New In 2023: Register of Individuals With Significant Control Now Required for Ontario Corporations
In an effort to increase corporate transparency, the Ontario Business Corporations Act (“OBCA”) now requires Ontario private corporations to maintain a register of “individuals with significant control” (excluding private corporations that are wholly-owned subsidiaries of a public company). A similar requirement exists under the Canada Business Corporations Act for federal corporations.
Who has “significant control”?
An individual will be considered to have significant control if the individual: (a) is the registered holder or beneficial owner of 25% or more of the voting shares of the corporation; (b) is the registered holder or beneficial owner of 25% or more of the fair market value of the shares of the corporation; (c) has direct or indirect control or direction over the shares; and/or (d) has direct or indirect influence that if exercised, would result in control in fact of the corporation. This includes the right to effect changes to the board of directors or to exercise influence over the shareholders who have such rights or abilities. A corporation, however, will not be considered to be controlled, directly or indirectly, by an individual if the individual’s influence is derived from a franchise, license, lease, distribution, supply, management agreement or other similar agreement or arrangement, provided that the corporation and the individual have an arm’s length relationship
If two or more individuals collectively own or control 25% or more of the corporation’s shares, each of them will be considered an individual with significant control. This applies when these individuals, for instance, have have an agreement to exercise their rights together.
What information is required?
The register of individuals with significant control must include the following information: (1) the name, date of birth, last known address and jurisdiction of residence of tax purposes or each individual with significant control; (2) the date on which the individual became or ceased to be an individual with significant control; (3) a description of how the individual is an individual with significant control (including a description of the individual’s rights and interests in respect of the shares of the corporation); (4) a description of steps taken to ensure that the corporation has identified all individuals with significant control and the steps taken to confirm the information is accurate, complete and up to date; and (5) any other prescribed information.
What continuing obligations are in place for the corporation and its shareholders?
The corporation must review the register of individuals with significant control at least once in each financial year to ensure that it reflects the most current information and that such information is accurate. The corporation has 15 days to record any new information in the register, including updating information on the individuals with significant control that is required to be provided.
What are Shareholders Obligations?
The shareholders are obligated to respond to any related inquiries from the corporation promptly and to provide accurate and complete information.
Who has access to this register of individuals with significant control?
The Ontario Government has the authority to access the register for compliance and regulatory purposes, and law enforcement agencies may access it for investigative purposes related to enforcing applicable laws. The register is not accessible to the public, nor is disclosure required to shareholders or creditors. The Minister, authorized representatives, police forces, tax authorities, and certain regulators can request access to the register. Requests for access from police forces and tax authorities must be for the purpose of enforcing applicable laws. Requests from designated regulators must be for administering or enforcing laws for which the regulatory body is responsible, including in other provinces or foreign jurisdictions where authorized. Such requests do not require suspicion of wrongdoing by the corporation itself and may include requests for investigations of unrelated entities.
What are the consequences if a corporation fails to comply?
If a corporation fails to comply with the requirements to maintain the register or disclose information as required, the corporation may be subject to fines up to $5000 for non-compliance. The directors and officers may face fines up to $200,000 and/or up to 6 months imprisonment for knowingly allowing the corporation to fail in its obligations related to the register or providing false information. Shareholders may also face fines up to $200,000 and/or up to 6 months imprisonment for knowingly not complying with the corporation’s requests for information. Any other individuals who fail to respond promptly to enforcement inquiries authorized by the minister, without reasonable cause, may be fined up to $5000. These penalties may apply regardless of whether the corporation or any individual has been prosecuted or found guilty.
It is important to remember to keep your register up to date, as well as continue to meet other pre-existing obligations for Ontario corporation, including annual compliance. If you require help with creating or updating your register of individuals with significant control or require any other assistance with your corporate compliance requirements, Ordower Law is here to help!
For additional information, please feel free to contact us by phone at 416.849.1900, or schedule a call with us by clinking the link above.
For more general information on incorporating in Ontario or starting a business in Ontario, please view our guide here: Incorporate in Ontario and Canada- Everything You Need to Know.
