Unveiling the Veil: Navigating the New Era of Shareholder Transparency under Bill C-42 and the CBCA

The recent legislative changes spearheaded by the federal and provincial governments, with the notable exception of Alberta, mark a significant shift in the regulatory landscape regarding shareholder transparency. This transformation was propelled forward with the enactment of Bill C-42 on November 2, 2023. This legislation, which amends the Canada Business Corporations Act (CBCA) among others, ushers in a new era of transparency and public accessibility to information about individuals who hold significant control (ISC) in corporations.

Effective January 22, 2024, private corporations and non-fully owned subsidiaries of public companies, which fall under the CBCA, will be obligated to submit their ISC registers alongside their annual returns to Corporations Canada. Notably, this mandate includes public disclosure of certain personal details contained within the ISC registers.

The criteria defining an ISC are broadly encapsulated. Individuals owning directly or indirectly, alone or in combination, at least 25% of a company’s shares or its overall value fall under this category. Additionally, those exerting factual control over a company’s financial, operational, or managerial aspects are also considered ISCs. This investigation extends beyond mere entity-level analysis, delving into the ultimate controlling interests.

The information to be publicly disclosed for each ISC includes their name, service address (or residential address if the former is not provided), the dates of their commencement or cessation as an ISC, and a descriptive account of their control or shareholding nature.

This development raises significant privacy and confidentiality concerns, particularly for venture capital, private equity, and other high-net-worth investors who may exercise 'control in fact' without holding substantial shares. Public disclosure of personal information, which was previously held confidential by CBCA companies, now poses new risks. Moreover, inaccuracies or delays in providing this information can result in stringent penalties, including substantial fines or even imprisonment.

For private CBCA companies, these changes might seem less daunting as information about directors and officers is already publicly available. Nevertheless, they must weigh the benefits of federal incorporation against the potential adverse impacts of this legislation on private capital providers.

Directors and officers of CBCA companies now face increased responsibility and potential liability for non-compliance with these transparency requirements. They must ensure the accurate preparation and submission of ISC registers and related information.

This movement towards greater transparency is not isolated to Canada. It aligns with global trends, as evidenced by similar initiatives in OECD countries and Quebec's adoption of comparable legislation. For investors, navigating these changes may require strategic investment decisions, creative capital structuring, or even jurisdictional shifts to minimize disclosure obligations.

Maintaining an accurate and updated ISC register is crucial, especially for companies with complex structures. CBCA companies must adopt diligent and systematic approaches to comply with these new requirements and avoid potential legal consequences due to non-compliance.

If you require any assistance or further information regarding these changes and how they may impact your business or investments, please do not hesitate to contact Origin Law Group . Our team of experienced legal professionals is well-equipped to provide you with the guidance and support you need to navigate this new regulatory landscape effectively.