Federally incorporated private businesses must now disclose personal information about controlling shareholders or risk fines that could reach $100,000.
Bill C-42, which received royal assent in November and went into force Monday, amended the Canada Business Corporations Act to require all private corporations registered under the act to disclose the names and addresses of controlling shareholders, as well as the size of their share ownership.
Todd Stanley, managing partner of the St. John’s office of Cox & Palmer law firm, said the quality of the resulting public registry will depend on the government’s ability to vouch for the accuracy and completeness of disclosures.
Along with the new filing requirements, the CBCA updates increased the maximum fine for corporations for non-compliance to $100,000 from $5,000. In addition, individual officers, directors or shareholders could be liable for fines of up to $1 million and a maximum prison sentence of five years if they are convicted of an offence related to compliance failures.
“They’ve given themselves a very big stick, but I’m not sure the presence of that in the legislation is going to be enough. I would expect they will have to spend some money on enforcement,” Stanley said, noting that this would mark a significant departure from standard regulatory practice.
“I don’t know the last time someone was fined under corporations legislation for failure to comply,” he added.
In the meantime, the new legislation will require a change in mindset for many CBCA-registered businesses, especially smaller and family-owned businesses, said Pamela Hilderman, partner in the Winnipeg office of MLT Aikins LLP.
“I think it will be a surprise to a lot of private companies who haven’t been used to having this level of transparency regarding their corporations,” she said.
Since 2019, companies operating under the CBCA have been required to maintain a register of “individuals with significant control,” which typically includes those who own or control at least 25% of the corporation’s shares, either by value or votes.
The new law requires a company to provide its register to Corporations Canada as part of its annual return. The disclosure requirement is also triggered by a fresh incorporation; within 30 days of the issuance of a certificate of amalgamation or continuance; or within 15 days of any change in the register.
“The exceptions are very narrow,” Hilderman said, noting that the CBCA explicitly exempts public companies and Crown corporations. Further, Corporations Canada will only withhold the personal information of individual directors and shareholders who can demonstrate that disclosure would pose a “serious threat” to their safety.
Registration under provincial corporate statutes remains an alternative to federal incorporation, but the CBCA amendments contemplate a mechanism for provinces and territories that create their own public beneficial ownership registries to share their information with the federal version.
Although no province has yet indicated it will join the federal registry, a number of jurisdictions have enacted legislation requiring locally registered companies to keep registers of beneficial ownership.
“I can see these requirements soon being followed at the provincial level, so I think it will have a meaningful impact nationally eventually,” Hilderman said.
The CBCA updates are the latest in a series of corporate and beneficial-ownership transparency measures enacted by the federal government. Last year, trust reporting legislation went into force, requiring any non-resident trust that files a T3 tax return and virtually all express trusts resident in this country to turn over beneficial ownership information to the Canada Revenue Agency.
In an explanatory note accompanying C-42, the Justice Department claimed the CBCA changes would bring Canada in line with international best practices, billing the measures as helping to counter money laundering, terrorist financing and other misuses of federally incorporated companies.
Michele Wood-Tweel, vice-president of regulatory affairs with Chartered Professional Accountants of Canada, said she’s confident the new CBCA measures will advance these goals, adding that a “new day is dawning” for companies registered under the act.
“For Canada, this is a sweeping change and it’s historic in nature,” Wood-Tweel said.