact us.