Bill No. 78: New Requirements on Corporate Transparency

In December 2020, the Minister of Labour, Employment and Social Solidarity, Jean Boulet, introduced Bill 78, An Act mainly to improve the transparency of enterprises ("Bill").

This Bill, as its name suggests, would be intended to improve corporate transparency and essentially replicate the amendments proposed by the Quebec Government in March 2020 as part of the 2020‑2021 Budget.

These measures reflect the current government's renewed objective of addressing tax avoidance, criminal activity and corruption, as specified by Minister Boulet at a press briefing on December 8, 2020.

For this purpose, the Bill is designed to make significant amendments to the Act respecting the legal publicity of enterprises, C.Q.L.R. c. P-44.1 ("ARLPE") and to the Regulation respecting the application of the Act respecting the legal publicity of enterprises, C.Q.L.R. c. P-44.1, r.1.

These amendments, the most significant of which are discussed in this article, will require businesses to publicly disclose the identity of their "ultimate beneficiaries," which, according to some, will help address the misuse of nominees, trusts or shell corporations as part of schemes designed, for example, to avoid paying taxes.

1. Disclosure of Ultimate Beneficiary Information

If enacted in its current form, the main effect of the Bill would be to require companies to disclose their "ultimate beneficiaries" via the Quebec Enterprise Register ("QER") and to declare specific information in connection with the natural persons who are their "ultimate beneficiaries," including their names, domiciles and birth dates.

However, it should be noted that Section 11 of the Bill provides that any registrant may also declare the professional address of a natural person whose domicile must be disclosed. If such a professional address is disclosed, the information with respect to the domicile of that person may not be consulted.

Based on the definition proposed in Section 1 of the Bill, "ultimate beneficiary" means any natural person whose relationship with a registrant or a limited partnership meets one of the following conditions:

1. They are the holders, even indirectly, or beneficiaries of a number of shares or units of the registrant, conferring on the person the power to exercise 25% or more of the voting rights;
2. They are the holders, even indirectly, or beneficiaries of a number of shares or units, the value of which corresponds to 25% or more of the fair market value of all the shares or units issued by the registrant;
3. They have the effective control of the registrant; or
4. They are general partners of a limited partnership.

Under the Bill, "registrant" means any person or group of persons who is registered voluntarily or any person, trust or partnership required to be registered.

In addition, the same section of the Bill provides that any agreement enabling more than one natural person holding shares, units or shares of the registrant to exercise together 25% or more of the voting rights would result in each of them being considered to be an "ultimate beneficiary."

It is also provides that the Government may, by regulation, determine additional conditions under which a natural person could be considered to be an ultimate beneficiary.

In essence, this new requirement echoes the one already effective since June 13, 2019 for federally incorporated corporations under the Canada Business Corporations Act, R.S.C. (1985), c. C-44. As of that date, they were required to keep a register of "individuals having significant control" of the corporation, i.e. a list of the natural person or persons having at least 25% of the control of the business.

2. Search by Name of a Natural Person

The Bill also provides for the implementation of a system whereby it would be possible to use the name of a natural person as the basis for a search in the QER. Under this new search method, the general public could actually identify all corporations having connections with the said person, whether as shareholder, director, officer or, of course, ultimate beneficiary.

After the introduction of the Bill, the Quebec National Assembly adjourned its work for the winter. Parliamentary proceedings will resume in January 2021. If this Bill is enacted, it is expected that the changes will come into force on the date or dates as determined by the Government. As part of the 2020‑2021 Budget, the Government had indicated that the new requirements would become effective one year after the legislative amendments have been assented.^[1]

Please feel free to contact us for any additional advice or additional information regarding the potential impact of these changes on your business.