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Corporate Transparency & Accountability: Recent Amendments To The Canadian Business Corporation Act

Updated: Jan 9


Canada Business Corporation Act

The Canadian Business Corporation Act (CBCA) is a foundational piece of legislation governing and regulating federally incorporated corporations in Canada. The Act was recently amended by the passing of Bill C-42 which received Royal Assent on November 2, 2023. It represents a significant step toward improving corporate governance in Canada with its primary objective being to strike a delicate balance between transparency and privacy. It introduces new provisions and compliance obligations aimed to enhance corporate transparency, accountability, and governance for Canadian corporations, specifically, the rules governing the reporting of individuals with significant control of the corporation. Section 21.1 of the CBCA is section introduces the requirement for transparency and accountability regarding corporate ownership and control. Corporations are required to maintain an Individuals with Significant Control (ISC) Register which includes details such as beneficial ownership, control, and influence in other to ensure transparency regarding corporate ownership of a corporation.


Broader Information Scope


Subsection 21.1 (1) (a) of the amended CBCA now expands the information that companies must keep in their ISC register and requires the Director to make certain information on individuals with significant control over a corporation publicly accessible. The Act requires that the corporation shall prepare and maintain at its registered office, a register of individuals with significant control over the corporation and such information shall include name, date of birth, residential address, address for service if provided to the corporation and citizenship of an individual with significant control. Corporations must now capture a more holistic view of beneficial ownership that aids in assessing risks, preventing fraud, and ensuring compliance. Subsection 21.1 (2) introduces the frequency of the update of the ISC register and requires that the register be updated at least once in a financial year of the corporation, or at the request of a Director and or at the time provided in the regulation. This requirement ensure that the ISC register is kept up to date


Information Sharing


Subsection 21.302 introduced by the amendment now provides that the Director can provide information received for the purpose of the ISC Register under subsection 21.21 of the Act with a provincial corporate registry or provincial government department responsible for corporate law. This inter-governmental and inter-agency collaboration will be a key driver of enforcement of the ISC register requirements and ultimately curb money laundry.


Public Availability


Under subsection 21.303 (1) of the amended Act, the Director shall make available to the public the following information sent to the Director under subsection 21.‍21 for each individual with significant control of the corporation. This information includes names of the ISC; residential address; address for service if provided; day on which such individual became or ceased to be an ISC; and description of how everyone on the register is an individual with significant control over the corporation, including a description of their interest and right in respect of shares of the corporation.


Penalty


The amendment has increased penalties for non-compliance with the provision of the Act by providing that a person who commits an offence under any of subsections 24.4 (1) to (4) is liable on summary conviction to a fine not exceeding one million dollars or to imprisonment for a term not exceeding five years, or to both, which is an increase in the penalty previously under the Act from a fine of two hundred thousand dollar and imprisonment not exceeding six months. This shows Canada's determination to combat her current recognition as a money laundering destination.


Director’s Discretion


Interestingly, the amendment provides in subsection 21.303 (3) for the discretion of the Director where an individual with significant control applies to the corporation for information on the ISC register not to be made available to the public. The act empowers the director with respect to such individual with significant control, not to disclose information on the ISC register, and subject to terms and conditions which the director may deem fit, if;

  • the director reasonably believes that making such information available would present serious threats to the safety of the individual or

  • the director is satisfied that the individual is incapable or prescribed circumstances apply, or

  • subsection 27 (8) of the Conflicts of Interest Act which is applicable to reporting public officers and their disposition of shares in a corporation or an Act of a province, applies.


Likely Impact on Corporate Compliance


Corporations must proactively manage their ISC Registers and fostering ethical behavior on a continuous basis. Education and awareness programs for corporate directors and officers who have potential criminal liability is important. This places a significant compliance obligation on the corporation to take reasonable steps to collect ISC information including sending requests for information to individuals listed in the register, shareholders, and other relevant persons. The requested information must include any changes to the ISC information, confirmation of whether a shareholder has become an individual with significant control, and relevant contact details.


The amended CBCA represents a significant shift in corporate governance. Corporations must adapt swiftly to meet the new requirements as compliance with the ISC provisions becomes mandatory. Immediate implication for corporations will include, allocating resources to establish and maintain the ISC Register. Board members, officers, and legal advisors will play a important roles in ensuring compliance with the Act. The CBCA demands vigilance, precision, and a proactive approach from corporations particularly, the director of a corporation. Administrators or managers knowingly violating beneficial ownership transparency requirements may face criminal penalties.


Conclusion


It is interesting to note that the amendment to the Act is commendable, it strengthens Canada’s anti-money laundering efforts and by allowing stakeholders access to ISC information, the amendment promotes transparency which investors, creditors, law enforcement and the public can use to gain insights into corporate ownership structures. It harmonizes the ISC requirement with other provisions of the Income Tax Act and the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, streamlining enforcement efforts and aligns Canada with her global pairs.


The other point to be noted is that the new amendment forces a balance in safeguarding sensitive personal information and data points and ensures that in the right circumstances, individual privacy rights are respected. Ensuring robust data security and clear guidelines for disclosure requests will be critical. Although the author thinks the provisions of section 21.303 (3) could obliterate the entire gain the amendment seeks to achieve as the director’s discretion not to disclose information on the ISC register may be subject to abuse particularly where a director is also a shareholder. It is not clear how this conflict will be managed. These changes aim to prevent misuse and enhance governance so companies must intentionally manage compliance with the Act to meet both corporate and securities law requirements, and navigate the balance between corporate and securities law obligations. These changes are a welcome and timely update to the Canadian business corporation law and will have a n overall positive impact.


Arcstone Law Corporation can assist companies in carrying out a comprehensive review of their policies and practices to see if they are compliant with this Act and recommend effective and compliant changes. We are also available to help business initiate a compliance audit in this regard to test readiness for compliance. You can contact us by email admin@arcstonelaw.com or book a consultation on our website. All legal services are rendered through Arcstone, a law corporation.




Contributor:

Bolanle Oduntan, Mangaing Lawyer at Arcstone Law






Name: 'Bolanle Oduntan*

Title: Managing Lawyer


*practising through Arcstone Law Corporation


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