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Behind the Curtain: Ontario’s Beneficial Ownership Rules

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Times are changing for Canadian private corporations in terms of transparency and publicly available information. As of October 1, 2020, private companies in British Columbia have been required to maintain a registry of beneficial owners. Similarly, Québec’s transparency registry statute received Royal Assent on June 8, 2021. The Federal Government has also announced in its 2021 Budget that a publicly accessible beneficial ownership registry would be in place by 2025.

Not to be outdone, Ontario has joined the growing number of Canadian jurisdictions “pulling back the curtain” on private corporations, with plans to impose its own rules for registering beneficial ownership (the “Ontario Rules”). With the Ontario Rules set to come into force on January 1, 2023, the province will likely “leapfrog” the Federal Government.

Background

Ontario’s Fall Economic Update proposed new rules under the Ontario Business Corporations Act (“OBCA”), requiring privately held corporations to collect and maintain beneficial ownership information and to make that register available to law enforcement, tax authorities and regulatory authorities (such as the Ontario Securities Commission) on request.

On the positive side, the Ontario Rules look like they will track closer to those adopted in British Columbia, rather than the much broader rules that apply in Québec (which apply to all corporations operating in the province (regardless of jurisdiction of incorporation) and which require certain information – such as the names of beneficial owners – be publicly available).

Who Needs to be on the Register?

Under the Ontario Rules, the beneficial ownership register will include names of “individuals with significant control”. According to the amendments to the OBCA, this would include anyone who:

  • Owns, controls, or directs 25 percent or more of the voting shares of the corporation or shares that are worth 25 percent or more of the fair market value of all outstanding shares; or
  • Has direct or indirect influence over the corporation without owning at least 25 percent of the shares.

While the first definition seems straightforward, the second appears to be open to broad interpretation, especially given that in certain circumstances individuals can be individuals with significant control even if they only own or control a significant number of shares jointly with other people.

For example, the Ontario Rules require that spouses and certain relatives count together when determining whether the 25% threshold is met (i.e., regardless of whether they are joint owners of the shares or not).

What Information must be Recorded?

The Ontario Rules will require that the following information is recorded on the register for each individual with significant control:

  • 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, including a description of interests or rights in shares; and
  • A description of the steps the corporation takes to keep this information up-to-date each year.

The Ontario Rules require that the register would have to be updated at least once each financial year, and within 15 days of the corporation becoming aware of any changes.

Affected businesses should contact their lawyers to seek advice on their obligations and eventual compliance with these new rules.

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