Québec at the forefront of corporate transparency legislation in Canada

Beginning March 31, 2023, most corporations and other business entities registered to operate in Québec will be required to disclose information on their "ultimate beneficiaries" in Québec's enterprise register, a public registry.

Overview

Since 2019, private corporations incorporated under the Canada Business Corporations Act (the "CBCA") have been subject to transparency requirements and, more recently, most private provincial corporations[1] have become subject to similar requirements. Those corporations must record, in a register maintained by the corporation, information on the natural persons with significant control over them. The register held by the corporation is not public but, on request, a copy of the register must be disclosed to certain parties, including tax and law enforcement authorities.

Beginning March 31, 2023, Québec's new transparency legislation[2] will apply to most businesses operating in Québec and registered under an Act respecting the legal publicity of enterprises (the "Act"). It introduces two important changes relative to the Canadian model. First, it requires disclosure by not only corporations but by all types of business entities, in each case without regard to their home jurisdiction. Second, the information disclosed will be recorded in Québec's enterprise register, a register accessible by the public without cost. In this manner, Québec follows the lead of the United Kingdom and certain member states of the European Union.

Furthermore, in March 2024, Québec's enterprise register will become searchable using the name and address of a natural person. This will increase the transparency of entities by enabling the public to identify entities linked to a natural person.

Which entities are affected?

Entities registered under the Act and subject to the new disclosure requirements (called "registrants") include, among others, corporations, general or limited partnerships, sole proprietorships, cooperatives and trusts operating a commercial enterprise. The rules apply without regard to the country or jurisdiction in which the entity was formed.

There are, however, some notable exceptions. Reporting issuers within the meaning of the Securities Act (Québec) are exempt from the disclosure requirements, as are banks, trust companies and other financial institutions, non-profits established for a private interest, legal persons established in the public interest, syndicates of co-owners[3] and associations within the meaning of the Civil Code of Québec.

Who are ultimate beneficiaries?

Similar to the definition of an "individual with significant control" under the CBCA, an ultimate beneficiary includes a natural person who meets any one of the following criteria:

• a natural person who holds, directly or indirectly, or is a beneficiary of:
  • shares or units conferring at least 25 per cent of the voting rights of the registrant; or
  • shares or units whose value is at least 25 per cent of the fair market value of all shares or units issued by the registrant;
• a natural person who has any direct or indirect influence that, if exercised, would result in de facto control of the registrant, within the meaning of Québec's Taxation Act;
• a general partner of a limited partnership or, if the general partner is not a natural person, an ultimate beneficiary of the general partner;
• the holders (including indirect holders) or beneficiaries who have agreed to jointly exercise 25 per cent or more of the voting rights attached to the shares or units of the registrant;
• the trustee of a trust operating a commercial enterprise and certain beneficiaries; and
• a natural person who operates a sole proprietorship.

Steps to be taken

The determination of who is an ultimate beneficiary will be for some an onerous exercise. Notably, the reference to de facto control under Québec's Taxation Act adds a layer of complexity.[4]

Registrants under the Act are obliged to take "the necessary measures" to locate and identify their ultimate beneficiaries. The Québec government indicates on its website that taking necessary measures means doing more than taking reasonable measures and may involve "a legal, documentary and factual analysis".

The first step is for a registrant to question all of the parties (not just natural persons) who have an interest in that registrant. In the case of a corporation, this means contacting all shareholders and asking the right questions in order to search behind the registered shareholders. Registrants must identify and review contracts that may help to identify ultimate beneficiaries, like shareholder, voting trust, or prête-nom agreements. The determination, when necessary, of the fair market value of shares may require the assistance of accountants or other financial advisors.

Unlike the CBCA and other provincial corporate legislation, shareholders of a corporation do not have an obligation under the Act to provide the information requested from them by a registrant and consequently they are not exposed to any fines under the Act.

Information to be disclosed

Registrants must provide to the enterprise registrar under the Act the following information in respect of each ultimate beneficiary:

• their full name and any other names used in Québec;
• their date of birth;
• the date the person became, and ceased to be, an ultimate beneficiary;
• their residential or professional address (a natural person may have only one professional address in the enterprise register); and
• the type of control exercised or the percentage of shares or units held or of which they are a beneficiary.

In addition to the above, the new rules also require additional information from directors or other individuals who appear on the enterprise register (such as officers or individual shareholders):

• for each director, registrants must submit to the enterprise registrar a copy of a piece of identification issued by a government authority and which has not expired, with the director's first and last name and date of birth; and
• all natural persons identified on the enterprise register (such as officers, individual shareholders, etc.) must declare their date of birth.

It is important to note that a person's date of birth and information regarding a minor will not be accessible to the public, nor will a residential address if the person declares a professional address. A person can also apply to the registrar to have their personal information exempted from publication if they have reasonable grounds to believe that the publication of that information would pose a serious threat to their safety.

Important dates

Beginning March 31, 2023, new entities constituted in Québec and other entities not already registered under the Act will have 60 days from the date they are constituted (Québec entities), or 60 days from the date they carry out an activity in Québec triggering a registration requirement, to file a declaration including the ultimate beneficiary disclosure.

For existing registrants under the Act, as of March 31, 2023, their ultimate beneficiary disclosure must be included in their next due annual updating declaration or in any declaration required to update information recorded in the enterprise register.

Consequences of non-compliance

The monetary penalties under the Act range from $500 to $25,000 for a first offence and can be doubled for a second offence. A director, an officer or an administrator of the property of others can be fined if they commit an offence under the Act.

In addition to the offences mentioned above, businesses should also consider other consequences of non-compliance. For example, the enterprise registrar can conduct an inspection to verify compliance with the Act and can cancel a registration. A legal action can be suspended if a party is not registered under the Act.

Of note in the context of financings and M&A, if a registrant has not filed annual updating declarations when due, it will not be able to obtain a certificate of attestation. As such, if such a certificate is required for the closing of a transaction, enough time should be planned to allow compliance with the Act and its new requirements regarding the disclosure of ultimate beneficiaries.

Next steps

Given the challenges in interpreting aspects of the Act and identifying ultimate beneficiaries, businesses should act as soon as possible.

Please also note that additional proposed amendments to the Act, which are not yet in force, have recently been tabled before the National Assembly in Québec.[5] We will continue to monitor these proposed amendments and any material impact they may have if they become law.

Do not hesitate to contact us if you require assistance complying with the new requirements or establishing procedures to ensure ongoing compliance.