New rules are coming into effect under the Canada Business Corporations Act (“CBCA”) on June 13, 2019 that will require all CBCA corporations, other than publically-listed corporations, to prepare and maintain a register of individuals with “significant control” over the corporation. This update sets out basic information about the new securities register (the “Register”) and other matters that CBCA corporations should consider.
Summary of the New Rules
Currently, CBCA corporations are only required to maintain a securities register of registered shareholders. Commencing on June 13, 2019, privately-held CBCA corporations will now be required to prepare and maintain information for all individual shareholders with “significant control” over the corporation in the Register, irrespective of whether a shareholder is the registered holder or beneficial owner of the shares of the corporation.
For the purpose of these new rules, individuals with “significant control” includes any individual that owns 25% or more of the voting rights attached to the corporation’s outstanding voting shares, or 25% or more of the corporation’s outstanding shares measured by fair market value. Individuals that are acting “jointly or in concert” with each other that meet the 25% threshold as a group, and individuals who have the ability to exert influence that could result in “control in fact” over the corporation will also be considered individuals with “significant control”.
The Register must include the following information regarding those individual with “significant control”:
- the name, date of birth, and the latest known address;
- the jurisdiction of residence for tax purposes;
- the day on which the individual became or ceased to have “significant control” over the corporation;
- a description of how each individual qualifies as an individual with “significant control” over the corporation, including, for example, a description of their interests and rights in respect of shares of the corporation; and
- any other prescribed information (to be included in the accompanying regulations to the CBCA amendments, which have yet to be released).
The Register must also describe the steps taken by the corporation to update the Register annually.
Updating the Register
The Register must be updated within 15 days of the date the corporation becomes aware of any changes that may be required. Corporations are also required to take reasonable steps at least once each financial year to update the required information and to ensure it is accurate and complete. The corporation may request the required information from each shareholder of the corporation. A shareholder receiving such a request has an obligation to provide the information accurately, completely, and as soon as feasible.
Access to the Register
The Register will not be available to the public, however, the information contained in the Register must be provided to Corporations Canada and the directors of the corporation upon request. In addition, shareholders and creditors may request access to the information, provided that they submit an affidavit to the corporation containing a statement that the information will only be used in connection with:
- an effort to influence the voting of shareholders of the corporation;
- an offer to acquire securities of the corporation; or
- any other matter relating to the affairs of the corporation.
Personal information of an individual must be removed from the Register within one year after the sixth anniversary of the day that individual ceases to have “significant control” over the corporation.
Penalties for Non-Compliance
A corporation that fails to meet the Register requirements without reasonable cause can face fines not exceeding $5,000. In addition, any director or officer of a corporation that knowingly permits or acquiesces in the corporation’s contravention of these new rules can face fines not exceeding $200,000, imprisonment for a term not exceeding six months, or both. Similarly, a shareholder that contravenes its obligation to provide the required information requested by the corporation can face similar fines and imprisonment.
CBCA corporations should institute protocols for notifying shareholders of the new requirements under the CBCA and tracking the information requirement for any shareholders with “significant control” of the corporation. Further guidance on these new rules and the particulars relating to the form of the Register is expected to be provided in regulations to the CBCA, which have yet to be released.