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Understanding Individuals with Significant Control

Legal Implications and Transparency Requirements

Since June 2019, federally incorporated private corporations (i.e. not public companies or not-for-profits) have been required to keep a register of individuals with significant control (the “Register”). At that time, it was sufficient for the Register to be kept in the corporation’s minute book or with its corporate records and nothing further needed to be done with it.

In its ongoing effort to combat tax evasion, money laundering, and terrorist financing, the government of Canada has mandated that, effective January 22, 2024, these Registers are to still be maintained with the corporation’s minute book or corporate records; however, they must now also be filed with Corporations Canada and are to become public record.

Individual with Significant Control

In preparing the Register for filing, the first thing to consider is who, exactly, is an individual with significant control. The Income Tax Act defines an individual with significant control as someone who, either individually or jointly:

1. holds a significant number of shares;
2. is the beneficial owner of a significant number of shares; or
3. has direct or indirect control or direction over a significant number of shares.

A significant number of shares is defined as any number of shares that carry 25% or more of the voting rights of the corporation or 25% or more of all of the corporation’s shares measured by fair market value.

The above criteria are to be considered on a standalone basis. For example, if an individual holds 100% of the voting shares but not a significant number of all shares, this person would still be considered an individual with significant control. Additionally, an individual who holds neither the most shares from a fair market value perspective or the most voting shares can be considered an individual with significant control if there is reason to believe that this individual could influence the voting shareholders to vote a specific way.

A key factor to keep in mind in determining who the individual with significant control is, is that this individual must be a natural person. For example, if the primary shareholder of Corporation A is Corporation B, an analysis of Corporation B may be required when determining the individuals with significant control for Corporation A. An individual who has significant control of Corporation B may also have significant control of Corporation A.

Register Criteria

Once you have determined who the individuals with significant control are, you must complete the Register. Although there is no prescribed format for how the Register is to look, there are requirements on the type of information that it must contain. For each individual of significant control, the Register must contain:

1. their name and date of birth;
2. residential address;
3. address for service;
4. the jurisdiction in which the individual resides;
5. the day they became, or ceased to be, an individual with significant control;
6. a description of how the individual has significant control.

Note that the Income Tax Act requires that both the address for service and the residential address are to be included in the Register; however, the commentary on this topic suggests that it is either the address for service or the residential address of the individual that is required. Law firms who may be considering acting as the address for service should consider any liability that may arise as a result of doing so.

When Must You File

You must file a Register at least once during each financial year of the corporation, on the request of the Director of Corporations Canada, or when a change to the corporation has occurred that would affect the information in its Register.

If you are unable to obtain the required information to complete the Register for each individual with significant control, you can write to the Director of Corporations Canada and set out that you were not able to obtain this information. Typically, this would only be applicable where you are unable to identify an individual with significant control or where there are no individuals with significant control. A shareholder is legally obligated to provide the corporation with the information required to complete the Register upon request. Should you find yourself in a situation where an individual with significant control does not want to provide the required information, this individual can apply to the Director of Corporations Canada for an exemption. It should be noted however that this exemption does not mean that the Register does not have to be completed or filed only that the information will not be publicized.

The government of Canada is taking the filing of these Registers seriously. Failure to file same can result in penalties ranging from administrative dissolution of the corporation to fines and imprisonment for the directors and officers. Further, determining an individual with significant control is based on the specific facts of each situation and may require an in-depth analysis of how the shareholders of the corporation work together. It may not be sufficient to take the shareholdings of the corporation at face value.

DISCLAIMER: This article is presented for informational purposes only. The views expressed are solely the author(s)’ and should not be attributed to any other party, including Taylor McCaffrey LLP. While care is taken to ensure accuracy, before relying upon the information in this article you should seek and be guided by legal advice based on your specific circumstances. The information in this article does not constitute legal advice or solicitation and does not create a solicitor-client relationship. Any unsolicited information sent to the author(s) cannot be considered to be solicitor-client privileged.

If you would like legal advice, kindly contact the author(s) directly or the firm's Chief Operating Officer at pknapp@tmlawyers.com, or 204.988.0356.