Private Ontario corporations: New requirements to maintain transparency register

On Jan. 1, 2023, amendments to the Business Corporations Act (Ontario) (the OBCA) came into effect, requiring private Ontario corporations (a corporation) to create and maintain a register of all "individuals with significant control" over the corporation (the Transparency Register). 

The Ontario government enacted the OBCA amendments to assist regulatory bodies and law enforcement with detecting corporate crimes (including money laundering, tax evasion and other illegal financial activities). The amendments to the OBCA are similar to those enacted under the Canada Business Corporations Act for federal Canadian corporations, under other provincial legislation (such as in British Columbia, Manitoba, Nova Scotia and others), the United Kingdom and some European Union countries. 

Who is subject to the OBCA amendments?

The Transparency Register requirements only apply to private Ontario corporations. Public corporations and wholly-owned subsidiaries of public corporations are exempt from the Transparency Register legal requirements. 

Information included in the Transparency Register 

A corporation's Transparency Register must include the following information about its "individuals with significant control": 

1. the individual's full name, date of birth and latest known address;
2. the individual's jurisdiction of residence for tax purposes;
3. the day on which the individual became and, if applicable, ceased to be an "individual with significant control";
4. a description of the factors that make this individual an "individual with significant control," including, as applicable, a description of his or her interests and rights in respect of shares of the corporation; and 
5.  a description of the steps taken by the corporation to identify all "individuals with significant control" and to ensure that the information in the Transparency Register is accurate, complete and up to date.

Criteria for determining a corporation's 'individuals with significant control' 

An "individual with significant control" over a corporation means an individual who fits any of the following criteria: 

1. the individual holds a 25 per cent or greater interest, either by votes or fair market value, directly or indirectly in a corporation (including registered shareholdings, beneficial ownership of shares and direct/indirect control or direction over the shares); or 
2. the individual has direct or indirect influence that, if exercised, would give him or her "control in fact" over the corporation.

In making a "control in fact" determination, the OBCA rules provide that the corporation must consider "all factors that are relevant in the circumstances," and that the existence of a legally enforceable right or ability to effect a change in the board of directors or its powers is not conclusive. The amendments to the OBCA do not identify what the relevant factors might be, but provide that, for the purposes of determining "control in fact" of a corporation, arm's length distribution, franchise, licence, management, supply, lease and other similar agreements or arrangements do not, on their own, result in de facto control. 

Maintaining and updating the Transparency Register 

A corporation must maintain the Transparency Register at its registered office, or at such other location in Ontario as the directors of the corporation may designate. A corporation must review and, if necessary, update its Transparency Register at least once in each fiscal year. If the corporation notes any new information during an annual review, such information must be recorded in the Transparency Register within 15 days of the date on which the corporation became aware of such information. Additionally, a corporation must update its Transparency Register whenever relevant information is available, within 15 days of the date on which the corporation became aware of such information. 

Access to the Transparency Register 

A corporation's Transparency Register is not available to the public. Further, the OBCA provisions do not require disclosure to shareholders or creditors of the corporation. The OBCA amendments only permit certain inspecting officials and governmental bodies, such as members of the police force, designated regulatory bodies, tax officials and the minister, to request and obtain disclosure of the Transparency Register. 

Penalties for non-compliance 

The OBCA provides penalties for failing to comply with the new Transparency Register provisions, including fines of up to $200, 000 against a corporation or its directors, shareholders and officers, and/or up to six months' imprisonment for directors, shareholders and officers. 

Conclusion 

As noted above, the OBCA amendments are currently in effect. Therefore, Ontario private corporations should begin preparing their Transparency Registers as soon as possible. If you have any questions with respect to the foregoing information, please contact the authors, who would be pleased to assist you. This article is only an overview of the legal developments set out herein, and is not intended to be, and should not be relied upon as, legal advice. 

This article was originally published by The Lawyer’s Daily (www.thelawyersdaily.ca), part of LexisNexis Canada Inc.

Chaim Sapirman is a partner in business law and corporate finance groups of Torkin Manes LLP, where his practice encompasses all aspects of corporate and commercial law, with a particular emphasis on mergers and acquisitions and secured lending transactions. Dania Mastrorillo is an associate in the business law group, where she acts for clients on a wide range of transactions including mergers, acquisitions and dispositions of businesses.