Effective January 1, 2023, Ontario corporations governed by the Business Corporations Act (Ontario) will be required to maintain a register of individuals with significant control. This change is the result of Bill 43, which the government of Ontario approved in 2021. Its purpose is to increase transparency concerning privately owned corporations’ ownership and governance. The main goal of this change is to aid in the fight against corporate crime, including tax evasion and money laundering.
The amendments to the Ontario Business Corporations Act define the term “individual with significant control” over a corporation. An individual is considered to have significant control over a corporation if they possess any of the following interests or rights in a significant number of shares issued by the corporation: being the registered holder of the shares, being the beneficial owner of the shares, or having direct or indirect control or direction over the shares. A person is considered to have significant control of a corporation if they have any direct or indirect influence that, if exercised, would result in control in fact of the corporation. This includes any influence that may be considered a voting right. The Lieutenant Governor in Council could make regulations defining the meaning of the phrases used in the definition.
The Act defines “significant number of shares” as any number of shares that carry 25% or more of the voting rights attached to all of the corporation’s outstanding voting shares, or any number of shares that is equal to 25% or more of all of the corporation’s outstanding shares when measured by fair market value.
Additionally, if two or more individuals jointly own or control a significant number of shares, they are each considered to be an individual with significant control over the corporation. Determining whether an individual has direct or indirect influence that would result in control in fact of the corporation takes into consideration all relevant factors. It is not limited to the individual’s legally enforceable right or ability to effect a change in the board of directors or exercise influence over shareholders. Instead, the determination takes into consideration all relevant factors.
The corporation must keep a register of individuals with significant control, and the information contained in it must be made available to the parties specified in Section 140.3 of the Act. These parties include members of a police service, taxation authorities, regulatory bodies, and any person authorized by the Minister (the member of the Executive Council to whom responsibility for the administration of this Act is assigned or transferred under the Executive Council Act) to enforce sections 140.2 and 140.3 of the Act. It violates the law if the register is not kept up to date or the required information is not provided. Violations can result in financial fines and other punishments.
This new requirement is quite similar to the one that has been in effect under the Canada Business Organizations Act since 2019. Its purpose is to improve regulatory oversight and give certain authorities a clearer picture of corporations’ ownership and control structure. This is intended to help these authorities identify and investigate any suspicious activities related to money laundering, tax evasion, and other forms of financial crime.
This new requirement does not impose any additional obligations on corporations beyond the condition that they maintain and provide the register of individuals with significant control. This is an important point to keep in mind. However, failing to comply with the regulations can result in fines and penalties, which is why organizations need to understand the obligations placed on them and take the required actions to ensure compliance.
This new requirement is also beneficial for corporations as it allows them to demonstrate their compliance with anti-money laundering regulations and other laws related to financial crime.
Overall, the new requirement for maintaining a register of individuals with significant control is essential to increasing transparency and combatting financial crime in Ontario.