7 June 2019
Coming in June 2019: ISC Register (Important Update)
Coming in June 2019: IMPORTANT New Legal Requirements for Federal Corporations, the ISC Register
As of June 13, 2019, all Canada Business Corporations Act (CBCA) corporations ― with the sole exception of reporting issuers under a law of a province or territory relating to the regulations of securities or companies listed on a designated stock exchange ― will be required to create and maintain a new type of register at the corporation’s registered office with all other corporate records, similar to those for shareholders and directors, called the “Register of Individuals with Significant Control” or the “ISC Register”. The ISC Register will contain information about individuals who, directly or indirectly, are an “individual with significant control” of the Corporation.
The ISC Register is intended to render more transparent the actual ownership and control of a corporation to law enforcement agencies as well as to its shareholders and creditors. The purpose behind the increased transparency for law enforcement is to assist in the battle against money laundering and terrorist financing. For creditors, the ISC Register will assist in meeting “know your client” obligations.
Who is an “individual with significant control”?
The requirement seems fairly simple to implement, until you consider what is an individual with significant control, or “ISC”. An ISC is an individual who:
- beneficially owns a “significant number of shares”, or
- is the registered holder of a “significant number of shares”, or
- directly or indirectly controls or directs a “significant number of shares”, or
- has significant influence, directly or indirectly, over the corporation without necessarily owning a “significant number of shares” that would result if exercised in control in fact of the corporation, or
- has a combination of any of these factors, or
- owns or controls a “significant number of shares” with one or more other individuals (in which case each though on their own not an ISC are an ISC for the purpose of the law and will need to be recorded in the ISC Register).
A “significant number of shares” is: 25% of the voting shares, or 25% of all the shares based on the fair market value of the shares.
What does this mean for CBCA corporations?
At this point Corporations Canada has not provided for any grace period.
As of June 13, 2019 each federal corporation is required to have an ISC Register. Because of the registry’s purpose, non-compliance consequences are significant. If a corporation, its directors, officers or shareholders, fail to meet the obligations for the ISC Register, they could be subject to penalties, including fines and imprisonment (up to $200,000 and 6 months imprisonment for directors and shareholders, and up to $5,000 for the corporation itself).
Corporations are required to identify all ISCs, including by contacting shareholders (who are required to respond as soon as possible with accurate and complete information), record the information in the ISC Register, and verify and update the ISC Register as needed, but at least once a year. Each year the corporation must take reasonable steps to find out if the information in the ISC Register has changed.
Given that the determination of identifying ISCs in respect of a corporation is, in many instances, factual (based on the criteria set forth above), directors/officers of a corporation should contact their corporate attorneys promptly before June 13, 2019 to advise them of anyone who is not a registered shareholder holding a “significant number of shares” but nevertheless is an “individual with significant control”.
What information is required?
The ISC Register must include the following information about each individual:
- date of birth,
- last known address,
- jurisdiction for tax purposes,
- date on which the individual acquired significant ownership or control,
- date on which the individual ceased to have significant ownership or control, and
- description of how the individual meets the definition of significant control.
Corporations must also document the steps taken to identify any ISCs and update the ISC Register.
How can KRB Lawyers assist you?
KRB Lawyers is fully equipped to assist corporations in their efforts to ensure compliance with these new requirements. Do not hesitate to reach out to any member of our Corporate Law team for more information.
Laurie McQueen Maxime Cloutier Aviad Grunbaum
firstname.lastname@example.org email@example.com firstname.lastname@example.org
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