Transparency Register: Lifting the Curtain on Private Companies
British Columbia is following the Canadian trend of increased transparency of corporate ownership with Bill 24 – 2019, Business Corporations Amendment Act, 2019 (“Bill 24”). Bill 24 received royal assent on May 16, 2019, and though not currently in force, the changes are expected to come into force imminently, by regulation. When Bill 24 comes into force, amending the Business Corporations Act (British Columbia) (“BCBCA”), all private corporations will be required to maintain a transparency register with information on “significant individuals”.
Significant Individuals – Who are They?
A “significant individual” is defined as an individual who, in respect of a private company, individually or jointly:
- is the registered owner of a “significant number of shares” (25% or more of the issued shares, or issued shares that carry 25% or more of the rights to vote at general meetings);
- a beneficial owner of a significant number of shares, other than an interest that is contingent on the death of another individual;
- has indirect control (as defined in the regulations) over a significant number of shares; or
- the right or ability to elect, appoint or remove the majority of the company’s directors through the exercise of one or more of the following:
- the right to elect, appoint or remove one or more directors;
- indirect control of the right to elect, appoint or remove one or more directors;
- ability to exercise direct and significant influence over an individual who has the right or indirect control defined above; and
- an interest, right or ability, or to whom prescribed criterion or circumstances apply, as may be prescribed by regulation.
If an interest or right referred to above is jointly held by two or more individuals, each individual is a significant individual. A person is a significant individual if their interests, rights or abilities would meet one of the criteria above when combined with the rights or abilities held by other individuals with whom they: (i) have an agreement or arrangement to exercise their interests, rights or abilities jointly or in concert; or (ii) are an “associate”.
What Do I Need to Do?
Private British Columbia companies must take reasonable steps to maintain their transparency register, which contains the following information in respect of each significant individual:
- the individual’s full name, date of birth and last known address;
- whether or not 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;
- whether or not the individual is resident in Canada for the purposes of the Income Tax Act (Canada);
- the date on which the individual became or ceased to be a significant individual in respect of the company;
- a description of how the individual is a significant individual; and
- additional information, as may be prescribed under the forthcoming regulations.
Even if it has no “significant individuals”, a company must include a statement to that effect on its transparency register. Information about “significant individuals” must remain on a company’s transparency register for a period of six years after an individual ceases to be a “significant individual” of the company
If a company is unable to obtain or confirm some of the required information, the transparency register must contain the information that was obtained and a summary of steps taken to obtain the missing information. IP shareholders have a duty to respond to a request by the company to provide information.
Who Can Access a Transparency Register?
Transparency Registers will be available to directors of the company and “inspecting officials”.
What is the Risk of Non-Compliance?
Bill 24 introduce new offences to the BCBCA. It will be an offence for a company to do the following:
- identify an individual as a significant individual if that person is not a significant individual;
- exclude an individual who is a significant individual; or
- include information that is false or misleading in respect of any material fact, or omit information, if the omission makes the information false or misleading.
If a director or officer authorizes, permits or acquiesces in the commission of the offence by the company, they will commit an offence. However, the company and its directors and officers will not be guilty of such an offence if they did not know that the identification or exclusion of the individual was incorrect or that the information was false or misleading, and, with the exercise of reasonable diligence, could not have known that the information was false or misleading.
A shareholder who sends information that is false or misleading or omits any material fact, the omission of which makes the information false or misleading, will also commit an offence. A shareholder will not be guilty of such an offence if they did not know the information was false or misleading, or, with the exercise of reasonable diligence, could not have known. A person who commits an offence is liable, in the case of a person other than an individual, to a fine of not more than $100,000 or, in the case of an individual, to a fine of not more than $50,000.
Following the Yellow Brick Road
The new rules impose significant new obligations on B.C. private companies. The company can be subject to significant liability for mischaracterizing an individual as a significant individual or failing to include an individual as a significant individual. However, in all but the simplest cases, there likely will be interpretive issues that need to be considered in determining whether someone is a significant individual.
It is uncertain when these changes will be proclaimed in force. However, companies should begin making required enquiries of shareholders and instructing the agents that maintain their corporate records to prepare the required transparency register so as to be ready when that occurs.
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