The Financial Action Task Force, an international body that makes recommendations intended to address money laundering and funding of terrorist activity, recommends that countries keep a record of the registered shareholders of companies as well as the individuals ultimately in control of the shares. In adopting this recommendation, B.C. introduced new provisions in the Business Corporations Act which make it mandatory for companies to identify the actual individuals who own and control private companies in B.C in the form of a transparency register.
Which companies are affected?
Companies recognized under the Business Corporations Act. This includes private companies in B.C. that are not reporting issuers or equivalents, companies listed on a designated stock exchange, or companies within a prescribed class.
What is contained in the Transparency Register?
A Transparency Register lists a company’s Significant Individuals. For each Significant Individual, the Transparency Register must include the individual’s full name, date of birth, registered address, citizenship information, whether they are a resident of Canada for tax purposes, when they became or ceased to be a Significant Individual, and how they are a Significant Individual (i.e., through which criteria). If any information is not available, one must record the steps taken to obtain it. The register must still be maintained by a company even if there are no Significant Individuals.
What is a significant individual?
Significant Individuals have either 25% or more of the issued shares of the company or the right to elect, appoint, or remove a majority of the directors of the company. Thus, there are two basic tests.
First, it is possible to be a Significant Individual through legal or beneficial ownership of or indirect control of a significant number of shares. A significant number of shares is classified as either 25% of the total shares of the company, including shares of any class, or shares with 25% of the company’s votes, specifically shares that have the right to vote at a general meeting. Thus, for each individual, add up all types of ownership or control of shares to determine whether the total equates to 25% or more of the total shares of the company or shares with 25% of company’s voting rights.
The second test relates to the right to elect, appoint or remove a majority of the directors of the company. This can be directly, where an individual holds enough of the voting shares to appoint or remove a director, or indirectly, where an individual has shares in a holding company that controls the board of the company in question. In most cases, this test will be fairly straightforward, but it may be necessary to look at the articles of the company or the shareholders agreement to determine who has the power to appoint directors.
Preparing and maintaining a Transparency Register is generally straightforward but can be confusing, particularly with large companies. Failure to follow the rules can result in fines of up to $100,000 for companies and $50,000 for individuals, so it is important to seek the advice of a prudent lawyer. Arora Zbar LLP would be more than happy to help.