Legislation Update: New Requirement for Private Corporations Under the Ontario Business Corporations Act

Introduction of the Transparency Register effective Jan 1, 2023

By Jill Annett

As of January 1, 2023, private corporations incorporated or continued under the Ontario Business Corporations Act (the “OBCA”) are required to maintain a register of “individuals with significant control” over the corporation (a “Transparency Register”). This requirement has been incorporated to improve corporate transparency in an effort to prevent and detect the use of corporations for illicit financial activities, such as tax evasion or money laundering. Such provisions are not entirely new: similar transparency provisions were added to the Canada Business Corporations Act in June of 2019.

Who is an "individual with significant control"? 

“Individuals with Significant Control”

For the purposes of the new rules, “individuals with significant control” (“ISC”) include individuals who have the following interests or rights, or any combination of them, in respect of a “significant number of shares” of a corporation:

• registered holders of shares;
• beneficial owners of shares; or
• individuals with direct or indirect control or direction over shares.

“Beneficial ownership” includes ownership through a trustee, legal representative, agent, or other intermediary.

In addition, individuals with any direct or indirect influence that, if exercised, would result in control of the corporation must be included on the Transparency Register.

Indirect Control or Direction

Certain individuals at the top of a corporation’s ownership structure may be considered ISCs of a subsidiary corporation, despite not holding a direct interest in the subsidiary.

Joint Ownership or Control

Two or more individuals will each be deemed to be an ISC, and therefore must be listed in the Transparency Register, if they:

1. jointly hold interests or rights as described above in respect of a significant number of shares;
2. are parties to a voting agreement or similar arrangement pursuant to which they agree to exercise, “jointly or in concert”, any of the above interests or rights in respect of a significant number of shares; or
3. separately hold one or more of the above interests or rights in respect of a significant number of shares and are “related persons”, such as spouses, children, or relatives living in the same home.

“Significant Number of Shares”

A “significant number of shares” of a corporation is either:

1. shares that carry 25% or more of the voting rights attached to the corporation’s outstanding voting shares; or
2. shares representing 25% or more of all of the corporation’s outstanding shares, measured by fair market value.

Who is not included under the act?

Wholly-owned subsidiaries of a publicly-traded corporation are not required to maintain a Transparency Register.

In addition, certain “influential” relationships are explicitly excluded as relationships of “control”. For the purposes of the Transparency Register, “control” does not arise only by reason of an individual’s influence derived from an arm’s length relationship involving any of the following kinds of common commercial agreements, which affect the “manner in which a business carried on by the corporation is conducted”:

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

What information must be included?

The Transparency Register must include the following information on each ISC:

• Name, date of birth, and last known address;
• Jurisdiction of residence for tax purposes;
• Date(s) on which the ISC became and ceased to be an ISC;
• Description of how the individual is an ISC, including a description of their interests in and rights to shares of the corporation; and
• Description of each reasonable step taken by the corporation, at least once in each financial year, to ensure that it has identified all ISCs and that the Transparency Register is accurate, complete, and current.

Further required information may be prescribed under future regulation.  

Where must the transparency register be kept?

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

Who will have access to the transparency register?

Only the following persons may make requests to access a Transparency Register:

• the Minister;
• police forces;
• tax authorities in Ontario and Canada; and
• certain specified regulators, including the Ontario Securities Commission and the Financial Services Regulatory Authority of Ontario.

The Minister’s authorized representative may make any inquiry necessary for the purposes of enforcing the requirement to maintain the Transparency Register.

Requests from police forces must be for the purpose of conducting an investigation into an offence under Ontario or Canadian law 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 an Ontario or Canadian law 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 similar purposes.

Designated regulators may make requests for the purpose of assisting agencies with similar mandates in other provinces and foreign jurisdictions.

As of January, 2023, these provisions do not appear to require any suspicion of wrongdoing by the corporation itself.

Penalties

Corporations could incur fines of up to $5,000.00 for failing, without reasonable cause, to comply with the Transparency Register requirements.

Directors and officers could incur fines of up to $200,000.00 and/or up to 6 months imprisonment for knowingly authorizing, permitting, or acquiescing in an Ontario corporation’s failure to comply, regardless of whether 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 Transparency Register to any person or entity.

Shareholders could incur fines up to $200,000.00 and/or up to 6 months imprisonment for knowingly failing to reply to the corporation’s Transparency Register requests.

Fines of up to $5,000.00 could be incurred by anyone who fails to respond promptly to enforcement inquiries authorized by the Minister without reasonable cause.

Action required

All private corporations under the OBCA must immediately prepare a Transparency Register of ISCs. Corporations are still required to prepare and maintain a Transparency Register even if they do not have any ISCs: in that case, no one needs to be listed on the Transparency Register, however, the corporation still must describe the steps it takes to identify whether it has any ISCs.

Each corporation is required to review and, if necessary, update its Transparency Register 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.

In addition to the requisite annual review and update, each corporation must update the Transparency Register within fifteen (15) days of becoming aware of any new information required to be recorded in the Transparency Register.