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BCBCA Amendments: Transparency Register to Track Significant Individuals

BCBCA Amendments: Transparency Register to Track Significant Individuals
By  Arash Amouzgar, Patrick Whitehill and Borna Pirzadeh (Articling Student)
February 19, 2020

Effective May 1, 2020, all private companies existing under the Business Corporations Act (British Columbia) (BCBCA), will be required to establish and maintain a transparency register of “significant individuals.” The requirement for this new register follows recent changes to the Canada Business Corporations Act relating to registers of individuals with significant control, and implement British Columbia (B.C.)’s commitments under the federal/provincial Agreement to Strengthen Beneficial Ownership Transparency, aimed at increasing ownership transparency to prevent the misuse of B.C. companies for criminal activities, such as money laundering and tax evasion. We anticipate other provinces will create similar requirements in due course.
 
For more information on the Canada Business Corporations Act’s changes relating to registers of individuals with significant control, please see our November 2019 Blakes Bulletin: Beneficial Ownership: New Developments.

SIGNIFICANT INDIVIDUAL

A “significant individual” is someone who either jointly or individually:

  • directly or beneficially owns, or indirectly controls:
    • 25 per cent or more of the shares of the company, or
    • issued shares of the company that carry 25 per cent or more of the rights to vote at general meetings; or
  • can directly, indirectly or with the exercise of direct and significant influence, appoint or remove the majority of the company’s directors.

An individual indirectly controls shares of a company if he or she:

  • controls an intermediary registered shareholder, or a chain of intermediaries, the last of which is a registered shareholder of the company; or
  • is a trustee or personal or other legal representative in a chain of intermediaries, the last of which is a registered shareholder of the company.

An individual can indirectly appoint or remove a director of a company if he or she:

  • controls an intermediary registered shareholder, or a chain of intermediaries, the last of which has that right; or
  • is a trustee or personal or other legal representative in a chain of intermediaries, the last of which has that right.

Per guidance from the B.C. government, the direct and significant influence on another person’s right to appoint or remove the majority of the company’s directors must come from a legally binding or enforceable arrangement. It does not include situations where a person can exert influence merely because of economic dependence or family relationship. However, spouses, parents and children, and relatives who have the same home, will be deemed to be acting jointly if they have interests in a company and their combined interests meet the requirements to be a significant individual.

TRANSPARENCY REGISTER

Under the amendments, a B.C. company will be required to maintain a “transparency register” of every significant individual of the company. This transparency register must contain, among other things:

  • The individual’s full name, date of birth and address;

  • Whether or not the individual is a Canadian citizen or permanent resident;

  • If the individual is not a Canadian citizen or permanent resident, every country of which the individual is a citizen;

  • Whether the individual is resident in Canada for purposes of the Income Tax Act (Canada);

  • The date on which the individual became or ceased to be a significant individual of the company; and

  • A description of how the individual is a significant individual.

Companies have a duty to take reasonable steps to create and maintain a transparency register of significant individuals. These steps include sending questionnaires to shareholders to determine whether they fit the definition of significant individual. To assist, the government of B.C. has published Examples of Transparency Registers and sample questionnaires. If another corporation, partnership, trust, agent or personal or other legal representative is a shareholder, companies must take reasonable steps to look up the chain of its ownership to determine if it is controlled by any individual, and then follow up with those individuals. Once contacted, registered shareholders must respond to company questionnaires and provide the relevant information. Other interest holders, such as beneficial shareholders or indirect owners, may still be questioned by the company but, unlike registered shareholders, do not have a duty to respond. If significant individuals do not provide information when requested, or provide incomplete information, companies must provide as much information as they can into the transparency register and include steps taken to obtain the information.

At least once every financial year, companies must also take reasonable steps to ensure that information contained in their transparency register is accurate, complete and up to date. This obligation can be discharged by confirming new and reconfirming details of existing significant individuals. Moreover, companies have a continuing obligation to make changes to the transparency register once they become aware of any new information with respect to significant individuals.

Companies must notify every individual who became or ceased to be a significant individual within 10 days after indicating a change in the transparency register. If an individual is removed from the transparency register, companies must retain their information for a period of six years and then destroy it within a year.

INSPECTION OF THE TRANSPARENCY REGISTER

A copy of the transparency register must be kept at the company’s records office and can only be accessed during statutory business hours by directors of the company or inspecting officials, which are members or employees of any of the following:

  • Provincial police forces in B.C.

  • The RCMP

  • The Ministry of Finance of B.C.

  • The Canada Revenue Agency

  • The British Columbia Securities Commission

  • The B.C. Financial Services Authority

  • The Financial Transactions and Reports Analysis Centre of Canada

  • The Law Society of British Columbia

  • Any other entity whose authority to regulate is based on a law of British Columbia or Canada

Inspecting officials may access the transparency register for the purpose of administering or enforcing B.C. or federal laws, or to provide information to a domestic or foreign jurisdiction to assist in the administration or enforcement of their laws.

When requested, the company’s records office must provide the requesting director or inspecting officer with access to, or copies of the transparency register. Notably, a company may reduce the hours during which an inspecting official may access the transparency register down to a minimum of two consecutive business hours per workday.

PENALTIES FOR NON-COMPLIANCE

There are potentially severe associated penalties for non-compliance. A private company violates the new amendments by:

  • misidentifying a significant individual;

  • excluding a significant individual from the transparency register;

  • entering false information into the transparency register; or

  • omitting information about a significant individual.

Directors and officers of companies may also face penalties for authorizing or permitting the company to commit an offence. Registered shareholders have a duty to respond to company questionnaires and may be found in violation of the BCBCA for providing false, or omitting to provide, accurate responses.

Companies, directors, officers and registered shareholders are not liable if they did not and could not have known that the information was misleading. However, if found to violate the new amendments, individuals and companies face fines of up to C$50,000 and C$100,000, respectively.

NEXT STEPS

Private BCBCA companies should proceed with reviewing their shareholders and gathering information using government questionnaires, or in discussion with counsel, before the amendments come into force on May 1, 2020. Following which date, there will be no transitionary or grace period. Maintaining an accurate and up to date transparency register will help ensure that companies and their directors and officers are compliant with the new BCBCA amendments and avoid potential liability.

For further information, please contact:

Arash Amouzgar           604-631-4201
Patrick Whitehill             604-631-3381

or any other member of our Corporate & Commercial or Private Equity groups.