CBCA Regulations Provide Clarity on how to Effectively Create and Maintain a Register of Individuals with Significant Control

In 2019, the Canada Business Corporations Act (CBCA) was amended to include a requirement for private CBCA corporations to create and maintain a register of individuals with significant control (ISC).[1] BD&P published an article at that time explaining the requirements.

Since the implementation of the ISC register requirements in 2019, corporations have sought clarity on what 'reasonable steps' are required in respect of the identification of ISCs and annual maintenance of the ISC register.[2] Further, issuers who are unable to identify ISCs were left wondering what 'prescribed steps' to take to ensure compliance with the requirements.[3] Lastly, although it was clear that the requirements did not apply to reporting issuers, the rules were murky on the 'prescribed class' of companies that were also exempt from the reporting requirements.[4]

On May 4, 2023, the Canada Business Corporations Regulations (the Regulations) were amended to clarify the ISC register requirements and their application.

New Regulations

Reasonable Steps

To address the practical question of what constitutes 'reasonable steps' to identify ISCs and annually update an ISC register, subsections 33(1) and 33 (2) have been added to the Regulations. They provide that 'reasonable steps' includes sending a request for information to: (a) individuals listed in the ISC register for any change to the information in the register about them; (b) shareholders of the corporation to confirm as to whether or not they have become an individual with significant control over the corporation; and (c) any other person that may have either relevant knowledge of an ISC, or knowledge of another person who has relevant knowledge of an ISC, for any contact information that they have with respect to an ISC or another person that may have relevant knowledge about such an ISC.

Corporations Unable to Identify ISCs

Until the addition of Section 34.1 to the Regulations, it was unclear as to what constituted 'prescribed steps' for corporations that were unable to identify ISCs. Now, according to the Regulations, where a subject corporation cannot identify any ISCs, its ISC register must contain a statement that the corporation has determined that: (a) it has been unable to identify any ISCs; or (b) there are no ISCs, and a description of the steps taken by the subject corporation to identify ISCs.

Application

The ISC register requirements continue to apply only to private federal corporations. CBCA-incorporated corporations that are reporting issuers, have securities listed on a stock exchange, or are part of a (previously undefined) prescribed class, are not subject to the ISC register requirements. Now, under Section 34 of the Regulations the exempt 'prescribed classes' of corporations include, among others, federal and provincial Crown corporations, corporations whose shareholders consist solely of the federal and/or provincial Crown, and wholly-owned subsidiaries of federal or provincial Crown corporations.[5]

Next Steps

Corporations are reminded that the purpose of creating an ISC register is to detect fraud and fight corruption, which is why ISC registers must identify natural persons with significant control. While the prescribed requirements in the Regulations provide helpful guidance, they are not exhaustive. If satisfaction of those steps alone fails to provide clarity regarding a corporation's ownership at an individual level, it should take any additional steps necessary (over and above those set out in the Regulations) to obtain an understanding of its corporate ownership.

If you would like any additional information and/or if we can assist you in creating or maintaining your ISC register, contact any member of our Business Law Group.

[1] An ISC is a natural person who has 25% or more (direct or indirect) control over the issuer. Control is measured as a percentage of voting rights or fair market value of the outstanding shares.
[2] Subsection 21.1(2) of the CBCA.
[3] Subsection 21.2 of the CBCA.
[4] Subsection 21.1(7) of the CBCA.
[5] Subsection 34 of the Regulations.