By May 1, 2020, all private B.C. companies must have a “transparency register” of beneficial owners created and ready for law enforcement officials to inspect. This transparency register tracks personal information on “significant individuals”. If you are a director or officer of a private company, you are responsible for bringing the company into compliance.
There is good reason to comply, as transparency registers provide a corporate ‘Blockwatch’-like community effort to prevent illegal laundering of money through legitimate corporate and other business entities. Yet, there may also be reason to withhold information that is not related to anti-money laundering activities or is afforded protection by privilege.
This article has two parts. Part 1 outlines the mandates of the beneficial ownership of B.C. companies and describes the first of three categories of “significant individuals”. Part 2 addresses the other two other categories and discusses reporting and enforcement procedures.
The mandates of B.C.’s corporate transparency legislation involve:
- Identifying “significant individuals”,
- Reporting and tracking information on significant individuals (at least annually), and
- Permitting certain enforcement officials to access the transparency register.
Recognizing Significant Individuals
Significant individuals may be categorized by: share ownership, rights and abilities, and acting in concert.
Significant number of shares
Any individual who owns 25% or more of the shares of a company is significant. For most owner-managed companies, the owner/shareholder is the only significant individual.
Family-owned companies, on the other hand, can have unexpected outcomes. Take, for example, a company that did an estate freeze by which a retiring shareholder converted common shares into preferred shares, and the successor shareholder (often the shareholder’s son or daughter) subscribed for new common shares. The 25% share ownership threshold applies to the total number of common and preferred shares issued, regardless of voting rights. If the number of preferred shares issued is more than 25% of all issued shares of the company, the retired shareholder is significant and must be tracked.
Any individual who owns at least 25% of all shares of a company may hold all or part of those shares as a trustee or agent for another. If the individual holds shares as a trustee, every beneficiary of the trust is a significant individual. If the individual holds shares as a personal or legal representative or agent for another person, the person who the shares are being held for is a significant individual.
The 25% share ownership threshold also applies to individuals who have indirect control through a chain of intermediaries (such as other companies, partnerships, and certain trusts). The regulations to B.C.’s Business Corporation Act define indirect control for this context in detail.
Finally, any individual with combined interests that exceed the 25% threshold is significant. Thus, if a trustee holds only 20% of all shares under a trust with several beneficiaries, and one beneficiary personally owns shares of the same company that represent 5% of all shares, that beneficiary’s combined 25% interest meets the 25% threshold.
Current information on all significant individuals must be reported by B.C. companies and available for inspection or otherwise subject to penalties. This will be discussed in Part 2.
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 2