Increased Transparency But At What Cost? – Bill C42
Written by Abhinav Dhingra
Introduction
Bill C-42, which received royal assent on November 2nd, 2023, is known as “An Act to amend the Canada Business Corporations Act and to make consequential and related amendments to other Acts.”
This legislation’s overarching goal is to reduce corruption, tax evasion, money laundering, and tainted finance rates within Canada.[1]
In this blogpost, I will unpack the changes brought upon by Bill C-42, and discuss its benefits and challenges for federal corporations and individuals who retain significant control over those corporations.
What is Significant Ownership
In the past, the Canada Business Corporations Act (the “CBCA”) required federal corporations to keep a register of individuals with significant control, which includes individuals who:
- Own, control or direct (including indirectly) a significant number of shares;
- Have direct or indirect influence, if exercised, would result in control in fact of the corporation; or
- Who have any combination of the above.[2]
The significant ownership share control test requires that the individual be the registered or beneficial owner of, or has direct or indirect control over, any number of shares that (a) carry 25% of more of the voting rights in proportion to all of the corporation’s outstanding voting shares; or (b) are equal to 25% or more of all of the corporation’s outstanding shares measured by their fair market value.[3]
The direct or indirect influence test gives Corporations Canada more discretion as to who is an individual with significant control as it allows for “all relevant factors” to be considered.[4]
The Impact of the Proposed Changes
The proposed changes will require the register to include the address, service address (if applicable), and the citizenship of every individual with significant control.[5] Furthermore, under the proposed changes, the Director would be authorized to provide beneficial ownership information to a provincial corporate registry or government department that governs corporations within the jurisdiction.[6]
The most contentious change is the obligation of director(s) to make certain information about beneficial ownership available to the public. The publicly available information would include the following information about each individual with significant control:
- Name;
- Residential address or service address;
- The date on which the individual gained or ceased to have significant control;
- Description of the individual’s rights and interests in the corporation; and
- Any other prescribed information.[7]
Proposed penalties for non-compliance include refusal to issue certificates of existence or certificates of compliance by Corporations Canada and fines up to $200,000 and/or six months of imprisonment.[8]
Challenges and Risks for Federal Corporations
While the proposed changes do strengthen transparency and reduce the potential for tainted financial activity, it is important to note that the changes will pose business risks and challenges for CBCA Corporations. Corporations and advisors should be aware of the following risks and challenges brought upon by the proposed changes:
- Increased administrative work and compliance costs to upkeep the information on the ISC registry;
- Potential for sensitive information to be released to the public;
- Potential for members of the public to misuse the information; and
- Increased potential for liability.[9]
The risks and challenges set out above can be even more challenging to navigate for corporate groups with complex corporate structures. It is advisable for federal corporations to devise a plan on how to navigate the new changes with the help of their trusted advisors.
[1] Transparency International Canada, News Release, “Canada passes landmark legislation to fight corruption, money laundering, tax evasion, and terrorist financing” (November 2, 2023) electronic source: <https://transparencycanada.ca/news/billc42updatesnovember2-2023>
[2] Joanna Dawson, “New transparency requirements on the horizon for federal corporations: Bill C-42’s proposed amendments to the Canada Business Corporations Act” (1 May, 2023) McMillan Publications <https://mcmillan.ca/insights/new-transparency-requirements-on-the-horizon-for-federal-corporations-bill-c-42s-proposed-amendments-to-the-canada-business-corporations-act/>
[3] Charlie Kim and Michael Gasch, “Bill C-42 – ISC Register Requirements Updated” (Jan, 2024) Robins Appleby Publications <https://www.robinsappleby.com/publication/bill-c-42—isc-register-requirements-updated>
[4] Ibid.
[5] Government of Canada, “Bill C-42: An Act to amend the Canada Business Corporations Act and to make consequential and related amendments to other acts” (27 November, 2023) Canada’s System of Justice, Proposed Legislation <https://www.justice.gc.ca/eng/csj-sjc/pl/charter-charte/c42.html#:~:text=%E2%80%9CIndividual%20with%20significant%20control%E2%80%9D%20is,corporation%20without%20owning%20any%20shares.>
[6] Ibid.
[7] Ibid.
[8] Kimberly Bungay and Colton Smith, “Amendments to the Canada Business Corporations Act affecting registers of individuals with significant control” (30 June, 2023) Stewart McKelvey Thought Leadership <https://www.stewartmckelvey.com/thought-leadership/amendments-to-the-canada-business-corporations-act-affecting-registers-of-individuals-with-significant-control/>
[9] Jennie Hornick, “Bill C-42: What business owners should now about new reporting requirements” (3 November, 2024) Caravel Law Insights <https://caravellaw.com/bill-c-42-what-business-owners-should-know-about-new-reporting-requirements/>
The views and opinions expressed in the blogs and case reporter are the views of their authors, and do not represent the views of the Desautels Centre for Private Enterprise and the Law, the Faculty of Law, or the University of Manitoba. Academic Members of the University of Manitoba are entitled to academic freedom in the context of a respectful working and learning environment.