As of January 1, 2023, significant amendments to the Business Corporations Act (Ontario) (“OBCA”), have come into force, adding a new requirement for private corporations to maintain a register of “individuals with significant control” (“ISC”) over the corporation (“Transparency Register”).
The Transparency Register is similar to existing requirements for federal corporations and those in other Canadian provinces. The new amendments aim to increase transparency concerning corporate ownership and provide law enforcement and regulatory authorities with information to prevent and detect tax evasion, money laundering and other illegal activities.
Who is an ISC?
Under the OBCA, a person is considered an ISC if the individual:
1. is the registered or beneficial owner of, or has direct or indirect control or direction over:
- any number of shares that carry 25% or more of the voting rights attached to all of the corporation’s outstanding voting shares; or
- any number of shares equal to 25% or more of all of the corporation’s outstanding shares measured by fair market value.
2. has any direct or indirect influence that, if exercised, would result in control in fact of the corporation; or
3. is an individual to whom prescribed circumstances apply (this allows for future regulations to provide further classes or groups of ISCs)
Additionally, two or more individuals may qualify as an ISC if: (i) an ownership interest or right in shares meeting the above threshold is held jointly by those individuals; (ii) a right in shares is exercised jointly or in concert by those individuals; or (iii) the individuals holding the ownership interests or rights are “related persons”, as defined in the OBCA (such as spouses and children).
What is included in a Transparency Register?
The Transparency Register must be held at the registered office of the corporation or another place designated by the director elsewhere in Ontario, and contain the following information:
- the name, date of birth, last known address of each ISC;
- the jurisdiction of tax residence for each ISC;
- the day each ISC became or ceased to be an ISC;
- a description of how each person qualifies as an ISC; and
- a description of the steps taken to identify ISCs and confirm the information in such register is accurate, complete and current.
The director(s) and/or officer(s) of a corporation must review and update (as may be necessary) the Transparency Register at least once per fiscal year. Further, the director(s) and/or officer(s) of a corporation must update its Transparency Register within 15 days of becoming aware of any information required to be in the Transparency Register.
Who can access a Transparency Register?
Unlike other corporate information, the OBCA amendments do not require the Transparency Register be filed with the ministry, nor require disclosure to shareholders or creditors. However, the new requirements permit the following persons to request access to the Transparency Register:
- the Minister, and its authorized representatives for compliance purposes;
- law enforcement, for the “purpose of conducting an investigation into an offence under a law of Ontario or Canada”, or to provide information to a law enforcement agency outside of Ontario for a similar purpose;
- tax authorities, for the “purpose of administering or enforcing a law of Ontario or Canada that provides for the imposition or collection of a tax, royalty or duty”, or to provide information to officials of another jurisdiction for a similar purposes; and
- designated regulatory authorities (including but not limited to, the Ontario Securities Commission (OSC), Financial Services Regulatory Authority of Ontario (FSRA) and Financial Transactions and Reports Analysis Centre of Canada (FINTRAC)) for the “purpose of administering or enforcing a law for which the regulatory body is responsible”, or assisting other agencies with similar mandates.
What are the Penalties for Non-Compliance?
There are significant penalties for a corporation that, without reasonable cause, fails to comply with the new provisions under the OBCA to prepare and maintain a Transparency Register, respond to inquiries, or meet disclosure requirements. The corporation may be liable for a fine of up to $5,000.00 and fines of up to $200,000.00 and/or six months improvement can be imposed on directors, officers and shareholders who knowingly fail (or cause the corporation to fail) to comply with the Transparency Register requirements.
Next Steps for Ontario Private Corporations
To ensure compliance with these new requirements, Ontario private corporations should: (i) review their existing shareholder register, (ii) identity their ISCs (if any), (iii) gather and record the necessary information on each ISC, and (iv) develop a process to ensure their Transparency Register is accurate, complete, and current.
If you have any questions regarding the new ownership transparency requirements, or any aspect of your business, please do not hesitate to get in touch with me at 905-276-0416 or email@example.com. KMB is here to assist.
This article is provided for general information purposes and should not be considered a legal opinion. Clients are advised to obtain legal advice on their specific situations.