As of April 1, 2023, the number of Canadian jurisdictions with beneficial ownership transparency requirements in force will have risen to ten. With the implementation of new transparency regimes in Saskatchewan, Québec and Nova Scotia, only four jurisdictions – Alberta and the three Territories – have not proposed or implemented this type of legislation at this time. Below we explore some of the key similarities and differences among the laws enacted to date, with particular attention to Québec's unique approach, which includes transparency filing obligations in respect of corporations and other entities registered to do business in the province, even if they were incorporated or established outside the province or outside Canada.

Introduction

As noted above, the number of Canadian jurisdictions with transparency legislation will soon rise to ten. Three new beneficial ownership transparency laws are taking effect in early 2023:

  • Saskatchewan: March 12, 2023;
  • Québec: March 31, 2023 (see our detailed blog post); and
  • Nova Scotia: April 1, 2023.

Information about earlier developments is available in a series of blog posts that we released, beginning in 2019, dealing specifically with the legislation in the following jurisdictions:

  • Canada, under the Canada Business Corporations Act ("CBCA");
  • British Columbia, under the Business Corporations Act ("BCBCA") – post currently under revision; and
  • Ontario, under the Business Corporations Act ("OBCA").

The provinces of Manitoba, New Brunswick, Newfoundland & Labrador and Prince Edward Island also implemented transparency legislation between 2019 and 2022. As noted above, only Alberta, Yukon, Northwest Territories and Nunavut have yet to propose or adopt transparency laws.

On March 22, 2023, the Government of Canada introduced proposed legislative amendments "as part of the government's commitment to corporate transparency and the implementation of a free, publicly accessible and scalable beneficial ownership registry of corporations governed under the CBCA." If passed, the proposed amendments (along with consequential and related amendments to other statutes) will, among other things, make public certain information regarding beneficial owners of CBCA corporations, introduce an exemption regime for individuals who may face harm from public disclosure, provide Corporations Canada with additional enforcement and compliance powers, and facilitate enforcement efforts through information-sharing and data validation among Corporations Canada, the Canada Revenue Agency and Financial Transactions and Reports Analysis Centre of Canada (FINTRAC). We will continue to monitor the progress of Bill C-42 and will provide further updates as they become available.

Regulator guidance

As might be expected of new legislation, there is still significant uncertainty about the interpretation of some aspects of Canada's transparency laws. To date, published regulator guidance has been relatively minimal, although the Government of British Columbia has produced a useful guide to the B.C. legislation and the Government of Québec is expected to publish guidance in time for the implementation of the Québec transparency regime.

Canada's Transparency Laws: Common Ground

The federal CBCA was the first Canadian legislation to adopt amendments relating to beneficial ownership transparency. Those provisions, which took effect on June 13, 2019, influenced the transparency regimes that were subsequently established at the provincial level, with the result that the ten legislative regimes share most (and in many cases all) of the following features:

  • A requirement that individuals be listed in a register that also includes their name, address, birthdate, and other specified information;
  • Requirements relating to disclosure of the steps taken by entities to determine which individuals, if any, should be listed in the register, and what should be done if an entity is unable to identify any ISCs;
  • Criteria for identifying the individuals to be listed (referred to as "Individuals with Significant Control" or "ISCs" under the CBCA), such as:
    • Direct or indirect ownership/control/direction of or over at least 25% of the shares of the corporation ("indirect direction" may be found where an individual who controls the top entity of a corporate group is able to control how corporations "down the chain" vote their shares of the subject corporation);
    • In most jurisdictions, the possession by an individual of "influence" that, if exercised, would give the individual "control in fact" of the corporation, as these (or similar) concepts are understood under the governing legislation;
    • Being a joint holder of (or party to a voting agreement or arrangement that encompasses) shares that in the aggregate meet the 25% threshold;
  • An exemption for qualifying publicly-traded corporations from the requirement to maintain a register (including, in most jurisdictions, their wholly-owned subsidiaries);
  • Criteria for accessing and searching the register: in all cases, those who may access the register include police forces, tax authorities and such regulators as may be listed in the statute or provided by regulation (and also, in many cases, the equivalent foreign entities, where the necessary arrangements or agreements exist). Certain jurisdictions also give shareholders and/or creditors rights of access, while only one (Québec, as discussed below) currently provides for broad public access.
  • Rules for reviewing and updating the register: typically one mandatory review and update per financial year to ensure the information is accurate and up to date, plus a requirement for periodic updates whenever the entity learns of new information that affects prior disclosure.
  • Penalties for violations of the requirements: both the corporation and its directors and officers can be liable for violations, although some statutes create potential liabilities for other persons and may include incarceration as a possible penalty.

