B.C. Business Corporations Act transparency register requirements: an update

Pursuant to an Order in Council issued on April 6, 2020‎ ‎(the “April Order in Council”)‎, the B.C. Ministry of Finance has delayed the coming into force of the new transparency register requirement under the B.C. Business Corporations Act (“BCA”) until October 1, 2020.* This policy decision was made in light of the current COVID-19 pandemic and pushes back the coming into force date five months from the original date of May 1, 2020.

A refresher

We previously wrote about the transparency register requirements here, but as a brief refresher, effective October 1, 2020, companies will be required to maintain a register identifying significant individuals (“SIs”). Among other things, an SI is:

1. any individual with 25% or more of the issued shares in the company, whether as a registered ‎or beneficial owner and whether directly or indirectly;‎
2. any individual with shares representing 25% of the voting rights at general meetings of the ‎company, whether as a registered or beneficial owner and whether directly or indirectly; ‎and
3. any individual with rights or abilities that, if exercised, would result in the election, appointment, or removal the ‎majority of the company’s directors, whether directly or indirectly.

For clarity, an SI need not be a ‎shareholder at all - the “right or ‎ability” to cause or control the election, ‎appointment, ‎or removal of ‎the ‎majority of the directors of the company could also arise under, for ‎example, a ‎financing ‎agreement, ‎purchase agreement, or ‎shareholders’ agreement‎.‎

The transparency register requirements apply to “private companies”, which is defined to mean companies that are not:

1. reporting issuers;
2. reporting issuer equivalents;
3. listed on a designated stock exchange within the meaning of the Income Tax Act (Canada); or
4. within a prescribed class of companies (details found below).

The transparency register has to disclose the following information for each SI:

1. name, birthdate, and last known address;
2. whether they are a Canadian citizen or permanent resident of Canada, and if not, every country or state of which they are a citizen;
3. whether they are a resident in Canada for the purposes of the Income Tax Act (Canada);
4. date on which they became or ceased to be an SI; and
5. description of how they are an SI.

Failure to comply with the various new requirements comes with penalties of up to $50,000 for individuals and up to $100,000 for companies.

Resolving uncertainty

The initial transparency register legislation was passed on May 14, 2019, with the corresponding proposed regulations first released on October 24, 2019. The proposed regulations were subsequently updated upon release of the April Order in Council.* The regulations and ‎accompanying B.C. Government commentary have added clarity to some previously ‎ambiguous areas of the legislation. For example:

1. The regulations provide insight into the “prescribed class of companies” that are exempt from the requirement to prepare a transparency register. The prescribed class includes:
   
   
   
   1. a company that is a wholly owned subsidiary of a reporting issuer, a reporting issuer equivalent or listed on a designated stock exchange within the meaning of the Income Tax ‎Act (Canada) (a “Public Company”);
   2. certain insurance companies, as defined in the Financial Institutions Act;
   3. certain trust companies, as defined in the Financial Institutions Act;
   4. a government corporation, as defined in the Financial Administration Act;
   5. a company that is a wholly owned subsidiary of a corporation incorporated, continued, or amalgamated by an enactment;
   6. a company operating an independent school as defined in the Independent School Act;
   7. a company that results from the conversion of a corporation incorporated under the School Act;
   8. a company incorporated or wholly owned by a municipality or regional district; and
   9. a company wholly owned by one or more Indigenous nations, as defined in the Land Owner Transparency Act.
   
   

   For complete details on the kinds of companies currently included in the prescribed class, please refer to the April Order in Council‎.



2. Subject to certain narrow exceptions related to control of intermediaries that are trustees or trust companies, the regulations provide that an individual will generally not be deemed to have indirect control of (a) shares, or (b) the right to elect, appoint or remove one or more of the directors of a company, if a “special intermediary” either directly holds such shares or such right or is present in a chain of intermediaries. The definition of “special intermediary” is extensive, but some of the notable inclusions are:
   
   
   
   1. a Public Company;
   2. a corporation that is a wholly owned subsidiary of a Public Company;
   3. an insurance company or an extraprovincial insurance corporation, as defined in the Financial Institutions Act;
   4. a trust company or an extraprovincial trust corporation, as defined in the Financial Institutions Act; and
   5. a corporation with a prescribed relationship to the federal or a provincial government, including if (i) Canada or a province directly owns more than 50% of the issued voting shares or (ii) a majority of the corporation’s members, directors, or management consist of government or statutory appointees, or public officers acting as public officers.


