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N.L. Corporations Act: 3 Key Changes Effective April 1, 2022

Published:

February 23, 2022

Author(s):

• Beth McGrath, KC

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On April 1, 2022, changes to the Newfoundland and Labrador Corporations Act proposed in Bill 24 An Act to Amend the Corporations Act will take effect, both imposing new obligations and removing old restrictions. Here’s a look at the three key changes to the Corporations Act and the impact on N.L. corporations.

1. Register of Individuals With “Significant Control”

As of April 1, 2022, N.L. corporations must record, track, and disclose individuals with “significant control” over the corporation. Now, corporations must only maintain a registry of named shareholders and the shares each holds. They do not need to keep track of cases in which a named shareholder holds shares for the benefit of another person (beneficial ownership), register or publicly disclose that information, and it remains confidential. Only named directors can be accessed from the public registry. This imposition of the register of significant control brings Newfoundland and Labrador in line with the business corporations’ legislation of a number of other Canadian provinces and territories, including the Canada Business Corporations Act, which effected a Register for Individuals With Significant Control in 2019. This legislative trend toward transparency about the control of Canadian corporations is intended to specifically address issues like tax evasion, money laundering and corruption. Beyond this, increased transparency is consistent with the rise in corporate adoption and implementation of Environment, Social and Governance (ESG) principles globally, including in Canada, and other examples of legislated transparency, such as corporate diversity disclosure obligations.

Registry. Corporations must identify, record, and maintain a registry of individuals with “significant control” over the corporation. They must also keep that registry current, and take reasonable steps to ensure it identifies any changes to those with significant control at least once in each fiscal year. The registry must include all of the following information about each individual with significant control:

• Their name, date of birth and latest known address.
• Their jurisdiction of residence for income tax purposes.
• The date on which they became or ceased to be an individual with significant control.
• A description of how they are an individual with significant control, including, as applicable, a description of their interests and rights in respect of the corporation’s shares.

For some corporations, creating and maintaining the registry of individuals with significant control will be a simple exercise, and will be similar to their current registry of shareholders. For others, however, it will be a complicated and time-consuming exercise – one they will need to start immediately to comply by April 1, 2022. The Act requires the corporation maintain the registry at the corporation’s registered office or another place designated by the directors. A well-maintained corporate minute book, and in particular a virtual minute book accessible from anywhere, will save corporations time and money creating and maintaining the registry of individuals with significant control.

“Significant Control”. The definition of “significant control” is intended to catch the corporation’s named shareholders and its beneficial owners or controllers of shares: anyone that controls or influences 25% or more of the voting rights or outstanding shares of the corporation, whether they do so directly or indirectly. This will require corporations to, at a minimum, take reasonable steps to inquire as to any beneficial ownership status, or other ownership issues, with its shareholders. The Act requires shareholders to respond to such inquiries.

Disclosure. The changes mean corporations will have much broader disclosure obligations. The corporation must disclose its significant control registry to certain third parties, including the following, upon their request: the N.L. Registrar of Companies, certain investigative bodies (police, federal and provincial securities and financial regulators, and taxing authorities, including the Canada Revenue Agency and provincial authorities), shareholders, and its creditors. While the scope of those that can request the registry of significant control is broad, not every request will trigger the corporation’s disclosure obligation. Under the Act, investigative bodies can only request information under certain circumstances, such as if it’s related to an ongoing investigation, or administering or enforcing relevant statutes. Similarly, shareholders and creditors can only request information under certain circumstances, though those are broad, encompassing any matter related to the corporation’s affairs, including those to do with share acquisition transactions and share voting processes. It’s therefore important that corporations implement a process to carefully review and evaluate disclosure requests to ensure they are only disclosing the registry of individuals with significant control to those entitled to it, or potentially face the ire of shareholders. Corporations are also wise to ensure the information is readily available and up to date so they are prepared to respond to valid requests in a timely manner.

Penalty. Failure to maintain the significant control registry exposes a corporation to a fine of up to $5,000. 

2. No Canadian Residency Requirements

As of April 1, 2022, N.L. corporations are no longer required to have any Canadian resident directors. Currently, 25% of a N.L. corporation’s directors must be Canadian residents. This change is consistent with the majority of Canadian provinces and territories, and broadens access to potential directors. It’s particularly beneficial to international corporations seeking to do business in N.L. that might, at the outset, lack local contacts to fill director positions. Currently, such businesses often choose to incorporate in another Canadian jurisdiction without the Canadian residency requirement, and extra-provincially register in N.L., adding time and cost to the process. When the changes take effect on April 1, this will no longer be necessary, making it easier for such corporations to do business in N.L.

3. Mandated Legislation Review

The changes also implement a mandatory review of the Act within five years after the changes take effect on April 1, 2022. A review of the Act is long overdue: few changes have been made since it took effect in 1986. This mandatory provision ensures a review will happen by 2027, and will hopefully result in more changes to modernize the Act. For example, N.L. remains one of the few Canadian jurisdictions with financial assistance prohibitions. However, it’s important that corporations remember the Act can be changed at any time, and they must monitor and comply with any and all changes to it, whether as a result of the mandatory review or otherwise.

Please contact your McInnes Cooper lawyer or any member of our Corporate & Business Team @ McInnes Cooper to discuss this topic or any other legal issue.

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