Ontario Private Corporations: Now Subject to Transparency Register Obligations

Effective January 1, 2023, significant amendment to the Ontario Business Corporation Act (the “OBCA”) come into force and will require many private corporations to maintain a Transparency Register. The Register involves maintaining a record of “individuals with significant control” (also “ISCs”) over the corporation. The Transparency Register is intended to allow for greater visibility into the activities and ultimate control and ownership of corporations.

The relevant OBCA amended were contained in Ontario provincial Bill 43, which received Royal Assent on December 9, 2021. These changes are consistent with a Canadian federal government initiative which has the stated goal of increasing corporate transparency, in part by moving toward a national registry similar to what will now be required for OBCA companies.

Who are Individuals With Significant Control or ISCs?

The legislation provides that an ISC is a person who satisfies any of the following:

(1)   is the registered or beneficial owner of, or has direct or indirect control or direction over, any number of shares of the corporation that carry 25% or more of the voting rights attached to all of the corporation’s outstanding voting shares;

(2)   is the registered or beneficial owner of, or has direct or indirect control or direction over, any number of shares of the corporation that is equal to 25% or more of all of the corporation’s outstanding shares measured by fair market value;

(3)   has any direct or indirect influence that, if exercised, would result in control in fact of the corporation; or

(4)   is an individual to whom circumstances prescribed by regulation apply.

Two or more individuals may together be considered an ISC if any of the following applies: (1) an ownership interest or right in respect of shares is held jointly by those individuals; (2) a right in respect of shares is exercised jointly or in concert by those individuals; or (3) the individuals holding the ownership interests or rights are “related persons”, as defined in the OBCA, which includes spouses and children and possibly other relatives if they live in the same family home.

These new legislation does not contain further guidance regarding the identification of an individual with “direct or indirect influence” that could lead to “control in fact” of the corporation. Instead, the legislation provides that all relevant factors are to be taken into consideration. The precise approach to various issues will remain to be determined.

The combined effect of the rules detailed above is that, in preparing and maintaining the Transparency Register, OBCA corporations must identify individuals who meet the threshold of share ownership, and also take into account and record individuals who are in a position to exercise significant influence over the corporation, irrespective of the number of shares they actually hold.

Information the Transparency Register Must Include

A Transparency Register must include the following for each ISC:

• the name, date of birth, and last known address

• the jurisdiction of residence for tax purposes

• the date on which the individual became (and, if applicable, ceased to be) an ISC

• a description of how the individual meets the definition of “significant control”

• any other information that may be prescribed by regulation in the future

• a description of the steps taken to identify each ISC and to ensure that the information in the Register is accurate, complete, and up to date

Corporations will be required, at least once during each financial year of the corporation, to take reasonable steps to ensure that it has identified all ISCs and that the information in the Transparency Register is accurate, complete, and up to date. A corporation must record any new, required information in the Transparency Register within 15 days of becoming aware of it. Shareholders who receive a request from the corporation for any required information must provide an accurate and complete reply “promptly and to the best of their knowledge” or face penalties.

Access to the Transparency Register

The new OBCA rules create an access regime for Transparency Registers. A corporation must, upon request, disclose information in the Transparency Register to the Minister. Additionally, each of the following can submit a request for disclosure of a corporation’s Transparency Register, and a corporation must respond to the request in accordance with the legislation:

(1)   police forces “for the purpose of conducting an investigation into an offence under a law of Ontario or Canada” or providing information to a law enforcement agency in a jurisdiction outside Ontario for a similar purpose;

(2)   tax authorities strictly “for the purpose of administering or enforcing a law of Ontario or Canada that provides for the imposition or collection of a tax, royalty or duty” or providing information to officials of another jurisdiction for a similar purpose; and

(3)   certain regulators, including the Ontario Securities Commission, the Financial Services Regulatory Authority of Ontario and the Financial Transactions and Reports Analysis Centre of Canada (and others as may be designated by regulation) “for the purpose of administering or enforcing a law for which the regulatory body is responsible” or to assist other agencies with similar mandates in Canada and foreign jurisdictions.

Penalties for Non-Compliance

A corporation that fails to comply with any of the requirements to prepare and maintain a Transparency Register, respond to inquiries, or meet disclosure obligations under the OBCA, is, absent reasonable cause liable for a fine of up to $5,000. Fines up to $200,000 and/or up to six months imprisonment can also be imposed upon every director or officer of a corporation who knowingly authorizes, permits or acquiesces in a corporation’s failure to prepare and maintain the Transparency Register, respond to inquiries or meet disclosure obligations.

In addition to the above, directors, officers, and shareholders must ensure they record and provide true and accurate information for the Transparency Register. Failing to comply or reply accurately and completely to a request may result in a fine of up to $200,000, imprisonment for up to six months, or both.

When taken together, these new OBCA obligations will impose significant compliance requirements which corporations must become familiar with and implement.