Like the U.S. Corporate Transparency Act, recent developments in Canada will soon require private corporations in Canada to report beneficial ownership information to Canadian regulators. (Hat tip: Davies Ward Phillips & Vineburg has published an excellent summary.)
Like their American cousins, Canadian regulators are implementing a multi-year effort to create a national registry of private company beneficial ownership.
Amendments to the CBCA Require Beneficial Ownership Information Reporting
On June 23, 2022, the Canadian federal government amended the Canada Business Corporations Act ("CBCA") to require private corporations to report beneficial ownership information to Corporations Canada. Corporations Canada is a federal entity that operates akin to the Secretary of State's office in the U.S. system. Canadian federal corporations file their articles of incorporation with Corporations Canada.
These changes, which will become effective later, will eventually facilitate a searchable beneficial ownership database. Like the CTA, this amendment to the CBCA is intended to combat money laundering and tax evasion.
The Canadian government reaffirmed in the 2022 federal budget its commitment to federal corporate ownership transparency by accelerating the previously set deadline for launching the registry from 2025 to the end of 2023. The CBCA amendments are included in the Budget Implementation Act, 2022, No. 1 (Bill C-19).
Current Canadian Law Requires a Private Register of Individuals with Significant Control
Since June 2019 corporations governed by the CBCA (excluding corporations that are reporting issuers or whose securities are listed on a "designated stock exchange" as defined in the Income Tax Act) have been required to prepare and maintain a register (called a "RISC") of individuals with significant control . This term includes natural persons who have control in fact over a corporation, or who control or beneficially or legally own shares equivalent to 25% or more of the voting rights of the corporation's voting shares or shares representing 25% of the fair market value of the corporation's outstanding shares. At least annually, a corporation must take reasonable steps to ensure that it has identified all individuals with significant control over the corporation and that the information in the register is accurate, complete and up to date. Corporations are also required to update their RISC within 15 days of becoming aware of any information that must be declared in the register.
Penalties for non-compliance may amount to a fine of up to $200,000 and six months' imprisonment. Penalties can be applied both to corporations and their directors, officers or shareholders who knowingly violate the law.
New CBCA Requirement to Send RISC Information to Corporations Canada
Once in effect, Bill C-19 will require corporations that must maintain a RISC to
- send the information contained in the RISC to Corporations Canada on receiving a CBCA certificate of incorporation, amalgamation or continuance;
- annually send to Corporations Canada the information contained in the RISC; and
- within 15 days of any updates being made to the RISC, send such updates to Corporations Canada.
The form of the report and the time periods for reporting are not yet included in final regulations.
The requirement of a report at the time of formation and within 15 days after any update is analogous to the requirements of the CTA, although the CTA does not have an annual update requirement.
Bill C-19 also authorizes Corporations Canada to provide the RISC information to the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), investigative bodies, such as the police and Canada Revenue Agency, or such other prescribed entities.
CBCA public companies will continue to be exempt from the registry requirement since public companies already disclose their ownership through the public reporting requirements of Canadian securities laws. Bill C-19 includes a clarifying change, which came into force on June 23, 2022, that the "designated stock exchange" exemption applies only to a company whose securities are listed and posted for trading on a designated stock exchange.
Additional CBCA Amendments to Come
The changes introduced in Bill C-19 represent the first of two phases of CBCA amendments to launch the public registry. The second phase will consist of changes required to make the beneficial ownership information collected by Corporations Canada public and searchable by way of a publicly accessible interface. Precisely how this will work has not yet been determined.
Provincial Corporate Transparency Initiatives
The CBCA registry, while initiated in the first instance to capture federal corporations, is intended to be scalable to allow access to the beneficial ownership data collected by provinces and territories that wish to participate in what the federal government hopes will become a national registry. Most provinces have already adopted some form of corporate transparency legislation.
The provinces of Québec and Ontario have both adopted laws that would implement analogous forms of beneficial ownership reporting for corporations formed under their provincial laws. The Ontario version more closely follows the CBCA provisions and will come into force on January 1, 2023.
Most of the other provinces, specifically British Columbia, Saskatchewan (not yet in force), Manitoba, Nova Scotia (not yet in force), New Brunswick, Prince Edward Island and Newfoundland and Labrador, have also passed legislation requiring private corporations to maintain beneficial ownership registries. Their provisions largely follow those of the CBCA (without, to date, the regular reporting requirement that will be applicable to federal corporations under Bill C-19).
Alberta, Yukon, the Northwest Territories and Nunavut have not yet introduced legislation requiring private corporations to maintain beneficial ownership registers.
The Future of Beneficial Ownership Reporting in Canada
CBCA private corporations will soon have to report beneficial ownership information contained in their RISC to Corporations Canada. The effective date for this requirement has not yet been announced and crucial details will be implemented in regulations that have not been released. Further amendments to the CBCA to create a public registry of federal corporation beneficial ownership information are expected soon.
With the gradual provincial adoption of similar beneficial ownership registers, a potential structure for a multilateral federal-provincial-territorial, even if not national, registry is starting to emerge. Privacy concerns and practical implications, including the administrative burdens imposed on government agencies and private business entities, will likely shape the actual implementation across Canada of RISC requirements and publicly accessible RISC registries.