Amendments to the B.C. Business Corporations Act imposing new corporate record keeping requirements on private companies in B.C. will come into force on October 1, 2020.
These amendments were scheduled to come into force on May 1, 2020; however, by order of the Lieutenant Governor dated April 6, 2020, the coming into force date has been extended in response to the COVID-19 pandemic. The amendments require B.C. companies to maintain transparency registers with information about significant individuals who hold 25% or more of the shares or votes in the company or who have the right to elect a majority of the company’s directors.
These amendments are part of the B.C. Government’s efforts to end hidden ownership of private companies and to crack down on illegal activities such as money laundering and tax evasion by helping identify persons who own and control private companies.
These new rules are similar to amendments to the Canada Business Corporations Act brought into force last year, requiring all privately held federal corporations to maintain similar registers. For more information about the requirements for federal corporations, please see EKB’s article.
What Does This Mean for Your Company?
All B.C. private companies will now need to identify every individual who qualifies as a significant individual under the new rules and include biographical information about that individual in the company’s transparency register. An “individual” here means a natural person, not a corporation or other legal entity.
Companies will also be required to notify each individual on the transparency register within 10 days of the individual being listed, to take steps each year to ensure information in the register is accurate, complete and up to date, and to update the register within 30 days of becoming aware of any new or different information that should be included in the register.
Only the directors of the private company and officials from law enforcement, taxation authorities and other specified regulators will be entitled to inspect the company’s transparency register.
Private companies, their directors, officers and shareholders can be subject to penalties of up to $50,000 for individuals and $100,000 for companies if they fail to comply with the new rules, including if the information in the transparency register is misleading.
Who Are Significant Individuals?
Significant individuals who must be listed on a private company’s transparency register are individuals who individually, jointly, or in concert with others:
- directly own, beneficially own, or indirectly control 25% or more of the issued shares or voting rights of the company; or
- have the ability to elect, appoint or remove a majority of the directors of the company, either directly, indirectly or by exercising direct and significant over a person with that ability.
Indirect control refers to situations where there is an intermediate legal entity or person between the private company and the significant individual. This may be the case when a shareholder is not a natural person (for example, where shares in the private company are held by an intermediate holding company), or is a natural person but is holding shares for the benefit of someone else.
Where indirect control applies, the company must follow the chain of “control” up through the legal structure to determine the individual or individuals at the top who ultimately control the shares, votes, or ability to elect directors. What constitutes “control” of an entity depends on the type of entity (for example, in the case of a corporation, “control” is the ability to elect the majority of directors of that corporation).
Direct and significant influence over someone who has the ability to elect the majority of the directors of the company is not defined in the new rules, but guidance from the British Columbia Government suggests that there must be a legally enforceable agreement (not just persuasive influence arising from economic dependence or a family relationship) allowing an individual to influence, in a very direct way, the decision making of the person capable of electing a majority of directors.
What Information in Included in the Transparency Register?
A private company’s transparency register must include the following information about each significant individual:
- full name, date of birth and last known address;
- whether the individual is a Canadian citizen or permanent resident of Canada;
- if the individual is not a Canadian citizen or permanent resident of Canada, every country or state of which the individual is a citizen;
- if the individual is a resident of Canada for the purposes of the Income Tax Act (Canada);
- the date when the individual became or ceased to be a significant individual in the company; and
- a description of how the individual is a significant individual.
If a private company determines there are no significant individuals, the transparency register must contain a statement to that effect. Under the new rules, shareholders are required to take reasonable steps to provide information requested for the purpose of creating a transparency register, but if a private company is nonetheless unable to gather the required information, it must record all steps that were taken in attempting to obtain that information.
The extension of the deadline to October 1, 2020 allows private companies an additional 5 months to work with their counsel to ensure they are in compliance with the new rules.
EKB is available to assist private companies in navigating the new rules and working with companies to develop processes and systems to collect, record and update the information required for their transparency registers.