A Guide to Complying with OBCA’s Transparency Requirements

Who is an individual with significant control?

Similar to the CBCA, the OBCA provides that “individuals with significant control” over a corporation include:

1. an individual who has any of the following interests or rights (or any combination of them) in respect of a “significant number of shares” of the corporation:
   • The individual is the registered holder of the shares,
   • The individual is a beneficial owner of the shares,
   • the individual has direct or indirect control or direction over the shares;
2. an individual who has any direct or indirect influence that, if exercised, would result in control in fact of the corporation; or
3. an individual to whom prescribed circumstances apply (as may be set out in regulations).

For purposes of determining whether an individual qualifies for the above definition, a “significant number of shares” will be defined as any number of shares that either (i) carry 25% or more of the voting rights attached to all of the corporation’s outstanding voting shares, or (ii) represent 25% or more of the corporation’s outstanding shares by fair market value.

Under the OBCA amendments, joint ownership or control of a significant number of shares will also be taken into account in determining whether two or more individuals are each considered to be an individual with significant control over the corporation.

This broad definition could include individuals who are counterparties to many types of commercial contracts with the corporation. In acknowledgment of this, individuals are excluded from the ISC definition if they deal with the corporation at arm’s length under a franchise, licence, lease, distribution, supply or management agreement or other similar agreement.

To comply with these new requirements, the following information should be obtained from all shareholders and other identified individuals who may have direct, indirect or de facto control, directing them to keep the foregoing definitions in mind when providing responses in order to obtain the most accurate records.

Register Requirements

1. The ISC Register must contain certain information in respect of all individuals with significant control over the corporation, including:
• Name, date of birth and last known address
• Jurisdiction of residence for tax purposes
• Date(s) on which the individual became and ceased to be an individual with significant control
• Description of how each individual is an individual with significant control, including, as applicable, a description of their interests and rights in respect of shares of the corporation
• Any other prescribed information (as may be set out regulations)
• A description of each step taken by the corporation to ensure that it has identified all such individuals.

Note: The Register cannot list a corporation. The controlling individuals behind all the corporations need to be listed.

2. The ISC Register needs to be updated annually, or within fifteen (15) days of becoming aware of any new or updated information required to be reflected in the ISC Register.
3. The ISC Register will be required to be kept at the corporation’s registered office or at another place in Ontario designated by the directors.

Who has access to this register?

The ISC Register will not be publicly available at this time, but this is subject to change. Unlike certain other corporate records which shareholders of a private corporation have a right to inspect and take extracts from, shareholders have no statutory right to the ISC register.

Section 140.3(3) of the OBCA provides for when and how disclosure of the ISC Register may be requested. A corporation may receive a request to disclose it for law enforcement purposes such as for police investigation, for tax purposes, or for regulatory purposes.

Penalties for Failure to Comply

Corporations that fail to comply with these requirements, including failing to maintain a Register or providing or recording false or misleading information, can face penalties including fines and potential legal action. These penalties can be given to the corporation itself, and higher-level penalties can be directed to the directors, officers or shareholders of the corporation up to $200,000.00 or six-months imprisonment.

Additionally, noncompliance and associated penalties may negatively impact the corporation’s reputation and credibility and make it more difficult for the company to conduct business or attract investment. It is important for corporations to comply with all legal requirements related to transparency and record-keeping to avoid these potential consequences.

Questions?

Hummingbird Lawyers LLP would be happy to assist you with developing a questionnaire that can be used to collect the pertinent information from the ISCs, and help you create your ledger for your minute book.

Please note that this article is only a brief summary of the OBCA ISC Register requirements. If you would like to discuss all relevant considerations, please reach out to the Hummingbird’s Business lawyers.

Related Articles:

• Little Black Book of Shareholder Agreements
• Shareholders Agreements