Under new rules in force as of January 1, 2023, private corporations incorporated or continued under Ontario’s Business Corporations Act (“OBCA”) will be required to maintain a register (“Transparency Register”) of “individuals with significant control” (“ISCs”) over the corporation. The new rules are part of a global effort aimed at improving corporate transparency by preventing and detecting the use of corporations for tax evasion, money laundering or other illicit financial activities. Ontario’s provisions are similar to those that are already in force for federal corporations and corporations in several other Canadian provinces.

Which Ontario Corporations Must Maintain a Transparency Register?

All private Ontario corporations will need to prepare and maintain a Transparency Register (other than private corporations that are wholly-owned subsidiaries of a public company). Public companies are exempt if they are offering corporations and/or are listed on a “designated” Canadian or foreign stock exchange, which includes most of the world’s significant stock exchanges. The Ontario Government may consider additional exemptions in the future.

Corporations should take steps prior to the January 1, 2023 implementation date to gather the information required to prepare their Transparency Registers. Ontario private corporations with complex ownership structures, in particular, may want to get an early start on their ISC analyses. Our experience with similar requirements under other corporate statutes is that identifying ISCs – the people whose information needs to go on the register – can take time. This is especially true for stacked corporate structures and structures that include foreign entities and/or non-corporate entities such as partnerships and trusts.

What Information is Required in the Transparency Register?

The Transparency Register must record the following information for each ISC:

  • name, date of birth and last known address;
  • jurisdiction of residence for tax purposes;
  • the date on which the individual became or ceased to be an ISC;
  • a description of how the individual is an ISC (including a description of the ISC’s rights and interests in respect of the corporation’s shares); and
  • any other information that may be required under future regulations.

The Transparency Register must also describe the reasonable steps taken (at least once during each financial year of the corporation) to ensure the Register is accurate, complete and up-to-date.

How often does the Transparency Register need to be updated?

As noted above, the Transparency Register must be reviewed and, if necessary, updated to reflect changes in a corporation’s ISCs or their required information at least once during each financial year. The update does not have to be conducted on any particular date or on the same date each year, as long as there is one update in each financial year. If new information is discovered in the course of a review, it must be recorded in the Register within 15 days of the date on which the corporation becomes aware of it.

In addition to annual updates, Registers must also be updated on an ad hoc basis whenever relevant information comes to light, within 15 days of the date on which the corporation becomes aware of it.

What obligations do the corporation’s shareholders have?

The legislation requires shareholders to respond to any related inquiries from the corporation promptly and to the best of their knowledge, with accurate and complete information.

Where is the Register kept?

Corporations must keep the Transparency Register at the corporation’s registered office in Ontario, unless the directors designate another location in the province.

Who Must Be Listed on the Register?

Information for each individual identified as an “individual with significant control” of the private corporation must be included in the Register.

The basic tests

An individual will be considered an ISC of the corporation if they meet either of the following tests:

  • The individual holds a 25% or greater interest in the corporation, either by votes or by fair market value (including registered shareholdings, beneficial ownership of shares and direct/indirect control or direction over the shares, and also including certain joint interests); or
  • The individual has direct or indirect influence that, if exercised, would give him or her “control in fact” of the corporation.

Importantly, the “indirect control” concept means that an individual at the top of a corporate chain may be an ISC of entities lower down the chain in which he or she does not hold a direct personal interest.

If there is no individual identified who meets either of the tests, then no one needs to be listed (although a Transparency Register must still be created and maintained, describing the steps taken as required under the legislation).

The description above covers the basic considerations, but the tests have important nuances that are discussed in the final section of this post. Note that only individuals can be ISCs and that it is possible for new classes of ISC to be created by regulation.

Who Will Have Access to the Register?

The legislation provides for access by the Ontario Government for compliance purposes, and by law enforcement and regulators for investigative purposes as they relate to the administration or enforcement of applicable Ontario or federal laws (or similar laws of other provinces or of foreign jurisdictions, in certain circumstances).

Only the following persons may make requests to access an Ontario corporation’s Transparency Register:

  • the Minister;
  • police forces;
  • tax authorities of Ontario and Canada; and
  • certain specified regulators, including the Ontario Securities Commission, the Financial Services Regulatory Authority of Ontario and the Financial Transactions and Reports Analysis Centre of Canada (others may be designated by regulation).

Other than as described below, the Transparency Register will not be publicly available, nor do the OBCA provisions require disclosure to shareholders or creditors.

The Minister

The Minister’s authorized representative may make any inquiry considered necessary for the purposes of enforcing the requirement to maintain a Transparency Register and for the making of required disclosures.

