On May 1, 2020, as a result of amendments to the Business Corporations Act (British Columbia), each British Columbia private company must have in place and thereafter maintain a transparency register which lists potentially sensitive information about certain "significant individuals" who own or control a significant number of its shares or who control the selection of a majority of its directors.
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British Columbia companies will have to search behind registered shareholders to determine which individuals ultimately have true control of the company, whether or not those individuals are currently listed on the share register. The shield of anonymity that those shareholders have previously enjoyed will be gone, and although the transparency register will not be available to the general public, the company's directors, certain law enforcement officials and regulators will have access to it.
Exemptions from the Transparency Register Requirements
Public companies, as well as companies formed outside of British Columbia but only registered to carry on business in British Columbia, are exempt from the requirement to keep the transparency register. However, British Columbia subsidiaries of public companies are not exempt and must still keep the transparency register.
Who is a "Significant Individual" That Must be Identified on the Transparency Register?
In essence, if an individual falls into one of the two following categories of ownership or control, he or she would be a "significant individual" and must be identified on the transparency register:
- Category 1 – Share Ownership
An individual who is the registered or beneficial owner of, or has indirect control over, either 25% of the issued shares of a company, or 25% of the voting shares of a company; OR
- Category 2 – Rights Regarding Directors
An individual who has the right, or indirect control of the right, to elect, appoint or remove a majority of the directors of a company. This includes the ability to exercise direct and significant influence over an individual with such right or indirect control.
One individual can have different interests that, when combined, meet one of the thresholds, and there are rules to cover interests of different people that can, when taken together, add up to meet one of the thresholds. Determining who has indirect control of shares or indirect control over the selection of directors can be challenging in some circumstances. Once a company determines that someone is a significant individual, the company will have to notify that person.
The Trend towards Transparency
The new British Columbia requirements follow the lead of, but differ from, recent Canadian federal corporate legislation requiring disclosure of "individuals with significant control". Two notable departures are the different tests for both control and share ownership. For example, the federal legislation considers, among other things, an individual who owns or controls shares representing 25% or more of the fair market value of the corporation as being an "individual with significant control". The British Columbia legislation does not have a fair market value threshold.
How to Learn More
For more information on the transparency register requirements, including the kind of information about significant individuals that must be disclosed, please see the article "The shareholder transparency track: The British Columbia Business Corporations Act is on it". Since that article was written, the British Columbia government passed a regulation setting May 1, 2020 as the effective date for having the transparency register in place and providing guidance on what is meant by "indirect control" for the purpose of the above categories, including special rules for trusts, partnerships and other relationships.
British Columbia private companies should act now to make the necessary inquiries to identify significant individuals and obtain the requisite information about those significant individuals that must be disclosed on the transparency register. In some cases the analysis of who must be identified on the transparency register can be complex.
If your company is affected by the new transparency register requirements, Gowling WLG can help you create the transparency register so that you are in compliance by May 1, 2020 and develop the procedures to update the transparency register on an ongoing basis as mandated by the new requirements.