New reporting requirements for private federal corporations

Canada's new corporate "significant control" reporting requirements are taking effect on June 13, 2019. As a result, private federal corporations incorporated or continued under the Canada Business Corporations Act(CBCA) must maintain up-to-date records on individuals who have "significant control" over affected corporations. Because these records must be in place on or before June 13, 2019, private federal corporations may face compliance burdens as a result of this upcoming deadline.

Corporations should get ready for the new reporting requirements so that they can take the necessary steps to ensure correct records and documentation are in place ahead of June 13, 2019.

Public corporations are excluded from this reporting requirement.

Background
The "significant control" reporting requirements were introduced in Bill C-86, which includes amendments to the CBCA to add new sections 2.1, 21.1 to 21.4, new subsection 250(4) and new paragraphs 261(1)(c.01) and (c.02). Bill C-86 received Royal Assent on December 13, 2018. This measure was initially proposed in the 2017 Federal Budget.

Finance says the new reporting requirements are intended to improve the availability of beneficial ownership information.

Who is an "individual with significant control"?
According to the new rules, individuals with 'significant control' are:

  • Registered shareholders
  • Beneficial shareholders, or
  • Individuals who have direct or indirect control over the shares of a private federal corporation.

These individuals either hold an interest or right (or a combination thereof) with respect to:

  • 25% of the corporation's outstanding voting shares, or
  • Shares valued at 25% of the fair market value of all the corporation's outstanding shares.

Affected corporations must also keep up-to-date records with respect to:

  • Individuals with direct or indirect influence, that if exercised, would result in control of the private federal corporation; or
  • Individuals to whom prescribed circumstances apply.

What information must be recorded?
Affected private federal corporations must maintain a register that includes the following information for each individual with significant control of such corporation:

  • Name, date of birth and last known address
  • Jurisdiction of tax residence
  • Date the individual became or ceased to be an individual with significant control
  • Description of how the individual meets the significant control threshold
  • Any other prescribed information.

These records must be updated on an annual basis at the minimum. Affected private federal corporations must update their corporate registries within 15 days of becoming aware of any changes to information on their registry, or will risk penalties of up to $5,000 for non-compliance. Company directors and/or officers who are knowingly noncompliant, or provide false or misleading information risk penalties of up to $200,000 or imprisonment up to six months.

For more information about these changes, please contact your trusted LCA advisor.