Individuals With Significant Control
On June 13, 2019, the Canadian Government enacted new rules that affect all private companies incorporated under the Canadian Business Corporations Act (CBCA). With the exclusion of public corporations, all federally incorporated companies in Canada are now required to maintain a register that identifies all “individuals with significant control”, or ISCs, over the corporation. Other provinces have already or are in the process of harmonizing their legislation with CBCA, including Manitoba (as of April 8, 2020), British Columbia, Saskatchewan, and Nova Scotia. “Significant control” is defined as individuals that are: registered shareholders; beneficial owners (such as trustee or legal representative); and those who hold or control more than 25% of the voting rights or shares at fair market value of the corporation (including indirect control with shares in a holding company). An ISC could also include someone who has direct or indirect influence that would result in actual control of the operations of the corporation, such as appointment or removal of directors of the company. If a significant number of shares are held jointly or significant influence is exercised jointly (in a shareholder agreement) then each individual will be considered an ISC. With this legislation, it has become the responsibility of each corporation to determine and document the individuals with significant control. This provides greater transparency over who owns and controls Canadian businesses and helps law enforcement agencies expose activities like money laundering and tax evasion.
In the past, law enforcement has had difficulty following the money trail because of numbered companies and money being transferred from one corporation to another. With this new legislation, the corporation has an ongoing obligation to take reasonable steps to ensure the register is maintained accurately and completely. It is the responsibility of the individual corporations to update the register information on a yearly basis and within 15 days of becoming aware of new information.
The register should include the following information about the individuals who have significant control of a company: name; date of birth; current address; their country (or countries) of residence for tax purposes; date when significant control started, date when significant control ended, and a description of how an individual has significant control in the corporation. When a corporation updates its register, it also needs to include a description of actions taken to obtain this information.
These new rules carry with them fines not exceeding $200,000 or prison terms not exceeding 6 months, or both.
This legislation was enacted because under the previous legislation there was no trail to follow when it came to uncovering money laundering schemes from inside and outside of Canada. As a result, most of money laundering schemes went undetected by law enforcement.
With this new legislation the onus is on each individual corporation to ensure that they know who is investing in their business and as such can be held responsible if they don’t accurately disclose this information.