For the sake of simplicity we have used the term "corporation" in the above discussion, but it should be noted that in Québec the transparency rules apply to certain entities that are not corporations.

Canada's Transparency Laws: Key Differences

While there are many similarities among the regimes, some provinces have diverged from the CBCA model more than others, as highlighted below (from least to most divergent):

  • The provincial laws of Saskatchewan, Manitoba, Prince Edward Island, Nova Scotia and Newfoundland & Labrador closely follow the CBCA model;
  • The Ontario and New Brunswick provisions are broadly similar to the CBCA provisions but include some substantive differences;
  • British Columbia's provisions were influenced by the CBCA model, but diverge from it in a number of significant respects;
  • The Québec transparency regime, while based on many of the same concepts as the CBCA, is the most distinct of all, in both approach and substance.

The remainder of this post looks at some of the key differences among Canada's beneficial ownership transparency regimes. We have focused on differences that have the broadest impact, but there are a number of others, such as those relating to the treatment of limited partnership entities in chains of corporate ownership.

1. Québec's register will be publicly accessible in 2023 and will be searchable by individual names in 2024

While amendments to the CBCA will, once in force, require the filing of ISC information with the federal regulator, Corporations Canada, and proposed amendments to the CBCA will require some information regarding the beneficial owners of federal corporations to be made public, for the time being ISC registers are generally kept at a corporation's registered office, to be produced on request to those who are entitled by law to examine them. The same is currently true under most of the provincial statutes. However, as noted above, on March 22, 2023, a new bill proposing further amendments to the CBCA was published that if passed, would create a publicly accessible beneficial ownership registry for CBCA corporations that would bring the federal approach into alignment with Québec's as described below.

Québec's approach is currently different than all other Canadian jurisdictions: its transparency information is not maintained in a stand-alone register, rather it is included as part of a registrant's submission filed with the Québec Enterprise Registrar ("Enterprise Registrar"). Two important points to note are that:

  • Much of the information will be publicly available; and
  • As of March 31, 2024, the information is expected to be searchable by individuals' names.

This broad accessibility presently stands in contrast to the other Canadian jurisdictions where registers are available for inspection only to the government itself as well as to tax authorities, police services and designated regulators (which vary from jurisdiction to jurisdiction, but often include securities commissions and financial regulators, including those from other jurisdictions where certain conditions are met). Shareholders and creditors also have a limited right of access under the CBCA and the corporate statutes of many provinces (exceptions include British Columbia and Ontario). If the new CBCA amendments are adopted as currently proposed, Québec's broad accessibility may soon become the norm across Canada.

2. Québec's statute applies to entities doing business in Québec generally – not just to QBCA corporations

Québec's transparency rules apply territorially to any entity that is required to register with the Enterprise Registrar to conduct business in the province, without regard to the statute under which the entity was incorporated or formed. This means the Québec transparency rules apply to limited partnerships, business trusts and other entity types in addition to corporations, even if not formed under the laws of Québec, if they are required to be registered with the Enterprise Registrar.

