Individuals with Significant Control is not new for a properly organized corporation. Every properly maintained corporation has this information on its own corporate record, also known as Minute Book. To enhance transparency and accountability in the corporate world, the Canada Business Corporations Act (CBCA) has introduced new requirements for businesses to file information on individuals with significant control (ISC).
What are Individuals with Significant Control?
Individuals with significant control are defined as persons who own or control, directly or indirectly, a significant number of shares in a corporation—typically, 25% or more of the voting rights or share capital.
Starting on January 22, 2024, all federal corporations registered under Canada Business corporation act (CBCA) must need to file Individuals with Significant Control.
An individual is considered to have significant control over a corporation if they meet one or more of the following conditions:
Direct or Indirect Ownership: The individual directly or indirectly owns a significant number of shares – typically defined as 25% or more of the voting rights or value of the corporation’s shares.
Influence without Ownership: The individual has significant influence over the corporation without directly owning shares. This might be through family connections, contractual relationships, or other means that allow them to control corporate decisions.
Examples and Clarifications: Scenarios Demonstrating What Constitutes Significant Control
To further clarify this definition, consider a few hypothetical scenarios:
Direct Ownership Example: John owns 30% of the voting shares in Corporation A. As his shareholding exceeds the 25% threshold, he is considered an ISC.
Indirect Ownership Example: Emily controls a trust that owns 40% of Corporation B. Although Emily doesn’t own the shares directly, her control over the trust places her as an ISC.
Influence Example: Raj has a contractual agreement with Corporation C that allows him to appoint or remove a majority of the board of directors. Even though Raj doesn’t own a significant portion of shares, his ability to influence the board’s composition makes him an ISC.
Purpose of keeping Corporation’s ISC:
Combating Illicit Financial Activities: One of the primary objectives of ISC regulations is to prevent the misuse of corporations for illicit financial activities like money laundering and tax evasion.
*International Cooperation: Canada’s ISC regulations also represent a commitment to align with international standards in financial regulation. Organizations like the Financial Action Task Force (FATF) advocate for greater transparency in corporate ownership to combat money laundering and terrorist financing globally.
*Public Trust: ISC regulations play a significant role in building public trust in the corporate sector.
*Enhancing Transparency & Corporate Accountability
Who can be a corporation’s ISC:
An ISC (Individual with Significant Control) can be identified as someone who:
Owns 25% or More of Shares: Individually or together with others, holds, controls, or directs at least 25% of the corporation’s shares.
Exercises Control Without Share Ownership: Has actual control over the corporation, even without owning any shares.
Combination of Factors: Meets a combination of the above criteria, either through share ownership or control.
Reporting Requirements for CBCA Businesses:
Under the new CBCA regulations, businesses will be required to file ISC information with Corporations Canada in various circumstances, including:
Annual Return: CBCA businesses must include ISC information in their annual return, which provides an overview of the corporation’s activities and structure.
Changes in ISC Register: Any changes made to the ISC register must be reported within 15 days. This ensures that up-to-date information is available to regulatory authorities.
Incorporation, Amalgamation, and Continuance: Businesses must also file ISC information during these processes to ensure the accuracy and completeness of the public record.
Who has Access to ISC Information?
The information in the ISC register typically includes personal details about individuals with significant control over a corporation. While it is essential for this information to be accessible for regulatory and compliance purposes, there is also a need to protect the privacy of the individuals listed.
Access to the ISC register is usually restricted to certain parties:
Corporate Insiders: Typically, directors and certain officers of the corporation have access to this information.
Regulatory Bodies: Government and regulatory agencies may access the register for compliance checks and investigations.
Shareholders and Creditors: In some jurisdictions, shareholders and creditors may have limited rights to access the information, though this can vary.
Why does Individuals with Significant Control matter?
Understanding the significance of ISCs in corporate governance is essential. By identifying these individuals, Corporations Canada aims to enhance transparency, protect stakeholders’ interests, and prevent money laundering, corruption, and tax evasion. ISCs play a decisive role in strategic decision-making, financial management, and overall corporate operations, which makes their identification and disclosure crucial for a well-functioning corporate landscape.
What information to file for Individuals with Significant Control
For Individuals with Significant Control (ISC), corporations need to record specific information, including:
Full Name of the ISC: The complete legal name of the individual.
Address: The residential address for communication purposes.
Date of Birth: To accurately identify the individual.
Jurisdiction of Residence for Tax Purposes: The country or countries where the individual is a tax resident.
Date(s) of Becoming or Ceasing to be an ISC: The exact date(s) when the individual started or stopped being an ISC.
Nature and Extent of Control: Details about how the individual exerts control, such as the percentage of shares owned or voting rights, or other means of control or influence over the corporation.
Type and Amount of Shares the ISC Holds (if applicable): Specifics about share types and quantities owned by the ISC.
This information helps in maintaining transparency regarding who has significant influence or control over the corporation.
Benefits of Compliance:
Despite the regulatory burden, there are benefits to complying with ISCs regulations. Transparent disclosure of ISCs enhances corporate credibility, attracts potential investors, and mitigates reputational risks. Compliant corporations are seen as reliable and trustworthy, providing a competitive advantage in the business landscape.
Consequences for Non-Compliance:
Failure to comply with ISC regulations can result in significant penalties, including:
Fines and Penalties: The corporation and its responsible officers might be subject to financial penalties for failing to comply. The corporation may be found guilty of an offence and liable on summary conviction to a fine not exceeding $100,000.
Criminal Charges: In serious cases, criminal charges could be brought against the corporation or its officers.
Reputational Damage: Non-compliance can harm the corporation’s reputation among investors, customers, and in the market.
Operational Disruptions: Increased scrutiny from regulatory authorities, potential audits, and investigations can disrupt regular business operations.
Legal and Regulatory Consequences: There could be further legal and regulatory ramifications, impacting the corporation’s ability to conduct its business effectively.
Administrative Dissolution: The company who failed to file ISC information may be administratively dissolved if they do not file ISC within 30 days of the date on the Certificate of Amalgamation or on the Certificate of Continuance
