CBCA Governance Changes: What Private Companies Need to Know – Corporate Governance
All companies governed by the Canada Business Corporations Act(“LCSA”) will soon have to comply with more stringent record-keeping requirements as part of the government’s commitment to implement an accessible public registry for greater corporate transparency. Bill C-19, passed as Budget Implementation Act, 2022received Royal Assent on June 23, 2022. This Act creates substantial changes to the CBCAamong other laws.
As of 2019, CBCA private corporations are required to maintain a register of shareholders exercising significant control over the corporation (“SAI Register“). Significant control, as defined in section 2.1(1) of the CBCA, refers to an individual who owns, controls or directs a significant number of shares; exercises significant influence over the company without owning any none, or holds a combination of any of these factors A significant number of shares is defined as 25% of the company’s voting shares, or 25% of all shares based on the fair market value of the shares. The SIC register must be kept at the company’s registered office and place of business and be made available to certain regulatory authorities upon request.With the pending amendments to the CBCA, companies will be required to file their ISC register with of the Director (as defined in the CBCA) each year and to notify the Director of any further changes within 15 days.
Amendments introduced by Bill C-19
The new provisions added to Article 21 read as follows:
21.21 (1) A company to which section 21.1 applies must:
(a) on an annual basis, transmit to the director the information contained in his register of persons having significant control over the company, in the form and within the time limit he determines; and (b) within 15 days after the day on which he registers the information under subsection 21.1(3), send the information to the director, in a form that he determines.
Sending information – certificates issued
(2) As of the date shown on a certificate referred to in section 8, subsection 185(4) or 187(4), a corporation to which section 21.1 applies must send to the Director the information referred to in paragraphs 21.1( 1)(a) to (f) with respect to natural persons exercising significant control over the corporation, in such form and within such time as the Director directs.
Provision of information by the director
21.301 The Director may provide any or all of the information received under section 21.21 to an investigative body referred to in subsection 21.31(2), the Financial Transactions and Reports Analysis Center of Canada or any prescribed entity.
Effect of Changes
The newly amended provisions will require non-exempt companies to submit their ISC register to the Director annually and within 15 days of any new information.1 registered by the company. Non-exempt companies must also submit their ISC register to the Director when issuing a certificate of incorporation, merger or continuance. The addition of section 21.30 will provide the Director with the authority to share any information from the ISC register with the Financial Transactions and Reports Analysis Center of Canada or any future entity referred to in subsection 21.31(2).
Pursuant to subsection 21.1(7) of the CBCA, the following corporations are exempt from the above requirements: corporations that are (a) a reporting issuer or a reporting issuer under an act of the legislature of a relative province securities regulation; (b) listed on a designated stock exchange, as defined in subsection 248(1) of the income tax law; (c) a member of a prescribed class.
These amendments to the CBCA, which are part of the government’s efforts for greater corporate transparency and a stronger anti-money laundering regime, will affect all private corporations subject to the CBCA. Similar transparency rules exist or are expected to come into force in British Columbia, Ontario, Quebec, Manitoba, Saskatchewan, Prince Edward Island and Newfoundland and Labrador, as well as in many OECD member states. At present, however, it is unclear when these provisions will come into effect and what compliance period will be granted to existing companies.
Corporations Canada has already prepared a regulatory report form to document the required information and a guideline on maintain an ISC register. Companies may wish to use and review these tools in the interim as a guide to compliance as we determine how this new framework will be implemented.
In accordance with Article 21.1(3), if the company becomes aware of any information which must be kept under Article 21.1(1) as a result of the “reasonable measures” taken, this must be added to the database. This information includes:
(a) the names, dates of birth and last known address of each individual with significant control;
(b) the jurisdiction of residence for tax purposes of each individual with significant control;
(c) the day each individual became or ceased to be an individual with significant control, as the case may be;
(d) a description of how each individual is an individual exercising significant control over the corporation, including, if applicable, a description of his or her interests and rights with respect to the shares of the corporation;
(e) any other prescribed information; and
(f) a description of each action taken pursuant to subsection (2).
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.