Written by Jonathan McCullough, Adam Shumka and Dawn Gould
Effective October 1, 2020, all private companies incorporated under the Business Corporations Act (British Columbia) (BCBCA) will be required to maintain a transparency register disclosing certain prescribed information about those individuals (significant individuals) who exercise significant influence or control over the company by virtue of their shareholdings or influence over board composition. There are certain classes of private BCBCA companies and intermediary entities that are exempted from the transparency register requirement.
This disclosure constitutes part of the commitment by both the federal and provincial governments to combat the misuse of corporations for criminal purposes. The amendments to the BCBCA were introduced through the Business Corporations Amendment Act, 2019. See New Corporate Requirement—Transparency Registers for B.C. Private Companies for a detailed outline of the disclosure requirements and the rules for determining who qualifies as a significant individual.
As outlined in our blog post on April 9, 2020, the British Columbia Ministry of Finance issued an Order in Council dated April 6, 2020, which postponed, from May 1, 2020, to October 1, 2020, the effective date by which private companies incorporated under the BCBCA were required to maintain a transparency register as a result of the disruptions caused by the COVID-19 pandemic. In addition to this postponement, the Order introduced amendments to the Business Corporations Regulations, including new exemptions from the requirement to maintain a transparency register (which had not been previously available).
Exemptions from Transparency Requirements
From the outset, reporting issuers and reporting issuer equivalents have been excluded from the transparency register requirements introduced by the BCBCA Amendments. The Order introduced additional exemptions from the transparency register requirement for certain classes of private BCBCA companies.
The following categories are some of the notable classes of private BCBCA companies that are exempted from the transparency register requirement:
- wholly-owned subsidiaries of reporting issuers (or reporting issuer equivalents);
- insurance companies and trust companies as defined under the Financial Institutions Act;
- government corporations as defined under the Financial Administration Act; and
- companies wholly-owned by Indigenous nations as defined under the Land Ownership Transparency Act.
In addition to those listed above, Section 47 of the Regulations provides a complete list of the exempted entities (Exempt Companies).
Exclusions for Special Intermediaries
As outlined on March 18, 2020, in New Corporate Requirement—Transparency Registers for B.C. Private Companies, the BCBCA Amendments will require transparency registers to list all individuals who indirectly exert influence over a significant number of shares or the board composition of a private BCBCA company through one or more intermediary entities interposed between the subject company and the controlling individual(s).
The Regulations set out certain circumstances whereby certain intermediaries will be deemed "special intermediaries" and will accordingly give rise to an exemption from the transparency register requirement. Where a special intermediary forms part of the chain of control between an individual who would otherwise be considered a significant individual and a private BCBCA company, the private company will not be required to include that individual in its transparency register.
The following entities are some of the notable entities that are considered special intermediaries when forming part of the chain of control under the Regulations:
- Exempt Companies;
- credit unions as defined under the Financial Institutions Act;
- trustees of testamentary trusts; and
- various government-controlled organizations.
Section 52 of the Regulations contains the full list of the special intermediaries, including further details regarding which government-controlled organizations will be classified as special intermediaries.
Recent Developments and Wider implications
Despite the addition of the Exempt Companies and special intermediaries exemption introduced by the Order, the transparency register requirements continued to present a significant administrative burden for pooled investment funds structured as limited partnerships or business trusts, which could discourage private equity and venture capital investment in BCBCA companies.
In response to a consultation paper published by the British Columbia Ministry of Finance, Bennett Jones made a detailed submission on the potential and apparently unintended effects that the transparency register requirements would have had on private investment funds organized as limited partnerships in British Columbia. As described on September 25, 2020, in A Reprieve From Onerous Corporate Regulations for Private Equity in British Columbia, the former regulation would have required disclosure of every limited partner in a partnership which owned, directly or indirectly, at least 25 percent of the shares of a B.C. company. In our submission we advocated for a solution, which was ultimately adopted by the Ministry, which effectively corrects the issue by treating limited partnerships in substantially the same way as corporations.
While this is a welcome development, general partners must still be listed on the transparency register. Pooled investment funds with a significant stake in BCBCA companies will also be required to comply with the BCBCA Amendments in respect of their portfolio companies, irrespective of the jurisdiction in which the funds themselves are organized.
BC's introduction of transparency register requirements are preceded by amendments made to the Canada Business Corporations Act (CBCA) effective as of June 13, 2019. Many other provinces have initiated the legislative process to amend their provincial corporate statutes to include similar transparency register requirements to those of the BCBCA and CBCA. It is anticipated that most, if not all, of the Canadian provinces will ultimately establish similar transparency register requirements within their own business corporations' statutes.
Private companies incorporated under the BCBCA will need to familiarize themselves with the new requirements introduced in the BCBCA Amendments. Bennett Jones has been helping our clients and other impacted groups prepare for the transparency register requirements in order to be in compliance in advance of October 1, 2020. If you require assistance or have any questions about transparency register requirements, please contact Xenia Wong, Adam Shumka or Dawn Gould.