CBCA corporations will soon have to establish a securities register detailing all individuals with significant control over the corporation. The new regulations under Bill C-86 Budget Implementation Act, 2018, No. 2 become effective on June 13, 2019. Existing record-keeping obligations under the CBCA pertain to registered shareholders only—those named on the corporation’s share certificates, who are often intermediaries holding shares on behalf of beneficial shareholders. The new share register requirements pertain to all individual shareholders, registered or beneficial, who have significant control, direct or indirect, over the corporation.
The CBCA rules will not apply to non-CBCA corporations. However, provincial and territorial finance ministers have agreed to follow the federal lead in this area, although the timing of them doing so is uncertain. Underlying the CBCA reforms, and similar reforms in the European Union and the United Kingdom, is lawmakers’ desire for greater transparency of corporate ownership to help combat tax non-compliance, money laundering and other serious wrongdoing.
Meaning of Significant Control
An individual will be considered to have significant control over a corporation if he or she owns, controls or directs (whether directly or indirectly, such as through a personal holding company or otherwise) an amount of shares
- carrying ≥ 25% of the voting rights attached to the corporation’s outstanding voting shares, or
- constituting ≥ 25% of the fair market value of the corporation’s outstanding shares.
Significant control will also be deemed to exist when an individual has influence over a corporation which, if exercised, would result in control in fact of the corporation.
Each individual who is acting jointly or in concert with others in respect of shares meeting the 25% threshold will be considered a significant controlling shareholder.
Contents of New Share Register
The new share register will have to contain the following information about significant controlling shareholders:
- name, address and birthdate;
- residential jurisdiction for tax purposes;
- date when significant control was obtained and, if applicable, date when significant control ceased; and
- description of how the individual qualifies as having significant control, e.g., ownership of a class of shares through a holding company.
The register will also have to indicate the reasonable steps undertaken by the corporation each financial year to ensure that the register is complete and accurate. The deadline for amending the register is 15 days after the corporation becomes aware of a need for an amendment. Corporations will be entitled to request from their shareholders any information that is needed for the register. Shareholders will have to reply accurately as soon as possible
Exemption for Public Companies
Distributing corporations–which generally includes public companies such as reporting issuers under Canadian securities laws–are exempt from the new CBCA share register requirements. Public companies are already required to disclose information about their major shareholders (based on a 10% ownership or control threshold) and such shareholders have a corresponding obligation to publicly file early warning and insider reports to disclose their holdings. CBCA corporations that are listed on a stock exchange designated under the Income Tax Act (over 40 major exchanges in Canada and internationally) are also exempt from the new requirements.
To discuss these issues, please contact the author(s).
This publication is a general discussion of certain legal and related developments and should not be relied upon as legal advice. If you require legal advice, we would be pleased to discuss the issues in this publication with you, in the context of your particular circumstances.
For permission to republish this or any other publication, contact Janelle Weed.
© 2019 by Torys LLP.
All rights reserved.