The reason is that Québec's transparency rules, unlike those of other jurisdictions, were enacted under its business registration legislation – An Act Respecting the Legal Publicity of Enterprises (ALPE) – rather than under the Québec Business Corporations Act (QBCA). Under the ALPE, registration is required of almost any entity that operates a business or performs any act for profit in Québec, including corporations and other entities formed in other Canadian and foreign jurisdictions. As a result:

  • Non-Québec corporations established under Canadian or foreign corporate statutes that are registered with the Enterprise Registrar may effectively have two transparency registers – one for their jurisdiction of incorporation and one for Québec; and
  • Businesses incorporated or formed under legislation (in Canada or elsewhere) that does not currently require transparency registers, such as the Alberta Business Corporations Act or provincial limited partnership statutes, need to be aware of the transparency disclosure requirements in Québec if they are or plan to be registered with the Enterprise Registrar.

Furthermore – and very importantly – where both Québec and the jurisdiction of incorporation require transparency disclosure, it may sometimes be the case that different individuals will need to be identified based upon differing statutory criteria for identifying ISCs.

3. Economic interests vs. legal control: a potentially important difference between Québec's legislation and other Canadian legislation

Generally, to be listed in a transparency register, an individual must have control (as defined) over at least 25% of the shares of the corporation as measured by voting rights or (in all jurisdictions except B.C.) by value. Such control may be "indirect" – achieved, for example, by "influence", through an individual's stake in a holding company, or by means of a shareholder agreement – but it must, at the end of the day, result from interests or rights that the individual holds in connection with specific shares of the corporation constituting at least 25% of the total.

Importantly, it follows from this that, under the CBCA and most of its provincial equivalents, an individual is not an ISC merely because the individual has a 25% economicinterest in the corporation that derives from the individual's holdings in another entity that sits above the corporation in a "stacked" ownership structure, if this economic interest is not accompanied by 25% control of the corporation's shares.

The following corporate structure illustrates this point:

In a corporate group, Individuals A and B own 60% and 40%, respectively, of the only class of shares in Holdco X. Holdco X, in turn, owns 100% of the shares of Corporation Y, for which a transparency register is being prepared. In this very simple structure, there are no shareholder agreements or other voting arrangements, no family relationships and no influential persons other than the two shareholders.

In this example, if Y were a CBCA corporation, only A would be listed in Y's CBCA transparency register. While B might be said to hold a 40% indirect "economic interest" in Y, B is not in a position of control over 40% (or even 25%) of Y's shares – in fact, A's 60% holding in Holdco X gives A control over the voting of 100% of the shares of Y. An identical analysis would apply under the B.C. and Ontario legislation and most of the other provincial statutes.

Québec appears to be different, however, as it refers to indirect holdings of the specified thresholds of shares or units, and not only indirect control. While the precise implications of this distinct approach are debatable, particularly for entities with separate legal personality, some prominent commentators have drawn the plausible conclusion that the references in the Québec law to direct or indirect holdings of 25% or more are intended to refer to economic interests.

If this analysis is correct, it would follow that, in the example above, both A and B would be ultimate beneficiaries of Corporation Y. B would have this status by virtue of being the beneficiary of shares that represent 40% (25% or more) of the value of Y (40% of X's 100%). As already noted, B would not be an ISC under the CBCA or the statutes of the other provinces.

Note that the control analysis that applies under the CBCA and other provincial legislation also applies under the Québec legislation – the possible scenario discussed in above would essentially establish an additional criterion under which certain individuals might have to be listed.

4. The jurisdictions differ about what constitutes "influence", particularly with respect to the applicability of the "control in fact" concept from tax law

In addition to individuals who satisfy the 25% control test, individuals with sufficient "influence" over the corporation must also be listed in the transparency register. In eight of the ten jurisdictions that have adopted transparency legislation to date, "influence" is expressly defined as the possession of "control in fact" ("CIF"), which many will recognize as a concept in Canadian tax law. One apparent difference among these jurisdictions is how closely their respective concepts of influence and CIF track the understanding of CIF that has developed in the taxation context. Jurisdictions that have taken a different approach include British Columbia (discussed below) and New Brunswick, which does not include influence among the factors to be considered when creating an ISC Register.

