This article follows on from previous columns written by Mélanie Masson, a corporate lawyer in the real estate and transactional law department of Gascon & Associés, S.E.N.C.R.L. To consult these articles, simply follow the links below:
The impact of the adoption of Bill 78, aimed primarily at improving corporate transparency
The Quebec government’s new corporate transparency requirements
Beneficial ownership and new corporate obligations for federal private companies effective June 2019
On June 8, 2021, the Quebec National Assembly assented to Bill 78, An Act to mainly improve corporate transparency (hereinafter the ” Act “), tabled in the National Assembly in December 2020 by the Quebec Minister of Labour, Employment and Social Solidarity, Mr. Jean Boulet.
Proposing an amendment to the current legislative framework governing the registration requirements of companies operating in Quebec, namely the Act respecting the legal publicity of enterprises (commonly referred to as the ” LPLE “), Mr. Legault’s Caquist government is seeking, among other things, to impose on companies subject to the LPLE an obligation to declare to the Registraire des Entreprises du Québec (the ” REQ “) certain information relating to natural persons who are their “ultimate beneficiaries”, a term whose definition, however, leaves some uncertainty as to its ultimate scope.
As a result of the Act, section 0.4 of the LPLE will define an “ultimate beneficiary” of a business subject to the LPLE as a natural person who :
” 1° […] holds, even indirectly, or is the beneficiary of a number of shares or units in the reporting entity which entitles it to exercise 25% or more of the voting rights attached thereto;
(2) […] holds, even indirectly, or is the beneficiary of a number of shares, units or shares with a value corresponding to 25% or more of the fair market value of all the shares, units or shares issued by the registrant;
3° […] has a direct or indirect influence which, if exercised, would result in de facto control of the taxable person;
(4) […] is the general partner or, if a general partner of the registrant is not a natural person, satisfies one of the conditions referred to in paragraphs 1 and 3 or is a party to an agreement referred to in the second paragraph in respect of that general partner;
5° […] is the trustee.
Where natural persons who hold, even indirectly, or are beneficiaries of shares or units of the registrant have agreed to jointly exercise the voting rights attached to such shares or units, and where the effect of this agreement is to give them together the power to exercise 25% or more of such rights, each of them is deemed to be an ultimate beneficiary of the registrant. […] “
According to this definition, an “indirect beneficiary” would be a natural person (i.e. an individual) who is a “holder, even indirectly”, or a “beneficiary” of shares conferring at least 25% of the shares or of a number of shares having a value corresponding to 25% or more of the fair market value of all the shares issued by the corporation concerned, or who exercises “de facto control” over it.
Section 98 of the LPLE will thus be amended to provide that the REQ register will henceforth publicly indicate “the name and domicile of the ultimate beneficiaries as well as the type of control exercised by each of them or the percentage of shares, units or units they hold or of which they are beneficiaries”. Also, the date on which they became an ultimate beneficiary and, if applicable, the date on which they ceased to be so, will have to be entered in the future register.
Also, in its current form, the Act would not only allow the REQ to make this information public and accessible to all, but it would also be possible to search the said register directly for the names of individuals who are the ultimate beneficiaries, directors or officers of a specific corporation, a detail that has caused many privacy activists to question the impact the Act will have on the privacy of individuals whose personal information would become freely accessible.
This is a different approach to the process put in place by Ottawa to modernize the transparency threshold for companies governed by the Canada Business Corporations Act (the ” CBCA “). Indeed, since June 2019, the CBCA in turn provides for the establishment of a register of the personal information of the “ultimate beneficiaries” of applicable corporations. However, this information remains hidden from the public eye, being accessible only to certain federal administrative and tax authorities, as well as to shareholders and creditors.
In contrast to the desire to protect individuals’ private information, it is clear from the Act that, in the wake of the Panama Papers scandal and recent international efforts to address tax evasion, the Quebec government is seeking to fight money laundering and corruption more actively, as Mr. Jean Boulet emphasized at a press briefing, by focusing first and foremost on the transparency of companies doing business in Quebec:
“The bill we passed today redefines the mission of the Registraire des entreprises. I’m proud to say that we are finally reclaiming our leadership role in corporate transparency by proposing the most advanced provisions in North America. For example, the implementation of mechanisms to counter abusive tax avoidance and corruption will increase public confidence in our companies and their owners. The adoption of this bill sends a strong signal of the government’s determination to draw inspiration from best practices to make Quebec a place of choice for doing business transparently.”
To date, the date of entry into force of the Act ‘s provisions aimed primarily at improving corporate transparency is unknown, but it is expected to occur by October 2022. Any failure by a subject company to comply with the new requirements could trigger the penalties and administrative measures existing under the LPLE, i.e. sanctions that could include automatic deregistration and penalties ranging from $500 to $25,000.