Private companies facing public disclosure of beneficial ownership under new Federal Canadian ‎and British Columbia rules

Over the last few years, Canadian federal and provincial legislators have introduced a variety of new transparency requirements for private corporations (please see here for our prior publication). The Canada Business Corporations Act (CBCA) was the first act to establish a beneficial ownership register in 2019, with similar regimes having subsequently been rolled out in British Columbia, Manitoba, Saskatchewan, Quebec, Nova Scotia, Ontario, Prince Edward Island, New Brunswick, and Newfoundland & Labrador. In fact, the only Canadian jurisdictions which have yet to introduce corporate transparency register laws are Alberta, Yukon, the Northwest Territories, and Nunavut.

Level-setting

A key reason behind the introduction of the corporate transparency register requirements was to end ‎hidden ownership and crack down on illegal activities, such as money-laundering. Since the Federal ‎Government and the Government of British Columbia were two of the first bodies to introduce ‎transparency register requirements under the CBCA and the British Columbia Business Corporations Act ‎‎(BCBCA), respectively, it is not surprising that amendments have now been proposed in both ‎jurisdictions. Before reviewing these amendments, it is worth briefly summarizing some of the current ‎requirements: ‎

Who is significant?‎

The criteria that qualify an individual as a “significant individual” (SI) under the BCBCA or an ‎‎“individual with significant control” (ISC) under the CBCA differ slightly. However, the focus under ‎both acts is generally on whether the individual: (a) owns, controls, or directs 25% or more of the ‎company’s shares (BCBCA only); (b) owns, controls, or directs 25% of voting rights attached to ‎shares (BCBCA and CBCA); (c) owns, controls, or directs 25% of the company’s shares based ‎on fair market value of those shares (CBCA only); or (d) has the ability to appoint or remove the ‎majority of the company’s directors (BCBCA and CBCA). There is significant nuance in the ‎assessment, as interests or rights may be held indirectly or directly, and in certain cases, ‎combined with those of others (e.g., spouses), but the overriding principle is determining who ‎exerts “significant” control over the company’s operations.‎

What information must appear in the register?‎

The transparency registers must currently include the following information for SIs and ISCs: (a) ‎date of birth (BCBCA and CBCA); (b) residential address (BCBCA and CBCA); (c) whether the ‎individual is a Canadian citizen or permanent resident (and, if not, every country or state of which ‎they are a citizen) (BCBCA); (d) tax residency (under the BCBCA, whether the individual is ‎resident in Canada for the purposes of the Income Tax Act, and under the CBCA, a list all ‎country(ies) of which the individual is a resident for tax purposes); (e) date the individual became ‎significant (BCBCA and CBCA); (f) date the individual ceased to be significant (if applicable) ‎‎(BCBCA and CBCA); and (g) description of how the individual is significant (e.g., has 50% of ‎voting rights attached to shares) (BCBCA and CBCA).‎

Who currently has access to the register?‎

Access to the transparency registers maintained under the BCBCA and CBCA is currently highly ‎restricted, with the only individuals currently able to view a corporation’s register being: (a) under ‎the BCBCA, regulatory officers (e.g., tax authorities), law enforcement, and the corporation’s ‎directors; and (b) under the CBCA, investigative bodies (e.g., the Canada Revenue Agency ‎‎(CRA), police force, etc.), shareholders and creditors, and Corporations Canada. ‎

Are there exemptions from the requirement to maintain a transparency register?‎

Yes, the CBCA and BCBCA exempt certain corporations from the requirement to maintain a ‎transparency register, including public companies. ‎

The Amendments

The amendments to the BCBCA (Bill 20) and CBCA (Bill C-42) have the common goal of further ‎increasing transparency, including by creating a publicly accessible register in each jurisdiction. Bill 20 ‎received Royal Assent in BC on May 11, 2023, but Bill C-42 is still working its way through the Federal ‎legislative process (it passed at the House of Commons on June 22, 2023 and is currently undergoing ‎review by the Senate). ‎

Who will have access to the transparency registers?‎

In addition to the persons who currently have access to the BCBCA and CBCA transparency ‎registers, the general public will gain the ability to access certain information in the registers. This ‎access will likely be provided through the creation of a portal in each jurisdiction, with applicable ‎BCBCA companies and CBCA corporations being required to maintain updated filings of all SI ‎and ISC information in their respective portals. ‎

