Bill C-86: Amendments to the Canada Business Corporations Act
Soloway Wright LLP
Corporate Law Group
The Canadian federal government recently enacted amendments to the Canada Business Corporations Act (the “CBCA”) to provide greater transparency over who owns and controls a corporation, and to help law enforcement agencies expose activities like money laundering and tax evasion.
The Budget Implementation Act, 2018, No. 2 (Bill C-86), which amended several federal statutes, including the CBCA, received royal assent on December 13, 2018.
This article provides guidance on the recent amendments to the shareholder disclosure requirements and the corresponding compliance obligations of certain Canadian private corporations. Federal distributing corporations, which typically include publicly traded corporations and reporting issuers under Canadian securities laws, are exempt from the new CBCA amendments.
CURRENT SHAREHOLDER DISCLOSURE REQUIREMENTS
Currently, the shareholder disclosure requirements found in the CBCA pertain only to registered shareholders, being those named on the corporation’s share certificate. Specifically, under Section 50 of the CBCA, a corporation must maintain a securities register in which it records the securities issued by it, showing with respect to each class or series of securities:
- the names, alphabetically arranged, and the latest known address of each person who is or has been a security holder;
- the number of securities held by each security holder; and
- the date and particulars of the issues and transfer of each security.
If a corporation, without reasonable cause, fails to comply with the requirement to maintain a securities registers containing the above-note information, it is guilty of an offence and is liable on summary conviction to a fine not exceeding $5,000.
THE AMENDMENTS TO THE CBCA
The amendments to the CBCA, which came into force on June 13, 2019, set out the criteria for identifying individuals with “significant control” over a corporation, a requirement for a corporation to keep a register (the “Significant Control Register”) of individuals with “significant control” containing certain prescribed information, a requirement to maintain, update and disclose the register, and applicable offences and punishments for non-compliance.
Who are Individuals with “significant control”?
As per the amendments enacted to the CBCA, an individual with “significant control” is an individual:
- who is the registered or beneficial owner of, or has direct or indirect control or direction over any number of shares that (i) carry 25% or more of the voting rights attached to all of the corporation’s outstanding voting shares, or (ii) is equal to 25% or more of all of the corporation’s outstanding shares measured by fair market value (“Control Shares”);
- who has any direct or indirect influence that, if exercised, would result in control (i.e. the ability to elect the board of directors) in fact of the corporation; or
- to whom prescribed circumstances apply (yet to be determined).
Please note that two or more individuals with joint ownership of Control Shares are each considered to be an individual with “significant control”.
What are the Register Requirements?
To ensure that each individual with “significant control” is identifiable to the corporation, shareholders, creditors and the Director, the Significant Control Register must be maintained by a non-distributing corporation detailing:
- their name, date of birth and last known address;
- their jurisdiction of residence for tax purposes;
- the date on which the individuals became or ceased to be individuals with significant control;
- a description of how the individuals qualify as individuals with “significant control”, including as applicable, a description of their interests and rights in respect of the shares of the corporation;
- any other prescribed information; and
- a description of the steps taken by the corporation to identify individuals with “significant control”.
The amendments further impose an obligation to maintain and update the Significant Control Register. To ensure accuracy, a non-distributing corporation must:
- at least once during each financial year of the corporation, take steps to ensure it has identified all individuals with “significant control” and that the information contained in the Significant Control Register is accurate, complete and up-to-date;
- update within 15 days of the date that information regarding individuals with significant control becomes known to the Corporation; and
- within 1 year after the 6th anniversary of the day on which an individual ceases to be an individual with significant control over the corporation, and subject to any other Act of Parliament and to any Act of the legislature of a province that provides for a longer retention period, dispose of any of that individual’s personal information (as defined in the Personal Information Protection and Electronic Documents Act) that is recorded in the register.
What are the Disclosure Requirements?
The disclosure obligations are similar to those regarding the current shareholder register requirements. Particularly, a corporation is obligated to disclose the Significant Control Register:
- to the Director appointed under the CBCA, upon request;
- to shareholders and creditors (or their personal representatives), upon request; and
- to investigative authorities.
A shareholder or creditor may access the register on application with affidavit and a reasonable fee, provided that the information is used in connection with:
- an effort to influence the voting shareholders of the corporation;
- an offer to acquire securities of the corporation; or
- any other matter relating to the affairs of the corporation.
Offences for Failure to Record, Update and Maintain the Register
As a means of ensuring compliance with the foregoing Significant Control Register requirements, the amendments to the CBCA impose several offences for failure to comply with said requirements, which are described in more detail below.
First, a corporation is guilty of an offence if said corporation, without reasonable cause, contravenes the requirement to record, update and maintain and is liable on summary conviction to a fine not exceeding $5,000.
Second, if a corporation requests information to complete the register of its shareholders, the shareholder must, to the best of their knowledge, reply accurately and completely as soon as feasible. Every shareholder who knowingly contravenes the foregoing commits an offence, and is liable on summary conviction to a fine not exceeding $200,000 and/or to imprisonment for a term not exceeding six months.
Third, every director or officer of a corporation who knowingly authorizes, permits or acquiesces:
- in the contravention of the provision dealing with the preparation and maintenance of a register by the corporation;
- in the recording of false or misleading information in the register of the corporation;
- in the provision to any person or entity of false or misleading information in relation to the register of the corporation,
commits an offence, whether or not the corporation has been prosecuted or convicted, and is liable on summary conviction to a fine not exceeding $200,000 and/or to imprisonment for a term not exceeding six months.
Finally, an individual who, without reasonable cause, contravenes the restricted use of register information (obtained by application under affidavit as detailed above) is guilty of an offence and liable on summary conviction to a fine not exceeding $5,000 and/or to imprisonment for a term not exceeding 6 months.
These amendments highlight the significant efforts of the federal government to increase transparency in federal non-distributing corporations. Private federal non-distributing corporations must therefore ensure continuous compliance with the foregoing register requirements and should consult a corporate lawyer if there is any risk of non-compliance.