New Reporting Rules
4/16/2019 4:15 PM
New reporting rules are coming for incorporated businesses. Beginning in June 2019, the federal government will require federally incorporated companies to document and track individuals with significant control over that company. The proposed rules aim to strengthen transparency and prevent corporations from engaging in tax evasion and other criminal purposes. While the federal government is the first to enact these rules, provincial governments are bound to follow. Provincial finance ministers have agreed work together on this initiative.
What law applies to your business?
If you have a federally incorporated company this will apply on June 13, 2019. If you have a Nova Scotia incorporated company, it is expected that the Provincial Government will enact legislation in the future on similar terms.
What does an individual with significant control mean?
An individual with significant control is usually the registered or beneficial owner or has a direct or indirect control over a significant number of shares in the company. A significant number of shares means 25%, or more outstanding shares of the company measured by market value, or 25% of the voting rights attached to all the company’s outstanding shares.
An individual with significant control includes an individual who has a direct or indirect influence that results in the control of the company. This may take a number of forms. For example, individuals who jointly hold a shareholders meeting to exercise their voting rights together to meet the 25% threshold; individuals who act together with others to meet the threshold; or individuals who may nominate or remove a majority of the board of directors.
What are businesses required to do?
Federally incorporated companies will be required to keep a separate register of the individual(s) with significant control containing the following personal information:
- jurisdiction of residence, address and birthdate
- the day when they became / ceased to be an individual with significant control
- how they have significant control
These provisions apply to private corporations not reporting issuers. Corporations listed on stock exchanges and other specific corporations are not required to comply. Additional rules are likely to follow.
Keep things on track:
- Be active at year end and take steps to complete and update your register of individuals with significant control
- Include in your register what you did to comply
- Collect personal information properly
Where does the personal information go?
The register is to be part of the minute book for the company. The information can be made available to all shareholders and creditors of a company who provide the company with a sworn statement confirming that they will only use the information for a particular matter related to the company. The federal government can demand the information.
What if I decide not to keep a register?
It remains unknown how compliance will be audited. Failure to follow the new rules may result in significant fines. Practically speaking, business owners ought to take steps to implement compliance.
The new rules will be in force by summer 2019 and will apply to federally incorporated companies. All Provinces are likely to pursue and implement these rules in the future.
The Patterson Law corporate commercial group strives to provide our clients with information they need to know to make their businesses better. This content is for general information only and is not legal advice. Please contact us if you have any questions, or would like to discuss how we can help you prepare for the changes.