Written by Jonathan McCullough, Nick Karakochuk, Andrew Pollock and Dawn Gould
Starting on May 1 of this year, all private companies governed by the Business Corporations Act (British Columbia) (BCA) must maintain a "transparency register". The register will contain the names of individuals with direct or indirect significant control over the company as well as certain other prescribed information as described below.
Background to Amendments
Identifying these significant individuals of a private company is one of the initiatives taken as part of the Agreement to Strengthen Beneficial Ownership Transparency entered into between the federal, provincial and territorial finance ministers in 2017 under which:
Finance Ministers agreed on the importance of ensuring appropriate safeguards are in place to prevent the misuse of corporations and other legal entities for tax evasion and other criminal purposes, such as money laundering, corruption and the financing of terrorist activities…Ministers agreed in principle to pursue legislative amendments to federal, provincial and territorial corporate statutes or other relevant legislation to ensure corporations hold accurate and up to date information on beneficial owners that will be available to law enforcement, and tax and other authorities.
Set out below is an overview of how individuals qualify as significant individuals as a result of the amendments to the BCA. In certain instances, a company's share structure may complicate such determination, particularly where partnerships, trusts or corporate intermediaries are interposed between the company and controlling individual. If you are in doubt or require assistance in identifying a company's significant individuals, please contact us directly.
An individual is considered a significant individual as a result of their shareholdings if they own or control, whether directly or indirectly, (a) 25 percent or more of the issued shares of the company; or (b) issued shares of the company that carry 25 percent or more of the rights to vote at a general meeting.
An individual is consider a significant individual if they possess the right to elect, appoint or remove the majority of the company's directors. An individual may possess this right directly, indirectly or through the ability to exercise direct influence over another significant individual or in any combination of the above.
Joint or Combined Rights
If two or more individuals jointly hold shares or board control rights that reach the thresholds set out above, each such individual is a significant individual in respect of the company.
If two or more individuals holds shares or board control rights that would, in combination, reach the thresholds set out above, each such individual is a significant Individual in respect of the company where an agreement or arrangement exists to exercise such rights jointly or in concert or if each individual is an associate of the other.
The B.C. Ministry of Employment, Business & Economic Development has provided guidance with respect to who qualifies as a significant individual as a result of shareholdings, board control (including instances when direct influence may be found) and joint or combined rights.
The new part 18 of the BCA regulations sets out detailed rules for determining when an individual exerts indirect control through an intermediary or a “chain of intermediaries” such as companies, partnerships, agents, trustees and personal or other legal representatives.
In short, the intention of the rules for significant individuals is to identify, including by working upwards through the ownership structure if necessary, the individual or individuals with control over the company rather than simply identifying its registered controlling shareholders.
Where a partnership holds 25 percent or more of a private company's shares or the right to appoint or remove a majority of the directors of such company, each partner of the partnership is deemed a significant individual under the BCA regulations and will require disclosure on the register.
Similarly, where a trustee, on behalf of a trust, holds 25 percent or more of a private company's shares or the right to appoint or remove a majority of the directors of such company, the BCA regulations deem the trustee, as well as any person with the power direct the trustee, to be a significant individual and requires disclosure in the register. If the trustee is not an individual, the tests for control discussed above will need to be applied. In other circumstances, another individual or group of individuals such as a settlor or one or more beneficiaries may have that power.
Contents of Register
The register must contain the following information of every significant individual of the company:
- the individual's full name, date of birth and last known address;
- whether or not the individual is a Canadian citizen or permanent resident of Canada;
- if the individual is not a Canadian citizen or permanent resident of Canada, 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 date on which the individual became or ceased to be a significant individual in respect of the company; and
- a description of how the individual is a significant individual.
If some of the required information about a significant individual has not been obtained, the register must specify that information and the steps taken to obtain or confirm that information. If a company determines there are no significant individuals the register must state that information.
Maintenance of Register
The company may request information from a shareholder of the company at any time which is considered necessary to maintain the register. A shareholder who receives such a request must take reasonable steps to compile the information and promptly provide such information to the company.
Annually, during the two months following the anniversary of the date on which the company was recognized (incorporated), the company must take reasonable steps to confirm that the information required to be disclosed in the register is accurate, complete and up-to-date. If the company cannot obtain or confirm any required information as part of its annual review, it must include in the register a summary of the steps taken to obtain or confirm the information.
A company must update the information in the register within 30 days of becoming aware of new relevant information. A company must send a notice to an individual within 10 days after recording him or her as a significant individual or removing him or her from the register.
Within one year after the sixth anniversary of the date on which an individual has ceased being a significant individual, the company must delete the significant individual and all their information from the register and destroy any related records to the significant individual.
Inspection of Register
Subject to applicable law, certain bodies may access and make copies of the register to administer or enforce the law or for policing and criminal investigation purposes. Information gathered may be used to assist similar bodies in other Canadian jurisdictions and may be provided to jurisdictions outside Canada where authorized under an arrangement, agreement, treaty or law of British Columbia or Canada.
The people entitled to access are:
- an official or employee of a British Columbia or Canadian taxing authority;
- an officer under the British Columbia Police Act or a member of the RCMP;
- an official or employee of a regulator, including:
- the British Columbia Securities Commission;
- the British Columbia Financial Services Authority;
- the Financial Transactions and Reports Analysis Centre of Canada; and
- the Law Society of British Columbia; and
- a director of the company.
Notably, non-director officers, shareholders and employees of the company are not permitted to access the register and it is considered an offence under the BCA to grant access to such individuals.
A company will commit an offence under the BCA by entering false or misleading information or by omitting information from the transparency register, as will directors and officers who authorize or permit the corporation to commit an offence. Individuals and corporations who commit an offence face fines of up to $50,000 and $100,000, respectively.