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Register of Individuals With Significant Control: 5 Atlantic Canada FAQs

Published:

May 21, 2019

Author(s):

• Our Corporate & Business Law Team

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Updated July 10, 2024.

If you “own” a company incorporated under either the Canada Business Corporations Act or under the corporate legislation of any of the four Atlantic Canadian provinces, you must prepare and maintain a register of individuals with “significant control” over the company (ISC Register) – or risk significant corporate and personal financial penalties, including jail time. The stated objectives of the ISC Register are to increase corporate transparency respecting who owns and controls a corporation and to help law enforcement agencies expose activities such as money laundering and tax evasion. These purposes also align with the growing adoption of ESG (Environment, Social and Governance) principles already driving more corporations to greater internal and external transparency and accountability. And the ISC Register requirements have teeth:

The ISC Register requirements took effect federally and in each Atlantic Canadian province on:

• Federal. June 13, 2019 under the Canada Business Corporation Act – with significant amendments to the Regulations that took effect on May 4, 2023, and to the Act that took effect on January 22, 2024.
• Newfoundland & Labrador. June 13, 2019 under the N.L. Corporations Act.
• Prince Edward Island. September 1, 2020 under the P.E.I. Business Corporations Act.
• New Brunswick. June 10, 2022 under the N.B. Business Corporations Act.
• Nova Scotia. April 1, 2023 under the N.S. Companies Act.

The ISC Register requirements of the Atlantic Canadian provinces are modelled on the original 2019 Canada Business Corporations Act requirements. But there are nuances between the requirements of each province and between the provinces and the Canada Business Corporations Act. To help you comply with your ISC Register obligations, here are the answers to five frequently asked questions about the ISC Register requirements under the Canada Business Corporations Act and the corporate legislation in each of the Atlantic Canadian provinces.

1. What companies must comply with the ISC Register requirements?

In general, the requirement to prepare and maintain a register of individuals with significant control applies to all corporations incorporated under the Canada Business Corporations Act or under the corporate legislation of any of the Atlantic Provinces. However, all provide exemptions from the requirements for “reporting issuers”, publicly listed corporations, or certain other classes of corporations set out in the regulations to the applicable legislation. The Canada Business Corporations Act also exempts corporations that are a wholly owned subsidiary of an exempted corporation and Crown corporations. This makes sense and the Atlantic provinces could easily adopt this approach for provincially incorporated corporations but none have yet done so.

2. Who’s an “individual with significant control”?

The ultimate goal of the ISC Register is to trace control of a corporation back to a human(s). To that end, the following are all “individuals with significant control” over a corporation under the Canada Business Corporations Act and the corporate legislation of each of Newfoundland & Labrador, Prince Edward Island and Nova Scotia.

Control. Individuals that are the registered or beneficial owner of, or have direct or indirect control over:

• Any number of shares that carry 25% or more of the voting rights attached to all the corporation’s outstanding voting shares.
• Any number of shares that is equal to 25% or more of all the corporation’s outstanding shares measured by fair market value.

Factual Control. Individuals who have direct or indirect influence that, if exercised, would result in control in fact of the corporation.

Other. Individuals to whom “prescribed circumstances” apply under the regulations of the relevant legislation.

The New Brunswick corporate legislation, however, is limited to control of the threshold number of voting shares. It doesn’t include the components of either control based on the fair market value of the corporation’s outstanding shares or the component of factual control. This means the New Brunswick definition of an “individual with significant control” is significantly narrower than those of the other provinces and the CBCA.

3. What information must the ISC Register include?

Corporations must include very specific information in their ISC Register, and generally must maintain its accuracy and make reasonable effort to do so.

Information. The Canada Business Corporations Act and the corporate legislation of each of the Atlantic Canadian provinces requires that the ISC register record all the following information for each individual with significant control over the corporation:

• Their name, date of birth, and last known address. In addition, the Canada Business Corporations Act also requires their residential address, address for service (if there is one) and their citizenship.
• Their jurisdiction of residence for tax purposes.
• The day on which they became and stopped being an individual with significant control.
• A description of how they fall within the definition of an individual with “significant control” including, as applicable, a description of their interest and rights respecting shares of the corporation.
• Any other information the regulations under the applicable corporate legislation.
• A description of each step the corporation has taken to maintain its ISC Register.

Maintenance. All also impose an ongoing obligation for the corporation to maintain its ISC Register by taking reasonable steps, at least once during each financial year of the corporation, to ensure the information in its ISC Register is accurate, complete and up to date. The corporation must also update the ISC Register within 15 days of becoming aware that any recorded information has changed or there’s a new individual with significant control.  Within one year after the sixth anniversary of the day on which an individual stops being an individual with significant control, the corporation must dispose of that individual’s personal information contained in the ISC Register unless another law requires a longer retention period. However, the 2023 amendments to the Canada Business Corporations Act go further, requiring CBCA corporations also proactively submit to Corporations Canada at least annually when there’s a change in control and otherwise as the regulations set out.