3. The regulations set out guidelines for assessing indirect control, as well as how control of ‎certain types of intermediaries, such as corporations, partnerships, trustees, and agents, ‎will be determined.‎


4. Included in the definition of an SI is a reference to an individual who has “the ability to ‎exercise direct and significant influence over an individual” who has certain rights with respect to the election of directors. The meaning of “direct and significant influence” has ‎not been prescribed by regulation. However, the B.C. Government has indicated the following:
   
   
   
   1. the “test for direct and significant influence is based on factual control of the board of directors or its powers, not on control of the day-to-day operations or business of the company”; and
   2. “direct and significant influence must come from a legally binding or enforceable ‎arrangement, such as a legal agreement or contract”. As such, it appears that having a ‎persuasive opinion or influence as a result of a close relationship (e.g., familial, economic ‎dependency, etc.), will not meet this threshold.‎ 


5. ‎The legislation contemplates that when two or more individuals have rights or interests that, ‎when combined, meet a criterion for being an SI, each such individual will be an SI if:
   
   
   
   1. such rights or interests are subject to an agreement under which they “are ‎to be exercised jointly or in concert by those individuals”; or
   2. each individual is an associate of one another.‎

The meaning of associate can be found in section 192(1) of the BCA and includes ‎spouses, parents and children, and relatives who have the same home, but ‎legislative consideration has not been given to what kinds of rights “are to be ‎exercised jointly or in concert”. However, a B.C. Government presentation on the ‎transparency register provided that the factual test for acting in concert is: ‎‎“[s]ituations where individuals set aside their independent interest to act on the ‎direction of a ‘controller’”. Examples provided indicate that requiring ‎consensus would not be acting in concert for the purposes of the transparency ‎register, but if three out of five individuals each holding 20% of a company agree to ‎combine their votes on key company decisions, this would be acting in concert. As ‎such, the three individuals would have to be included in the transparency register, ‎while the other two would not.‎

While some clarity has been added, there are still areas that require further ‎consideration ‎by the B.C. Government. For example:

1. An earlier version of the regulations provided that a person controls an intermediary that ‎is a partnership if that person is a partner in such partnership. Revised regulations released in September ‎‎2020 provide that a person controls a partnership if that person
   ‎
   1. is a partner in the partnership; or
   2. is a limited partner who is entitled to at least (i) 25% of the profits of the partnership, (ii) 25% of ‎the assets of the partnership on windup, (iii) has at least 25% of the votes in partnership management, or ‎‎(iv) has the right to appoint or remove the majority of the partnership’s management.‎ ‎

   The test for limited partnerships is reasonable given its narrower scope and the use of a ‎percentage or management appointment threshold to establish which limited partners have “control” of ‎the limited partnership. However, the application of the test for control of other types of partnerships ‎does not always lead to rational outcomes. Taking the ‎case of large accounting firms, it would not be ‎logical to state that any single partner ‎in a partnership with hundreds of partners actually individually ‎exerts control over the ‎partnership itself.‎



2. While B.C. Crown corporations are exempt from preparing transparency registers, there does not ‎yet appear to be official commentary about whether this exemption extends to B.C. companies owned ‎by foreign governments.

Going forward

Given the complexity of the analysis required to identify SIs for a company’s transparency register, the B.C. Government will hopefully introduce additional regulations for some of the areas for which informal commentary has been provided. This is because the BCA and accompanying regulations are the only “true source of defining significant individuals” and the commentary is therefore naturally subject to change over time. Nevertheless, given the extensive new requirements and numerous potential offences, B.C. companies should work closely with their records offices to update their practices in accordance with current understanding before October 1, 2020.

*This bulletin was last updated on December 1, 2020 to provide additional information regarding the proposed transparency register regulations.‎