As part of its 2021 Fall Economic Statement, the Ontario Government proposed legislative amendments to the Ontario Business Corporations Act to introduce beneficial ownership information requirements as a measure to prevent and better detect the use of corporations for tax evasion, money laundering and other illicit financial activities. If passed, these legislative amendments would bring Ontario into line with most other Canadian jurisdictions.
Generally speaking, beneficial ownership refers to the natural persons who, through direct or indirect means, exercise ultimate ownership or control over a corporation, such as through an ownership interest or control over decision-making. This is distinct from legal ownership, which could involve other legal persons such as trusts or other corporations. Beneficial owners also refer to the natural persons behind nominee shareholders, who serve as a registered owner of shares in a corporation or assume a management position on behalf of a beneficial owner.
As part of the Ontario Business Corporations Act amendments, the government is proposing that privately held business corporations would be required to collect and maintain beneficial ownership information and make it available upon request to law enforcement, tax authorities, and certain regulatory authorities including the Ontario Securities Commission, Financial Services Regulatory Authority of Ontario, and the Financial Transactions and Reports Analysis Centre of Canada.
Corporations that offer securities to the public and their wholly-owned subsidiaries would be exempt from these proposed information requirements. The government says that it intends to engage with stakeholders on the implementation of these measures to ensure they do not impose undue burden on business owners.
If passed, these amendments will take effect on January 1, 2023 to ensure businesses have the time to adjust to these new information requirements.
Individual with Significant Control
The new provisions would require each private corporation to maintain information on all individuals who exercise “significant control” over the corporation. An individual with significant control is defined as someone who:
- Owns, controls, or directs 25 per cent or more of the voting shares of the corporation or shares that are worth 25 per cent or more of the fair market value of all outstanding shares of the corporation; or
- Has direct or indirect influence over the corporation without owning at least 25 per cent of the shares.
A person would also be an individual with significant control if they own or control a significant number of shares jointly with other people. In addition, if a group of related persons collectively controls at least 25 per cent of the shares of a corporation, then each person would be an individual with significant control. A related person would include an individual and their spouse, son or daughter, or any other relative living in the same house.
For each individual with significant control, corporations would need to maintain the following information:
- Name, date of birth and address;
- Jurisdiction of residence for tax purposes;
- Date of becoming or no longer being an individual with significant control;
- A description of how the individual has significant control over the corporation, including a description of any interests and rights in shares of the corporation; and
- A description of the steps the corporation takes to keep this information current each year.
Updates would also be needed at least once during each financial year of the corporation and within 15 days of the corporation becoming aware of a change to any relevant information.
While the above amendments will impact provincially regulated corporations, federally regulated corporations will be subject to federal beneficial ownership requirements. Federally regulated organizations are governed by the Canada Business Corporations Act which defines beneficial ownership as including ownership through any trustee, legal representative, agent or mandatary, or other intermediary.
Under the Proceeds of Crime of Money Laundering and Terrorist Financing Regulations, financial entities, securities dealers, life insurance brokers, and companies and money service businesses are required to collect information establishing ownership, control and structure of the entity and identify the beneficial owner(s) by collecting the following information:
- In the case of a corporation, the names of all directors of the corporation and the names and addresses of all persons who own or control, directly or indirectly, 25 per cent or more of the shares of the corporation
- In the case of a trust, the names and addresses of all trustees and all known beneficiaries and settlors of the trust
- In the case of an entity other than a corporation or trust, the names and addresses of all persons who own or control, directly or indirectly, 25 per cent or more of the entity
Financial institutions are required to take reasonable measures to confirm the accuracy of the information. If financial institutions are not able to obtain the above information or confirm its accuracy, they are required to “take reasonable measures to ascertain the identity of the most senior managing officer of the entity” and treat the entity as high risk and apply enhanced customer due diligence measures.
The Proceeds of Crime of Money Laundering and Terrorist Financing Regulations further requires that beneficial ownership information be kept up-to-date through ongoing monitoring provisions.
Since 2016, the Government of Canada has been working with its provincial and territorial counterparts to increase the availability of beneficial ownership information for law enforcement and tax authorities. While many corporations and organizations recognize the importance of beneficial ownership requirements in preventing illicit financial activity, reporting entities have noted the lack of reliable, third-party sources to corroborate beneficial ownership information provided by their clients and have consistently called for additional tools to help them fulfill their due diligence requirements. The Government says it is committed to assisting such corporations and organizations in meeting beneficial ownership reporting requirements.
At Prudent Law in Mississauga, our team of experienced corporate lawyers continue to monitor legislative changes that may impact your corporation. We provide practical advice on all corporate law matters and can help you ensure you are prepped to meet the requirements of the provincial beneficial ownership reporting regime. If you have a question about compliance with the Ontario Business Corporations Act or have another corporate law issue you’d like to discuss, please call us at 905-361-9789 or contact us online.