“Reasonable Steps”. None of the Atlantic Canda provinces define or give guidance as to what amounts to “reasonable steps”. However, the Canada Business Corporations Act says that for its ISC Register, reasonable steps include sending a request for information to all of these and asking they provide the information to the corporation as soon as feasible and to the best of their knowledge:

• To anyone listed in its ISC Register and ask any individuals provide any change to ISC Register information about them.
• To its shareholders and to ask them to confirm whether they’ve become an individual with significant control over the corporation.
• To any individual or corporation you have reasonable grounds to believe might have relevant knowledge about either an individual with significant control or another person that might have knowledge about an individual with significant control and ask them to provide any contact information they have about that individual.

Shareholder Obligation. The CBCA and the corporate legislation of all Atlantic Canada impose a corresponding obligation on shareholders to provide the information – and to ensure its accurate – sought to prepare and maintain the ISC Register.

4. What are the non-compliance risks?

It depends on where the corporation is incorporated.

Newfoundland & Labrador, Prince Edward Island & Nova Scotia. All have the same non-compliance penalties:

• A corporation that contravenes the ISC Register requirements without reasonable cause is liable for a fine of up to $5,000.
• A corporation’s director, officer or shareholder who knowingly authorizes, permits, or acquiesces in contravention of the requirements or knowingly records or provides false or misleading information in relation to the ISC Register is personally liable for a fine of up to $200,000, to imprisonment for a term of up to six months, or to both.

New Brunswick. The New Brunswick legislation differs rather considerably:

• A corporation that contravenes the ISC Register requirements without reasonable cause is liable for considerably higher fines: up to $10,200 for a first offence or up to $24,000 for a second offence.
• A director, officer, or shareholder is subject to a lower standard – and lower fines. A director, officer or shareholder who knowingly authorizes, permits, or acquiesces in making a report that contains an untrue statement of a material fact or omits to state a required or necessary material fact is personally liable for a fine of up to only $10,200 for a first offence; and a fine of up to $15,000, imprisonment for a term of up to only 90 days, or both, for a second offence.

Federal. The Canada Business Corporations Act non-compliance penalties as Newfoundland & Labrador are even stiffer:

• A corporation that contravenes the ISC Register requirements without reasonable cause is liable for a fine of up to $100,000 and risks dissolution by the Director.
• A corporation’s director, officer or shareholder who knowingly authorizes, permits, or acquiesces in the contravention of the requirements or knowingly records or provides false or misleading information in relation to the ISC Register is personally liable for a fine of up to $1M, to imprisonment for a term of up to five years (up from six months), or to both.

5. Who can access the ISC Register?

The federal and each Atlantic Canadian province allow several groups to access a corporation’s register of individuals with significant control – but recent changes to the Canada Business Corporations Act creates a big variation between the federal and provincial jurisdictions and raises the question whether corporations might reconsider incorporating federally. Regardless of the jurisdiction, if you’re asked to provide your ISC Register to an investigative body, it’s wise to immediately seek legal advice.

Director. Each Atlantic Canadian province requires the corporation to make the information contained in the ISC Register available to the “Director” (or in Nova Scotia, the “Registrar”) appointed under the relevant legislation upon request. But the Canada Business Corporations Act places a positive obligation on federally incorporated corporations to proactively provide the Director with the information from its ISC Register the Director determines, in the form the Director requires, within 15 days after the date on which the corporation records it.

Public. None of the Atlantic Canadian provinces currently make the ISC Register information public. But the Canada Business Corporations Act allows the Director to send all or some of the information it receives from a federal corporation to a provincial corporate registry or government department or agency responsible for corporate law. And with a few limited exemptions, the amendments require the Director to make publicly available certain information for each individual with significant control:

• Their name.
• Their address for service or residential address.
• The day on which each individual became or stopped being an individual with significant control.
• A description of how each individual is an individual with significant control including, as applicable, a description of their interests and rights in respect of the corporation’s shares.
• Any other information the Regulations require.

Shareholders & Creditors. All permit the corporation’s shareholders and creditors apply for and receive access to the ISC Register as long as the information obtained is only used: to influence the voting of the corporation’s shareholders; in connection with an offer to acquire securities of the corporation; or “any other matter relating to the affairs of the corporation”.

Investigative Bodies.  All also require a corporation to provide, upon request, a copy of the ISC Register to police, tax authorities and certain other specified regulators with investigative authority. However, investigative bodies are only authorized to request the ISC Register in certain circumstances, which vary slightly in each jurisdiction:

• The Canada Business Corporations Act only authorizes an investigative body to request the ISC Register if there are reasonable grounds to suspect the corporation, or an individual with significant control over it, has committed or been involved in one of the wide-ranging offences listed in the schedule to the Act and that the Register would be relevant to investigating that offence.

• Each of the Atlantic Canadian provinces only authorizes an investigative body to request the ISC Register for tax, law enforcement or regulatory purposes.

Please contact your McInnes Cooper lawyer or any member of our Corporate & Business Law Team @ McInnes Cooper to discuss compliance with your Register of Individuals With Significant Control obligations.

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