Part 1 introduced the transparency register as a mechanism to track “significant individuals” of private B.C. companies. This part covers two more categories of significant individuals and describes the reporting and enforcement process surrounding transparency registers.
Recognizing Significant Individuals (continued from Part 1)
The previous article considered individuals significant to a B.C. company through share ownership. Significant individuals are also identifiable through their rights and abilities or by acting in concert with other individuals.
1. By right or ability to elect, appoint, or remove a majority of the directors
Directors are appointed by shareholders. However, any individual – shareholder or not – who can directly elect, appoint, or remove a majority of the directors of the company is considered “significant” for purposes of the new legislation. For example, if a director of a company does not own shares, but the director’s spouse is a shareholder, the director may nevertheless be significant by being able to exercise direct and significant control over the spouse.
Any individual is also considered “significant” if that individual has indirect control of a right to elect, appoint, or remove one or more directors. Indirect control involves looking chains of intermediaries connecting the individual to the B.C. company.
Finally, any individual able to exercise direct and significant influence over a shareholder is significant. Direct and significant influence exists, for example, when a family business is passed to adult children on condition that major decisions (including the make-up of the board of directors) require the parent’s consent. This determination will be fact dependant. We strongly advise consulting a lawyer if this situation could apply to you.
2. Acting in concert
Interests are considered “pooled” among individuals who agree or arrange to exercise their interests, rights and abilities jointly or in concert. Interests are also pooled between an individual and his or her spouse, children, or other relative living in the same home. Each pooled individual is significant if the pooled interest either meets 25% share ownership threshold or the pooled interests together control the right to elect, appoint, or remove a majority of the directors of the company.
Reporting Significant Individuals
On the transparency register, the directors must obtain and provide, for each significant individual:
- full name, date of birth, and last known address;
- citizenship or permanent resident status;
- residence for income tax purposes;
- date(s) when the individual became or ceased to be a significant individual;
- description of how the individual is a significant individual; and
- other prescribed information.
Directors must report all information on significant individuals, even if incomplete, and include a description of their compliance efforts. Moreover, they must keep information up to date and confirm it every year.
Enforcement of Transparency Register
Information on a company’s transparency register is accessible to directors and inspecting officials. Inspecting officials include:
- Canada Revenue Agency,
- B.C. tax authorities (including property transfer tax and speculation tax administrators),
- Police officers and RCMP officers,
- B.C. Securities Commission and Financial Services Authority (formerly FICOM),
- FINTRAC, and
- the Law Society of B.C.
This list is not comprehensive as tax, law enforcement, or regulatory authorities can pass information from a transparency register within and outside of Canada.
Inspecting officials may personally attend a company’s records office to review the transparency register. B.C. companies should have a transparency register ready for inspection at any time and may limit the hours for inspection by resolution.
Costs of Non-Compliance
Directors and officers may be fined up to $10,000 for information or omission that is false or misleading (subject to a due diligence defence). Fines may apply to companies (up to $100,000) and individuals (up to $50,000) for other failures to comply with transparency register requirements.
Identifying beneficial owners of private companies in B.C. through the “significant individual” tests is not always clear or easy to determine. Even so, adopting this new transparency register requirement is not optional.
For more information and assistance on complying with the transparency register requirement, please contact Allison at 604.581.7001 or email [email protected].
– Allison Eng, Associate Lawyer, McQuarrie Hunter LLP
Click here for Changes are Coming – Part 1