One of the most frequently asked questions we receive as counsel to companies and company owners is whether the information as to who owns the shares in the company is ‘private’ information or not. What our clients are trying to determine is who has the right to know who owns the shares of a particular company. A recently introduced bill could make it easier for government officials and directors of a company to determine who owns the shares of privately owned companies in British Columbia. Note that we are only talking about companies that are not ‘reporting issuers’ or listed on a designated stock exchange.
Currently, the Business Corporations Act requires that a company keep a central registry known as a “central securities register” (a “CSR”) at its records office. The CSR must include the name and last known address of the shareholders, the class of shares and the number of shares held by each of the shareholders.
Current directors and current shareholders may, without charge, inspect the records of the company, including its CSR. Subject to certain limitations, former directors and former shareholders of a company may also inspect a company’s CSR. A former director may inspect the CSR to the extent that it relates to the period when that individual was a director of the company, and a former shareholder may inspect the CSR to the extent that it relates to the period when that individual was a shareholder if and to the extent permitted by the articles.
What most people do not realize is that any person may inspect a company’s CSR at the records office upon payment of any applicable inspection fees to the records office. Further, any person may apply to a company for a list setting out the names and addresses of the shareholders and the number of shares held by those shareholders. Such an application must be in writing, accompanied by an affidavit setting out certain prescribed items, and include payment of applicable fees.
On April 2, 2019, the Honourable Carole James, Minister of Finance and Deputy Premier, introduced Bill 24 entitled the Business Corporations Amendment Act, 2019 (the “Bill”). The intention of this bill is to address certain concerns over tax evasion and money laundering by requiring private companies to maintain accurate and up-to-date information about the true owners of the shares of those companies. This bill would amend the current Business Corporations Act by requiring every private company to maintain a registry known as a ‘transparency registry’ of all shareholders who own more than 25% of the shares of the company, and/or those shares that carry 25% or more of the rights to vote at a general meeting, whether they hold their interest as a registered owner or a beneficial owner. If the shareholder is a company or trust or other non-individual entity, then the registry will also disclose the ‘significant individual’ who controls, directly or indirectly, such entity. A ‘significant individual’ is defined as an individual who has the right or ability, directly or indirectly, to elect, appoint or remove one or more of such company’s directors or the ability to exercise the direct and significant influence over an individual who has the right or ability.
The ‘transparency registry’ is intended to ‘drill down’ to the individuals who influence or control companies, so as to best deter and stop tax evasion and fraud. This is in line with the current trend in British Columbia to look beyond the registered ownership to see who actually owns something. An example is the proposed Land Owner Transparency Act, which is calling for the registration of beneficial ownership of land in B.C., as a means of addressing tax evasion, fraud and money laundering.
This ‘transparency registry’ will include the following information:
- The shareholders’ full name, date of birth, and last known address;
- Whether or not the shareholder is a Canadian citizen or permanent resident of Canada, and if not, every country or state of which such shareholder is a citizen;
- Whether or not the shareholder is resident in Canada for the purpose of Canadian income taxes;
- The date on which the shareholder became a shareholder or ceased to be a shareholder of the Company; and
- A description of how the ‘significant individual’ is deemed to be a ‘significant individual’.
Once a shareholder ceases to be a shareholder, or ceases to hold sufficient shares to require them to be registered in the ‘transparency registry’, the company must delete such shareholders’ information from the ‘transparency registry’ and destroy any record the company created or received in respect of the individual for the purpose of maintaining the registry.
Who may see the ‘transparency registry’?
- Directors of the company in question; and
- Certain inspecting government officials.
A company may request at any time, the requisite information from a shareholder for the purpose of completing the ‘transparency registry’, and a shareholder must, according to the revised legislation, promptly provide such information. The new legislation also requires a company to confirm annually the information in the ‘transparency registry’ within a prescribed amount of time, and to update the information within 30 days of becoming aware of the information.
While not as common today, before 1973, ‘bearer share certificates’ were used to evidence someone’s right to own shares in a company by sake of holding the share certificate (i.e., instead of specifying the name of the shareholder on the certificate itself). This allowed the shares of a company to be transferred from person to person without the registered ownership of the share in the company’s records being changed. After 1973, legislation in B.C. changed to prohibit these kinds of share certificates from being issued; however, that has not meant that all such share certificates have since been collected and revised to reflect the actual holder of the certificate. The new parts of the legislation arising from this Bill would impose a requirement to replace any ‘bearer share certificates’ and would prohibit a company from giving effect to any special rights attached to such certificates until they were replaced.
What happens if the information is incorrect?
If a company fails to identify all of the required shareholders, or provides false or misleading information about a shareholder, and should have known with the ‘exercise of reasonable diligence’ that the information was false or misleading, the company, and any involved director or officer, could be fined. For an individual, the fines can be up to $50,000, and for a non-individual, the fines can be up to $100,000.
When will the ‘transparency registry’ come into effect?
The above-mentioned bill has received its first reading, but must pass through three readings and an in-depth study by the Committee of the Whole House before it actually receives ‘Royal Assent’, becomes law and results in the amendments it proposes. There is no set time frame for how long this could take; however, if the MLAs are motivated to see this come to fruition, it can occur in a matter of weeks. As such, if you have any concerns or questions as to the content of these revisions, you should consider contacting your local Member of the Legislative Assembly at their constituency office to raise your voice with respect to the same. You can find your local MLA by following this link: https://www.leg.bc.ca/learn-about-us/members.
Bill 24 and the proposed amendments to the British Columbia Business Corporations Act can be found here.
For questions about your current company needs, company obligations or general corporate counsel, contact:
Erin J. Easingwood
Partner, Business and Real Estate Law
Lindsay Kenney – Vancouver office
Associate, Business and Real Estate Law
Lindsay Kenney – Vancouver office
This article is intended to be an overview of the law and is for informational purposes only. Readers are cautioned that this article does not constitute legal or professional advice and should not be relied on as such. Rather, readers should obtain specific legal advice in relation to the issues they are facing.