On June 13, the new provisions of the Canada Business Corporations Act (the “CBCA”) concerning beneficial ownership of federally incorporated companies will come into force. As a result, private corporations incorporated under the CBCA will be required to maintain a Register of Material Controlling Individuals identifying their beneficial owners.

The new provisions of the CBCA define an individual with significant control as an individual:

“(a) who has any of the following rights or interests, or any combination thereof, with respect to a significant number of shares:

• (i) he is the registered holder,
• (ii) it has beneficial ownership,
• (iii) if applicable, he/she exercises direct or indirect control over it;

b) who exercises, where applicable, a direct or indirect influence resulting in de facto control of the company;

c) to whom the prescribed circumstances apply.

In this respect, a “significant number of shares” means :

• Any number of shares conferring twenty-five percent or more of the voting rights attached to all the company’s outstanding voting shares;

• Any number of shares equal to twenty-five percent or more of the fair market value of all outstanding shares of the company.

In concrete terms, the closed company will have to make inquiries about its shareholders and the shareholders of its corporate shareholders, in order to determine the natural persons holding control of the closed federal company or exercising significant influence over it, both directly and indirectly.

In order to properly identify these individuals, the legislator requires that the following information be entered in the register:

• Name, date of birth and last known address;
• Jurisdiction of residence, for tax purposes;
• Date on which they became individuals with “significant control” and, if applicable, the date on which they ceased to have this status;
• Description of how they are individuals with “significant control” of the company; including, if applicable, a description of their rights or interests, with respect to the company’s shares;
• Measures taken by the company to identify all individuals with “significant control” and to ensure that the information recorded in the new register is accurate, complete and up-to-date;
• Any other information required by regulation.

Although the information in this register is private and is not transmitted to Canada Corporation, the Director appointed under the CBCA, the company’s creditors and its shareholders may consult the register and obtain an extract on request, under certain conditions.

Failure by these companies to maintain this register may result in a penalty of $5,000. In addition, directors and/or officers and/or shareholders of the company who knowingly fail to comply with the new CBCA provisions, or provide false or misleading information, may be subject to penalties of up to $200,000 or imprisonment for up to 6 months.

Given that the objective behind this new registry is to ensure greater transparency of corporate ownership and control, and to assist law enforcement agencies in countering activities such as money laundering and tax fraud, provincial governments will eventually follow the lead of the federal government by adopting provisions similar to those of the CBCA.

By Mélanie Masson, in collaboration with Catherine Demers, intern