Register of individuals with significant control - Canadian federal corporations

Canada at the federal level is taking steps, in common with other mostly European jurisdictions, to force Canadian federal corporations to keep personal information about "individuals with significant control" (ISC) as part of the registers (lists) that each corporation must maintain. The requirement starts in June 2019, and applies, with few exceptions, to every existing Canadian federal corporation and every newly formed Canadian federal corporation.

An ISC is generally defined as someone who:

• owns 25% of the voting shares
• owns 25% of the shares by value
• with "own" including having control or direction over the shares
• or, without necessarily owning shares, exerts significant influence over the corporation.

An ISC is required by law, when asked by the corporation, to provide the required information. That information includes: name, address, birth date, jurisdiction for tax purposes, and details about when and how they have significant control.

Information in the ISC register will be kept at the registered office of the corporation, but is not to be made generally available for inspection by the public. But it must be made available to tax or law enforcement authorities.

A corporation must update the ISC register at least annually, and, in the register, document what steps it took to do so.

The corporation, its directors and officers, and shareholders face significant, and in our view disproportionate, penalties for failing to have or update the ISC register, including fines or imprisonment. Fines for directors, officers and shareholders are up to $200,000 each and up to 6 months in prison. A corporation can be fined $5,000.

Initial guidance about the ISC register is available from Corporations Canada at the link.

For now, only federal corporations in Canada face this requirement. We imagine that a similar requirement will be put in place in every province in Canada. But until that happens:

• people considering a new federal corporation should think hard about why that particular kind of corporation should be used for their business, and in most cases should probably choose a different jurisdiction; and
• people with an existing Canadian federal corporation should consider "continuing" that corporation out of Canada and into another jurisdiction in Canada, such as British Columbia.