Is there any new SI / ISC information that will need to appear in the register?‎

Yes. Under the amended CBCA, the ISC transparency register will need to include each ISC’s ‎address for service (if one has been provided to the corporation) and their citizenship. Notably, ‎the address for service does not need to be the individual’s residential address. The BCBCA ‎amendments will require the SI transparency register to also include each SI’s social insurance ‎number (if any), tax number (if one has been assigned by the CRA), and, if applicable, a ‎statement indicating the SI is not capable of handling their own affairs. ‎

What information will be available to the general public?‎

BC: Bill 20 will make the following SI information available to the public for applicable BCBCA ‎companies: (a) name; (b) year of birth; and (c) whether the individual is a Canadian citizen or ‎permanent resident (and, if not, every country or state of which they are a citizen). However, there ‎will be mechanisms in place for SIs to apply to omit or obscure the foregoing information if they ‎believe their health or safety would be at risk as a result of such disclosure, as well as to ‎automatically omit the information of minors and individuals incapable of managing their own ‎affairs.‎

Canada: Bill C-42 will make the following ISC information available to the public for applicable ‎CBCA corporations: (a) name; (b) address for service (if it has been provided to the ‎corporation); (c) residential address (if their address for service has not been provided to the ‎corporation); (d) the date on which each individual became or ceased to be an ISC, as the case ‎may be; and (e) a description of how each individual is an ISC. As under Bill 20, Bill C-42 likewise ‎has a process to apply to omit or obscure information if the  ISC believes disclosure would ‎present a serious threat to their safety, and also automatically omits the information of minors ‎and individuals found incapable of managing their own affairs.‎

All SI and ISC information, including the new information, will be available to the authorities and ‎individuals who currently have access to the BCBCA and CBCA transparency registers.‎

What are the public filing requirements?‎

BC: Under the BCBCA, private companies will need to: (a) file their public register within six ‎months of incorporation or recognition; (b) file and update their public register within 15 days ‎upon any changes to the SIs; and (c) annually review and update their public register within two ‎months of the date on which the company was recognized.‎

Canada: Under the CBCA, non-exempt corporations will need to take reasonable steps to ensure ‎all ISCs have been identified, and that the information in the register is correct: (a) at least once ‎during each financial year; (b) at the request of Corporations Canada; and (c) at the times ‎provided for in the regulations (which have not yet been drafted).‎

Have the penalties for non-compliance changed with the increased responsibilities?‎

Yes, penalties may now be leveraged both for a failure to maintain the register at the registered ‎and records office, and for a failure to file and update the portal registers. ‎

BC: The BCBCA already provided that failure to comply with applicable transparency provisions ‎is an offence that carries fines of up to $50,000 for individuals and up to $100,000 for ‎corporations. While these thresholds remain the same, Bill 20 has introduced a second regime of ‎administrative penalties of up to $25,000 for individuals and $50,000 for corporations that may ‎be charged in addition to, or instead of, the foregoing fines.‎

Canada: The maximum penalty that may be applied to directors, officers, or shareholders who ‎knowingly participate in, or permit, the contravention of certain CBCA transparency register ‎provisions has been significantly increased to a fine of up to $1,000,000 and/or up to five years ‎imprisonment under the CBCA (up from $200,000 and six months imprisonment). In addition, if a ‎corporation does not file and maintain its register, it commits an offence and is liable to a fine of ‎up to $100,000. 

Readers who have experience with the disclosure requirements under the British Columbia Land Owner ‎Transparency Act (LOTA) may recognize many familiar concepts here, but there are important ‎differences, including that LOTA: (a) targets ultimate ownership of real property rather control of ‎companies; (b) is far broader in that it requires disclosure regarding partnerships and trusts, not just ‎corporations; and (c) has a lower threshold for determining significance with respect to share ownership ‎‎(10% vs. 25%). ‎

Comparison chart

Given the complexity of the legislation, the following chart provides a high-level overview of some of the key requirements under each of the BCBCA and CBCA and how they will change once the amendments come into force (amendments in red, assuming, in the case of the CBCA, that the legislation does not materially change).

Final thoughts

The proposed amendments to the BCBCA and CBCA reflect a global shift to increased transparency around corporate ownership. Although it may feel new, Canada is following in the footsteps of other jurisdictions which already have similar systems in place. While some ISCs and SIs may be uncomfortable with the degree of public disclosure, there are avenues by which they may be able to have their information omitted from public access.

During a recent webinar, representatives from the Government of British Columbia Financial and Corporate Sector Policy Branch advised that a goal of the various registries across the country is to generally align requirements. As such, in addition to increased transparency, the amendments may foreshadow the eventual harmonization of certain corporate records across the country and the ultimate creation of a centralized database.