Law enforcement, tax authorities and certain regulators

A request to access a Transparency Register may be made only for law enforcement, tax or regulatory purposes:

  • Requests from police forces must be “for the purpose of conducting an investigation into an offence under a law of Ontario or Canada” or to provide information to a law enforcement agency outside Ontario for a similar purpose.
  • Requests from tax authorities must be “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 to provide information to the officials of other jurisdictions to assist in the administration or enforcement of a similar law of that jurisdiction.
  • Designated regulators may make requests for the purpose of assisting agencies with similar mandates in other provinces and foreign jurisdictions. Such requests must be for the purpose of administering or enforcing a law for which the regulatory body is responsible.

In each case, requests may be made on behalf of entities outside of Canada only where authorized under an arrangement, written agreement, treaty or law.

Note that these provisions appear to contemplate requests with respect to investigations of unrelated entities and do not appear to require any suspicion of wrongdoing by the corporation itself.

Penalties

The Corporation

Fines of up to $5,000 for failing, without reasonable cause, to comply with any of the requirements to prepare and maintain a Transparency Register, respond to inquiries or meet disclosure obligations under the legislation.

Directors and officers

Fines of up to $200,000 and/or up to 6 months imprisonment for knowingly authorizing, permitting or acquiescing in an Ontario corporation’s failure to perform any of its duties relating to the creation, maintenance or disclosure of the Transparency Register, whether or not the corporation has been prosecuted or found guilty.

The same penalties apply where a director or officer records false or misleading information in the Transparency Register, or provides false or misleading information relating to the Register to any person or entity (or who knowingly authorizes, permits or acquiesces in any of these acts).

Shareholders

Fines of up to $200,000 and/or up to 6 months imprisonment for knowingly failing to reply to the corporation’s Transparency Register requests as required by the legislation).

General

Fines of up to $5,000 for failing, without reasonable cause, to respond promptly to enforcement inquiries authorized by the Minister. This could apply to anyone to whom such an inquiry is made.

Identifying Your ISCs: Detailed Discussion

We noted above that, at the most basic level, an individual is an ISC if either of the following is true: (i) the individual has control or direction over a 25% shareholding, or (ii) the individual has “any direct or indirect influence that, if exercised, would result in control in fact of the corporation”. However, there are a number of nuances that can complicate the ISC analysis for each of these tests:

First test: control or direction over a 25% shareholding

As noted above, an individual will be considered an ISC with respect to a corporation where the individual holds a 25% or greater interest in the corporation, either by votes or by fair market value. This includes registered shareholdings, beneficial ownership of shares and direct/indirect control or direction over the shares.

Combinations of the above are sufficient (e.g. an individual can meet the 25% threshold by virtue of being the registered holder of some shares and the beneficial owner of other shares).

Situations involving multiple individuals, including family groups

The legislation addresses certain situations in which two or more individuals jointly or collectively hold or exercise rights or interests in an OBCA corporation, including the following:

  • Where two or more individuals jointly hold rights or interests meeting the 25% threshold, each of those individuals will be considered an ISC.
  • Where a voting agreement or similar arrangement exists between two or more individuals under which individuals agree to exercise any rights that they hold in the corporation “jointly or in concert”, and those rights collectively meet the 25% threshold, all individuals who are party to the agreement or arrangement will generally be considered ISCs.
  • An individual may also be considered an ISC by virtue of being a member of a family group with interests or rights that collectively meet the 25% threshold. Under the OBCA's definition of “related persons”, such groups include spouses and children and potentially other relatives if they live in the family home.

In situations such as those described above, each individual who is identified as an ISC must be included in the Transparency Register.

Second test: control in fact through direct or indirect influence

An individual will also be considered an ISC if the individual has direct or indirect influence that, if exercised, would result in control in fact of the corporation. The legislation provides that, in making the “control in fact” determination, “all relevant factors” should be taken into consideration and that those “factors” need not include the existence (or non-existence) of a legally enforceable right or ability to effect a change in the board of directors or its powers (not even in the looser sense of having influence over shareholders that have such a right or ability).

Despite the open-endedness of this definition, the legislation includes an important and useful set of exclusions. Control in fact, it states, does not arise only by reason of an individual’s influence that derives from an arm’s length relationship involving any of the following kinds of agreements affecting the “manner in which a business carried on by the corporation is conducted”:

  • Franchising;
  • Licensing;
  • Leasing;
  • Distribution;
  • Supply; or
  • Management.

The express presumptive exclusion of these common commercial arm’s-length arrangements will provide welcome certainty for many businesses that fall into these categories.

Going Forward

As the OBCA amendments will take effect on January 1, 2023, Ontario private corporations should take steps to assemble the required information as soon as practicable.