On January 1st, 2023, Part XI of the Business Corporations Act (Ontario) (“OBCA”), will be amended to create a new requirement for most private corporations governed by the OBCA to maintain a register of “individuals with significant control” (“ISC”) over the corporation. This new requirement in Ontario follows suit of similar amendments affecting private federal companies governed by the Canada Business Corporations Act which came into force back in 2019. Similar legislation has also been introduced or enacted in other provinces throughout Canada and across the world.
The purpose of the new rules is to provide greater transparency over who owns and controls businesses operating in Ontario in order to assist law enforcement agencies uncover illegal activities such as money laundering and tax evasion.
Who is an Individual with Significant Control?
According to the OBCA, you are considered to be an ISC if:
- You are individual who has any of the following interests or rights, or any combination of them, in respect of a significant number of shares (being any number of shares that carry 25% or more of the voting rights attached to all of the corporation’s outstanding voting shares or any number of shares that is equal to 25% or more of the corporation’s outstanding shares measured by their fair market value) of the corporation:
- You are the registered holder of the shares;
- You are the beneficial owner of the shares;
- You have direct or indirect control or direction over the shares;
- You have any direct or indirect influence that, if exercised, would result in control in fact of the corporation.
- You are someone to whom certain prescribed circumstances apply.
What Should Go into the ISC Register?
The register of individuals with significant control over the corporation must show:
- the name, date of birth and latest known address of each ISC;
- the jurisdiction of residence, for tax purposes, of each ISC;
- the day on which each individual became and ceased to be an ISC, as the case may be;
- a description of how each individual is an ISC;
- any other prescribed information; and
- a description of each step taken to identify such ISCs.
Even if a corporation does not identify an individual who meets any of the above criteria, it is still required to prepare and maintain such register and describe the steps it has taken to identify the ISC. The register must be updated within 15 days of becoming aware of any new information required to be recorded in the register and must be reviewed for accuracy and updated at least on an annual basis.
Penalties for Non-Compliance
Significant penalties may be imposed for failing to comply with the new legislation which apply not only to the corporation, but also its directors, officers and shareholders.
While the corporation itself may be liable for a fine of up to $5,000, the liabilities that may be imposed upon a director, officer or shareholder, as the case may be, could be significantly more and may reach up to $200,000 and/or carry up to six months’ imprisonment.
Interpreting the new rules, particularly their application to private Ontario companies with a complex ownership structure, could be challenging. We encourage you to review the rules and collect the required information well in advance of the effective date of the new legislation.
If you have any questions about the new ownership transparency requirements for private corporations under the OBCA, please let us know, our team is happy to answer your questions and assist with the preparation and maintenance of such ISC register.