Who’s The Boss – Ontario Transparency Obligations Come into Effect in Mere Months

As we march closer to the new year, corporations based in Ontario will now need to have a (new) new year’s resolution. As of January 1, 2023, the Ontario Business Corporation Act (OBCA) will be amended to improve transparency amongst Ontario corporations. Specifically, the added sections will utilize a registry to track all individuals with significant control (ISC) over their entity. In short, the goal of this registry is in line with other identification efforts in the legal industry to help mitigate money laundering, tax evasion, and many other criminal activities.

What constitutes an ISC?

In order for corporations to know how they can comply with the new legislation, it is first important for corporations to identify who an ISC might be. The bill[1] notes that an ISC is one who:

• is the registered or beneficial owner of, or has direct or indirect control or direction over, any number of shares that carry 25 per cent or more of the voting rights attached to all of the corporation’s outstanding voting shares;
• is the registered or beneficial owner of, or has direct or indirect control or direction over, any number of shares that is equal to 25 per cent or more of all of the corporation’s outstanding shares measured by fair market value;
• has any direct or indirect influence that, if exercised, would result in control in fact of the corporation; or
• is an individual to whom prescribed circumstances apply.

As for point 3, there is no further guidance on what level of exercise of influence would result in control being implied. It seems that this one will be left for the courts to decide. Exclusions to this rule exist in arm’s length relationships. In these exceptions, “control in fact” does not exist solely as a result of influence that is derived from a franchise, license, or other agreement between the parties.[2]

What do I need to provide?

If your corporation (or your client’s) is subject to the registry requirements, you must provide various standard identification details that are common in most corporate transactions via know your client documentation. The information necessary is found at section 140.2(1) of the OBCA where it notes:

140.2(1) A corporation shall prepare and maintain, at its registered office or at another place in Ontario designated by the directors, a register of individuals with significant control over the corporation showing,

1. name, date of birth and last known address;
2. jurisdiction of residence for tax purposes;
3. date(s) on which the individual became and ceased to be an ISC;
4. description of how the individual is an ISC, including a description of their interests and rights in respect of shares of the corporation;
5. any other information that may be prescribed under future regulations; and
6. description of each reasonable step taken by the corporation, at least once in each financial year, to ensure that it has identified all ISCs and that the Transparency Register is accurate, complete and up-to-date.[3]

What if I don’t provide the registry information?

As the bill[4] notes, any director or officer of a corporation who knowingly authorizes, permits or acquiesces in the corporation’s failure to maintain the register, in the recording of false or misleading information in the register, or provides any person or entity false or misleading information relating to the register is then considered to have committed an offence under the OBCA. On the same note, a shareholder who knowingly contravenes its obligation to reply accurately and in short order has also committed an offence. On conviction, the offender is subject to a fine not exceeding $200,000.00 or to an imprisonment for a term not exceeding six months, or both.

As we draw closer to the new regulations being active, it is pertinent that both corporations and corporate law firms alike are cognizant of these changes so they aren’t slapped with an expensive surprise. Overall, it looks like being the boss will take a bit more record keeping for the good of Canadians everywhere.

[1] Bill 43, the Build Ontario Act (Budget Measures), 2021, 2nd Sess, 42nd Parl, 2021.

[2] “Private Companies in Ontario Should Prepare for New Ownership Transparency Obligations,” accessed November 15, 2022, https://www.mondaq.com/canada/shareholders/1246304/private-companies-in-ontario-should-prepare-for-new-ownership-transparency-obligations

[3] Business Corporations Act, RSO 1990, c B 16, at s.140.2(1)

[4] Supra note 1.