As of June 2019, it is mandatory for all corporations incorporated under the Canada Business Corporations Act (CBCA) to maintain a register showing all individuals who have significant control over the corporation (s. 21.1(1) CBCA). By choosing to incorporate with Lex Start, this register will be created for you at incorporation, but it is important to understand the implications of this register to ensure that it is maintained throughout the life of your company.
How do I know if I am required to keep such a register ?
For the time being, only companies incorporated under the federal CBCA are required to keep this register. However, the provinces have been quick to follow suit. Quebec, for example, adopted the Act mainly to improve the transparency of enterprises in June 2021, which will come into force in October 2022 and will create new obligations similar to the federal legislation in this regard.
If you are not sure whether your company is a federal corporation, you can always do a quick search on the Corporations Canada website to see if your company is listed.
What is an individual with significant control ?
The notion of “individual with significant control” of the corporation is quite broad in what it encompasses.
“Significant control” is defined as having control over either:
- 25% or more of the voting shares of the corporation, or
- 25% or more of the fair market value (FMV) of all the shares of the company, voting or not.
However, control is not limited to owning 25% or more of the shares personally or through another corporation. Its definition is much broader. The notion of “individual with significant control” over the corporation also includes :
- an individual who has significant influence over the corporation or a shareholder who holds a significant number of shares, even if the individual does not hold any shares himself;
- individuals who are part of a group that together own 25% or more of the shares, for example through a shareholder voting arrangement; or
- a combination of some of the above.
What should be included in the register ?
The register compiling the individuals with significant control must be inserted into your corporation’s minute book in addition to the other registers and must include, for each individual listed, the following information:
- Name,
- Date of birth,
- Country and address of tax residence,
- The date the individual began to have significant control in the corporation,
- The date the individual ceased to have significant control (if applicable),
- A description of how the individual has significant control over the corporation (more details in the next paragraph), and
- The steps taken to keep the information up to date.
The different ways in which an individual can have significant control over the corporation
As you will have understood by now, there are different ways to have significant control over a Canadian corporation. In this article, we will briefly present some of them to help you recognize the situation in which you find yourself:
- Registered ownership of 25% or more of the shares valued at fair market value or of the voting rights of the corporation (individually or jointly): this situation applies in most cases, i.e. when an individual holds in his or her own name and for his or her own account the number of shares that give control;
- Beneficial ownership of 25% or more of the shares valued at fair market value or voting rights of the corporation (individually or jointly): the beneficial owner of the shares is the individual who enjoys the benefits of ownership of the controlling shares, whether by agreement or otherwise, even if the shares are not in his or her own name (e.g., through a nominee);
- Direct control of 25% or more of the corporation’s fair market value or voting power (individually or jointly): this refers to individuals who directly control or direct a controlling number of shares;
- Indirect control of 25% or more of the corporation’s fair market value or voting power (individually or jointly): this refers to individuals who indirectly, through another corporation over which they have control, for example, control or direction over a controlling interest;
- Direct or indirect influence equivalent to control in fact of the corporation: a person may not own any shares of the corporation and still have control in fact (de facto control) of the corporation. This includes cases where there has been delegation of authority, where there is economic dependence or where there are family ties in the management of the company.
- A combination of shareholding, voting rights, indirect or direct control of shares, or indirect or direct influence over the company that cumulatively results in significant control of the company.
Is this information publicly available ?
No. Although the registry is intended to address transparency issues for federal corporations, the information contained in the register of individuals with significant control is not public. However, it is part of the company’s minute book. It is therefore quite possible that a shareholder, an investor or creditors may ask to see it. Corporations Canada may also want to know what information is contained in the register.
Conclusion
You will understand that :
- Keeping a register of individuals with significant control is a legal requirement for all federally incorporated corporations. Not complying with this requirement can engage the personal liability of the officers, directors and shareholders of the corporation, which exposes them to fines of up to $200,000 or imprisonment of up to 6 months in the case of wilful misconduct.
- The notion of “individual with significant control” has a very broad meaning, so it is essential to find out what it means in order to know whether you or other people who play a role in the company must be included in the register.
- The obligation to keep the register does not end when the company is formed, it must be updated whenever there are changes in significant control.
- If your corporation was federally incorporated before this requirement came into effect, the creation of this registry will occur when you prepare the legal documents associated with your annual updating declaration.
- A similar register will have to be kept by companies incorporated under Quebec law as of October 2022.
Of course, our team remains at your disposal at all times to assist you in all legal matters related to your business. If you wish to know more about your obligations related to such a register, do not hesitate to contact us.
