Beginning on May 1, 2020, all private companies registered under the Business Corporations Act (British Columbia) (“BCA”) will be required to create and maintain a transparency register (the “Transparency Register”) of all “significant individuals” that, directly or indirectly, have substantial shareholdings or the ability to exercise control or significant influence over the company. Unlike the central securities register that BCA companies are currently required to maintain, the Transparency Register will require private BCA companies to look behind the names of their registered shareholders to determine beneficial ownership of all significant individuals.
These amendments follow recent changes that were made by the federal government in order to prevent the misuse of companies for tax evasion and other criminal purposes, such as money laundering, corruption, and the financing of terrorist activities. The Canada Business Corporations Act was amended earlier this year to require all private federal companies to maintain a register of individuals with “significant control”. The amendments to the BCA are similar to the federal rules but differ in a number of key areas, such as the test for determining which shareholders must be disclosed, and the information that needs to be included in the register.
This article provides a summary of the new rules that private BCA companies should review. While these rules will not apply to public companies, subsidiaries of public companies will be required to comply with these new requirements unless they are exempted by future regulations. Further references to “companies” in this article means private BCA companies.
Test for a Significant Individuals
Companies will first need to determine each significant individual to be included in the Transparency Register. A “significant individual” is an individual that:
- holds either, or in combination: (1) 25% or more of the issued shares of the company, or (2) issued shares of the company that carry 25% or more of the rights to vote at general meetings. This includes an individual that holds shares as a registered owner, a beneficial owner and an individual that has “indirect control” (see below description) over the shares; or
- holds any of the following rights or interests, or any combination of them:
- the right to elect, appoint, or remove a majority of the directors of the Company;
- “indirect control” over the right to elect, appoint, or remove the majority of the company’s directors; or
- the ability to exercise “direct and significant influence” (i.e., the individual is able to influence another person’s decision-making authority pursuant to an enforceable agreement) over an individual with the right or indirect control described in subparagraph (a) or (b) above.
“Indirect control” refers to a situation where an individual controls an intermediary, such as a company or legal representative, which holds 25% or more of the shares of the company or the right to elect, appoint, or remove a majority of the company’s directors. The test for control of a corporate intermediary is the ability to elect or appoint a majority of directors of that entity. For example, an individual that owns the majority of voting shares of a corporate intermediary will have effective control, and therefore will be a significant individual. Other situations may not be as straightforward. If there is more than one intermediate entity between the company and the significant individual, you have to look through the chain of intermediaries and apply the test for control at each level to determine if there is a natural person with significant control at the top.
When two or more individuals jointly hold any of the above rights, interest, or abilities, each individual is considered to be a significant individual if they have an agreement or arrangement to exercise their interest, rights, or abilities jointly or in concert, or if each individual is an “associate” of the other individual(s). An “associate” includes a spouse, child, or any relative of the individual or individual’s spouse living in the same home.
Preparing and Updating the Transparency Register
The Transparency Register must include the following information for each significant individual:
- the name, date of birth, and the latest known address;
- whether or not the individual is a Canadian citizen or permanent resident of Canada, and if not, every country or state of which the individual is a citizen;
- whether or not the individual is resident in Canada for the purposes of the Income Tax Act (Canada);
- the day on which the individual became and ceased to be a “significant individual” in respect of the company;
- a description of how the individual is a “significant individual”; and
- any other prescribed information as may be determined in future regulations.
Companies can obtain this information by contacting their registered shareholders and sending out a questionnaire for them to complete. Shareholders have an obligation under the new rules to promptly provide the information requested. If companies are still unable to obtain the required information for each shareholder, they must record that in the Transparency Register as well as a summary of the steps taken to obtain or confirm the information. If a company determines that there are no individuals who are significant individuals, the Transparency Register must contain a statement to that effect.
The Transparency Register must be updated within 30 days of the date the company becomes aware of any changes that may be required. Furthermore, companies are required to take reasonable steps to update the information in the Transparency Register and ensure it is accurate and complete within two months after each anniversary of the date on which the company was recognized.
Inspection of the Transparency Register
The Transparency Register must be available during regular business hours for inspection by any director of the company or any “inspecting official”. An “inspecting official” includes tax authorities, police officers, and officials of certain regulatory agencies, such as the British Columbia Securities Commission, the Financial Institutions Commission, the Financial Transactions and Reports Analysis Centre of Canada, and the Law Society of British Columbia. Unlike the federal legislation, the BCA does not grant shareholders access to the Transparency Register.
Companies are required to remove all information of an individual in the Transparency Register, and any other record for the purposes of maintaining the Transparency Register, within one year after the sixth anniversary of the date that an individual ceases to be a significant individual. Furthermore, companies must notify individuals within 10 days of including them or removing them from the Transparency Register.
Penalties for Non-Compliance
Companies, as well as their shareholders, directors, and officers that fail to meet their new obligations under the BCA may be subject to fines of up to $50,000 for individuals, and up to $100,000 for other entities.
In particular, a company commits an offence if it fails to take reasonable steps to identify all significant individuals in the Transparency Register, or includes information about a significant individual in the Transparency Register that is false or misleading. A director or officer of the company that acquiesces in the commission of an offence by the company is also guilty of an offence. However, no company, director, or officer will be liable if they did not know, and could not have known with the exercise of reasonable diligence, that the identification or exclusion of a significant individual was incorrect or that the information about the significant individual was false or misleading.
A shareholder commits an offence if they omit required information or provide false or misleading information. However, a shareholder will not be liable if they did not know that the information was false or misleading and could not have known with the exercise of reasonable diligence.
These new rules impose significant new obligations and potential penalties. Companies and their registered and records office should begin reaching out to shareholders as soon as possible to obtain the required information to prepare the Transparency Register and ensure that they will be in compliance with these new rules by May 1, 2020. For more information on the new rules under the BCA and on how to create the Transparency Register, visit: https://www2.gov.bc.ca/gov/content