In Ontario and Québec, the CIF definition to be applied under ISC analysis is based on the understanding of CIF in tax law. The Ontario legislation takes its CIF language almost word-for-word from the Income Tax Act (Canada) ("ITA"), while Québec's legislation explicitly states that the Taxation Act (Québec) ("QTA") definition of CIF applies in this context. The two key components of both definitions are:

  • that an individual can have "influence" even in the absence of a legally enforceable right or ability to effect a change in the membership or powers of the board (ITA s. 256(5.11)(b); QTA s. 21.25.1(b)); and
  • that franchising, licensing, leasing, distribution and supply management arrangements, and other similar arrangements, do not, in and of themselves, result in "control in fact" (ITA s. 256(5.1) QTA s. 21.25).

The consequence may be that, as is the case under tax law, operational control can be sufficient to produce CIF (and, by extension, to give an individual who has such control "influence"), even in the absence of legal control over the board's composition and/or powers.

It is important to note that the second component of the definition does not exclude individuals involved in the listed arrangements from consideration for inclusion in the transparency register. It does mean, however, that they will not be included merely because they are involved in such arrangements.

The federal legislation – the CBCA – also defines "influence" in terms of CIF, but because it does not include an express reference to tax law (as the Québec statute does) or incorporate the ITA's definition of CIF (as the Ontario statute does), the relevance of the tax law analysis of CIF for CBCA corporations is unclear. In the absence of guidance from the Government of Canada, this could make some questions about influence difficult to resolve with confidence.

British Columbia has taken a distinct and very clear approach, defining "influence" as "significant influence", which refers to the direct or indirect power to appoint or remove at least one director. According to the B.C. Government's website, this requires a legally binding or enforceable arrangement. In other words, B.C. appears to have deliberately rejected the application of the CIF concept as reflected in the tax legislation. There is no express exclusion in the BC legislation for franchising, licensing, leasing, distribution and supply management arrangements, but few of these would involve the legally enforceable power to appoint or remove board members.

5. Ontario and British Columbia create a presumption relating to family/household members

When it comes to deciding whether an informal voting arrangement exists among small shareholders (so that their interests must be considered collectively), both the British Columbia and Ontario statutes create a presumption that the interests of those from the same family and/or household should be aggregated. The persons whose holdings must be combined in this way are defined differently under the two statutes, however. The federal, Québec and other provincial statutes do not include a provision of this type, although family and household members could still be "caught" under the more general provisions in those statutes.

6. The 25% threshold is defined more narrowly in the B.C. legislation

In most Canadian jurisdictions, the 25% interest that generally triggers inclusion in the register is defined as an interest in 25% of the corporation's shares, either in terms of voting rights or fair market value. The only exception is British Columbia, where the legislation defines the 25% interest in terms of voting rights only – an approach that will simplify the analysis for many B.C. companies.

7. The Québec legislation does not require shareholders to provide information to the corporation if requested

Unlike the other Canadian statutes, the Québec law does not include a provision specifically requiring shareholders to respond to inquiries that the corporation makes in the course of completing its beneficial owner analysis or register entries. All of the other statutes require a prompt response to such an inquiry, with substantial fines and (in most jurisdictions) a potential prison sentence imposed on shareholders who fail to respond, or who knowingly respond inaccurately. By contrast, the Québec law places responsibility solely on the registrant, requiring it to "take the necessary measures" to ascertain the identity of its ultimate beneficiaries.

Conclusion

The similarities and differences in transparency legislation across Canada discussed above are by no means an exhaustive list. Nevertheless, this overview should help Canadian, U.S. and overseas readers understand how beneficial ownership transparency is evolving in Canada – while underscoring the fact that, as is so often the case in this country's corporate and commercial law, there is no single, uniform "Canadian" approach.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.