21 Nov Private Companies in Ontario Will Soon Face New Ownership Transparency Requirements
Time is running short for businesses in Ontario to prepare for the new transparency registration requirements. All private corporations subject to the Ontario Business Corporations Act (OBCA) must be ready by January 1, 2023. Failure to comply subjects the corporation to fines and could lead to significant liability for directors, officers, and shareholders.
New Obligations and Associated Penalties
Lawmakers are imposing new registration obligations to prevent the use of corporate entities for tax evasion, money laundering, and other illegal actions. Under the requirements that take effect January 1, private corporations must establish and maintain a Transparency Register describing all “individuals with significant control.” This specifically includes individuals with control through beneficial ownership. The changes are part of a significant increase in the corporate compliance requirements of Ontario private corporations and their internal affairs in recent years.
Corporations that fail to comply with any requirements can be fined up to $5,000. What is more significant, however, is that any officer or directors who fail to comply face the potential for up to six months of jail time and a personal fine of up to $200,000.
What Private Corporations Must Do to Comply with the New Obligations
Private corporations subject to the OBCA and that are not wholly-owned subsidiaries of public corporations must establish a transparency register that includes the following information for each person considered under the law to be an individual with significant control (ISC), both past and present:
- Name, birthday, and latest known address
- Tax jurisdiction
- Date when the individual became an ISC
- Date when the individual ceased to be an ISC (if applicable)
- Description of the ISC’s interests and rights with respect to shares
- Other information describing how or why the individual qualifies as an ISC
The register must also include descriptions of each step taken to ensure that the corporation has identified all ISCs and that the Register is complete and current.
A corporation’s Transparency Register must be reviewed and updated at least once a year. Moreover, the corporation is also obligated to update the Register within 15 days after learning of new information that is required to be included.
The Transparency Register will not be submitted to the government but certain designated officials may request access at any time. Corporations must keep their Transparency Registers at their registered offices, but they do not need to make the information available to the general public.
Ascertaining the Individuals Who Must Be Included as ISCs
Some of the most complex aspects of the new requirements concern the descriptions of individuals who must be considered ISCs. Because of the potential for hefty penalties, private corporation boards and management will need to take great care to ensure they include all the pertinent information about all ISCs.
Overall, there are three separate factors that can make someone an ISC:
- Holding interests in a “significant” number of shares
- Having influence (direct or indirect) that would result in “control in fact” of the corporation
- Circumstances prescribed in regulations
To understand which individuals must be included on the Transparency Register, you need to look at numerous factors, including the way the law defines the interests that make someone an ISC, as well as when a number of shares becomes “significant” and what constitutes “control in fact” of a corporation.
Experienced Business Lawyers Can Help You Comply with Transparency Register Requirements
Even when a private corporation cannot identify a single individual who qualifies as an ISC under any of the three tests, that corporation must still maintain a Transparency Register and document the steps taken to locate ISCs. These requirements will be taken seriously by the government, and companies that fail to comply do so putting their leadership at significant risk.
Because of the complexity of requirements, companies may find it helpful to work with an experienced business lawyer to ensure compliance. At Abrahams LLP, our team can help private corporations establish a Transparency Register that meets requirements and we can continue to assist with regular maintenance if desired. To talk to our team about how we could assist with your compliance concerns, contact us at any time.