Private Companies in Ontario Must Now Maintain a Transparency Register

08 Mar Private Companies in Ontario Must Now Maintain a Transparency Register

As of January 1, 2023, significant amendments to Ontario’s Business Corporations Act (the “OBCA”) came into force which require private corporations to prepare and maintain a register (the “Transparency Register”) that includes certain personal information about individuals with significant control (“ISC”) over the corporation. All directors and officers of Ontario corporations should immediately comply with this new legislation by collecting the information necessary to prepare a Transparency Register in order to avoid penalties for non-compliance. Please do not hesitate to reach out if you have any questions or concerns regarding these updates or would like assistance with the preparation of your Transparency Register.

Background

These amendments to the OBCA are intended to support the federal government’s efforts to enhance corporate transparency and reduce corporate crime including tax evasion, money laundering, and other illegal activities. The Transparency Register provisions are similar to those previously enacted for federally incorporated corporations and provincial corporations in B.C., Saskatchewan, Manitoba, Nova Scotia, Prince Edward Island, Newfoundland, and Labrador.

What Corporations Must Do to Comply with the New Obligations

Except for private corporations that are wholly owned subsidiaries of a public company, all private corporations governed by the OBCA must create and maintain a Transparency Register that includes, among other things, the following information for each person considered, both past and present, to be an ISC:

• name, date of birth, and last known address;
• jurisdiction of residence for tax purposes;
• date on which the individual became and, if applicable, ceased to be an ISC; and
• description of what makes each individual an ISC (i.e. their interest in or influence over a significant number of shares).

The Transparency Register must also include a description of each step taken by the corporation’s directors and officers to ensure, at least once per financial year, that the corporation has identified all ISCs and that the Transparency Register is complete and current. Moreover, the corporation is also obligated to update the Transparency Register within 15 days after becoming aware of any new relevant information.

Who Qualifies as an ISC?

One of the most complex aspects of the new legislation concerns the identification of the individuals who are or may be considered ISCs. In short, an individual will be considered an ISC if the individual:

• is the registered or beneficial owner of, or has direct or indirect control or direction over, 25% or more of the voting rights attached to all of the corporation’s shares;
• is the registered or beneficial owner of, or has direct or indirect control or direction over, 25% or more of all of the corporation’s issued and outstanding shares by fair market value;
• has any direct or indirect influence that, if exercised, would result in “control in fact” of the corporation; or
• is an individual to whom prescribed circumstances apply, as stipulated in regulations.

The ability to effect a change in the board of directors of the corporation is not necessary to establishing “direct or indirect influence” that could lead to “control in fact” of the corporation. As such, a minority investor with certain control rights pursuant to agreement or a major non-arm’s length vendor or management services provider may be considered an ISC. However, parties who deal at arm’s length with the corporation are excluded from being considered an ISC provided they do so pursuant to a franchise, licence, lease, distribution, supply, management or other similar agreement.

“Influence” for this purpose is determined in light of all the circumstances and does not require the legal right or ability to change the composition of the board of directors of the corporation or to influence the shareholders who have a legal right or ability to change the composition or powers of the board of directors of the corporation.

Even when a private corporation cannot identify a single individual who qualifies as an ISC under any of the tests, that corporation must nonetheless maintain the Transparency Register and document the steps taken to identify the ISCs. These requirements may be audited by the Ministry, and companies that fail to comply put their leadership at risk.

Shareholders of a corporation, on the other hand, do not have any obligations under the OBCA to create or maintain the Transparency Register but the legislation does require shareholders to respond to any inquiries from the corporation related to the Transparency Register promptly and to the best of their knowledge, with complete and accurate information.

Access to the Transparency Register

Corporations will not be required to file the Transparency Register with the government but will need to present the register to certain designated officials if and when requested to do so such as to the Ministry, tax authorities (CRA), certain regulators (OSC, FSRA and FINTRAC) and police forces.

Most corporations are expected to keep their Transparency Register with their corporate minute books. Interestingly, shareholders of a corporation have no statutory right to inspect or take extracts from the Transparency Register.

Penalties for Non-Compliance

Failure to comply with any of the new requirements can result in a fine of up to $5,000 for the corporation. Any director or officer of a corporation who knowingly authorizes, permits or acquiesces in a corporation’s failure to prepare and maintain the Transparency Register can result in fines of up to $200,000 and/or up to 6 months imprisonment. Any shareholder of a corporation who knowingly fails to reply to a corporation’s Transparency Register requests can result in fines of up to $200,000 and/or up to 6 months imprisonment.

Action Items For Corporate Compliance

Based on the complexity of this new legislation as well as the penalties for non-compliance, we recommend that all directors and officers of a corporation assemble the required information as soon as practicable and thereafter continue to assist with the regular maintenance of the Transparency Register.

We understand that these changes may seem daunting and may require significant effort from directors and officers, but we believe that increased transparency and accountability will ultimately benefit corporations and taxpayers and will improve the business landscape in Ontario.

If you have any questions or concerns, please do not hesitate to contact us. We look forward to working with you to navigate these new requirements and ensure compliance.