As of the summer of 2019, the Canadian government has created new regulations requiring corporations to record who actually controls the company. In most cases, a properly organized corporation will already have this information available within its corporate records. This is because it is usually the shareholders, directors and officers who control the corporation.
However, the federal regulations create a new category called "Individuals with Significant Control". These are the people who have control or influence over the company, but might not necessarily have a direct role or formal title.
For example, if "Avengers Solutions Inc." is a Canadian company with one shareholder called "Stark Enterprises Inc." until now, Avengers Solutions would only need to record the name of Stark Enterprises in its corporate records. With the new regulations, Avengers Solutions now has to go beyond disclosing the name of the company that holds its shares. It must disclose the individual(s) behind Stark Enterprises that will be able to exert control or influence over Avengers Solutions.
The details on what makes someone an Individual with Significant Control are a bit vague, and the federal government has not yet created many guidelines on this topic. Below we clarify the two routes to becoming an Individual with Significant Control: (1) Holding a Significant Number of Shares, or (2) Holding Significant Influence.
1. Significant Number of Shares
The most common way to become an Individual with Significant Control is to own, control, or direct a significant number of shares in the corporation. A significant number of shares is defined as:
25% of the corporation's voting shares or
25% of all the shares based on the fair market value of the corporation.
Keep in mind that this does not just apply to the person or company that directly holds the shares. It also applies to a person or company that has voting rights or control over those shares.
2. Significant Influence over the Corporation
The second and more ambiguous way to become an Individual with Significant Control is through holding influence over the corporation. An individual with Significant Control might not be a shareholder and might not have any real ownership of the corporation whatsoever. However, if the shareholders of the company have entered into agreements with other individuals who will direct how the corporation is managed, how shareholders vote, or how money is paid out, those individuals are likely to be Individuals with Significant Control and their information should be recorded.
What Information to Record for Individuals with Significant Control
Once you have determined the corporation's Individuals with Significant Control, the following information about each individual must be kept with the corporation's records:
name
date of birth
address
country where the Individual with Significant Control is a resident for tax purposes
Dates when significant control or influence started and ended
Description of how the individual hold significant control
Who can Request this Information?
Even though the corporation is required to keep a record of all Individuals with Significant Control, there is no requirement to make this information publicly available. It should be stored confidentially with other company information. Certain government agencies can request to review this information in the future.
Consequences for Non-Compliance
The government has created surprisingly stiff penalties for non-compliance with the new regulations. Failing to maintain a record of Individuals with Significant Control can lead to a fine of up to $200,000 or even six months in prison. It will likely be a while before the government starts strictly enforcing this requirement, but the potential penalties reinforce the government commitment to the new regulations. Considering the risks, it is extremely prudent to comply with the Individuals with Significant Control regulations and update your records regularly.
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