The Canadian government tabled a motion in the House of Commons on April 18, 2023, to begin deliberations on Bill C-42. The proposed legislation seeks to amend the Canada Businesses Corporations Act (CBCA) and other Acts that would improve transparency regarding individuals with significant control (ISCs) of Canadian entities governed by the CBCA.
Bill C-42 has undergone two votes in the House of Commons and will be presented to a committee for further consideration. Among the data that will be submitted to the committee is a Charter Statement issued by the Minister of Justice. The Charter Statement identifies rights and freedoms under the Canadian Charter of Rights that will be engaged by Bill C-42, and it also provides a detailed explanation of why those rights and freedoms will be engaged.
What does Bill C-42 propose?
Bill C-42 authorizes that regulators have authority to acquire certain taxpayer information and present that data to the Department of Industry. The data acquisition is intended solely to verify and validate that certain private corporations, governed by the CBCA, are living up to their responsibilities of corporate beneficial ownership registrations.
The specific contents of the legislation state that taxpayer information refers to shareholdings of individuals with significant control (ISCs) in a private corporate entity. ISCs are identified using corporate ownership structures that are reported to the Canada Revenue Agency.
How does Bill C-42 change shareholder reporting?
As proposed by Bill C-42, certain information in an ISC shareholder registry would be made public to promote greater corporate transparency and accountability. Specifically, Bill C-42 proposes changes, not limited to but including the following:
The names, addresses for service or residential addresses, and share ownerships of ISCs be made publicly available
Increasing information reported within an ISC Register, including an individual’s residential address, address for service and citizenship;
Requirements that corporations submit ISC registers to Corporations Canada on an annual basis, when changes in control occur, and as stated by the laws
Additionally, Bill C-42 proposes modifying the penalties for non-compliance with the laws. If passed as tabled, Bill C-42 would enforce fines up to $200,000 and/or 6 months of criminal imprisonment for ISCs who fail to remain in compliance.
Who qualifies as an ISC?
An ISC is a shareholder with a significant controlling interest in a corporate entity. In most situations, an ISC is a shareholder with at least 25% of the voting rights for all issued corporate shares. In other cases, an ISC is anyone whose influence could exert a controlling influence over executive decisions issued by the corporation.
Canadian regulators have enacted multiple pieces of legislation at the federal and provincial levels in recent months to enforce greater ISC transparency and accountability. The purpose of each piece of legislation is to be part of a nationwide effort to crack down on white collar crimes, specifically fraud and malfeasance, that prove costly to innocent Canadian citizens.
In Ontario, for example, amendments to the Ontario Business Corporations Act (OBCA) were passed that require corporations to create ISC registers that are submitted to provincial regulators on an annual basis. In Quebec, provincial Bill 78 proposes similar legislation for ISC reporting. However, under Quebec law, ISCs are also classified as any shareholders who can elect, appoint, or remove corporate directors and executives from their positions.
Use entity management software to create ISC registers
Platforms like entity management software are one of the best resources for maintaining accurate ISC registers. These solutions have built-in shareholder register templates that simplify how your legal and compliance officers build ISC registers. The templates feature modules that help your team include any required shareholder information for individuals who fit the ISC profile.
Once you’re on the platform, access the Capital Section feature to input all authorized information about shareholders and corporate transactions in the open fields. This is where you can document names, addresses (residential and commercial), dates of birth, and jurisdictions where your ISCs operate.
All these features will help your corporate entity remain in compliance with the laws, including the new proposals in Bill C-42, should it pass final reading at the House of Commons. You can also use entity management software like MinuteBox to build a detailed compliance program, creating more organizational structure and accountability to protect your corporate entity from the significant risks and penalties of non-compliance.