Introduction:
The corporate governance landscape in Canada is undergoing significant changes, particularly in the realm of individuals with significant control (ISC) in corporations. Since 24 January, 2024, corporations created under the Canada Business Corporations Act (CBCA) are required to file information on their individuals with significant control (ISC) with Corporations Canada. This will enhance transparency, accountability, and disclosure for those holding substantial influence within corporations. This article aims to provide a high-level overview of the latest changes affecting individuals with significant control in Canadian corporations.
Individuals with Significant Control (ISC):
Individuals with significant control are those who, either directly or indirectly, hold at least 25% of shares either jointly or severally in a Corporation. This includes individuals who exercise substantial control over corporate decisions, or hold shares and also exercise significant control in a Corporation.
Key Changes in Disclosure and Transparency:
Corporation ISC Registry:
A fundamental change is the introduction of a Corporation ISC registry. Corporations are now mandated to maintain a record of individuals with significant control, ensuring transparency regarding ownership structures. This registry is intended to combat money laundering, enhance corporate accountability, and facilitate regulatory oversight.
Disclosure Requirements:
The latest changes place an increased emphasis on disclosure. Corporations are required to disclose the identities of individuals with significant control and update their register at least once a year or within 15 days of becoming informed of any changes affecting the register. This disclosure ensures that shareholders and regulatory bodies, have access to crucial information about corporate ownership.
Corporate Governance Obligations:
Corporate governance obligations have been enhanced to promote responsible management. Directors and officers must exercise due diligence in identifying and reporting individuals with significant control. This aligns with the broader trend of reinforcing ethical practices and accountability in corporate decision-making.
Impact on Corporate Transactions:
The new regulations impact corporate transactions significantly. Corporations involved in mergers, acquisitions, or reorganizations must carefully evaluate the implications of individuals with significant control on the transaction's structure and compliance requirements.
Practical Implications for Corporations:
Review of Corporate Structures:
Corporations must conduct a thorough review of their corporate structures to identify and document individuals with significant control accurately. This involves assessing ownership stakes, control mechanisms, and potential indirect influences on corporate decisions.
Compliance Measures:
Proactive compliance measures are essential to ensure adherence to the latest regulatory requirements. This includes updating corporate policies, revising disclosure practices, and implementing systems to maintain accurate records of individuals with significant control.
Professional Consultation:
Professional consultation is advisable for corporations and individuals with significant control. A lawyer can provide guidance on compliance, assist in navigating complex disclosure requirements, and ensure that corporate practices align with the evolving regulatory landscape.
Education of Stakeholders:
Corporations should take active steps to enlighten shareholders and directors about the implications of the latest changes regarding individuals with significant control. Transparency and communication are key in fostering understanding and compliance especially with the stakeholders.
Exemption from ISC disclosure:
A reporting issuer under provincial securities law, a crown corporation, a public corporation that trades its securities on the stock exchange designated by the income tax act and the wholly-owned subsidiaries of these corporations are exempted from ISC disclosures.
Conclusion:
The recent changes affecting individuals with significant control in Canadian corporations signify a broader commitment to transparency, accountability, and ethical corporate governance. Corporations must adapt to these changes by understanding the new requirements, implementing robust compliance measures, and engaging with lawyers to navigate the complexities of the evolving regulatory landscape. By doing so, corporations can uphold best practices in corporate governance and contribute to a more transparent and accountable business environment.
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