Advisors should help business owners prepare for new corporate ownership registry

Financial advisors who work with small business owners should start preparing their clients now as the federal government works out the details of a publicly accessible corporate beneficial ownership registry, lawyers say.

In March, the Liberal government introduced Bill C-42, which proposes amendments to the Canada Business Corporations Act, paving the way for a publicly searchable register of privately held corporations that includes the names and addresses of controlling shareholders, as well as the size of their share ownership.

The bill has yet to be approved by the Senate after passing third reading in the House of Commons, and with Parliament on summer recess, there’s no prospect of the bill becoming law before the fall. Nor is there any indication of when the law might go into force or a timeline for its eventual implementation, which will give those with corporate holdings a welcome adjustment period, according to Lydia Roseman, a corporate-commercial lawyer with McLennan Ross LLP in Edmonton.

“It’s not the amount of information that will be the issue,” she said, explaining that federally incorporated businesses will already have collected much of the data required under C-42, thanks to earlier amendments to the CBCA.

Since 2019, companies have been required to maintain their own register of “individuals with significant control,” which typically includes those who own or control — directly or indirectly — at least 25% of the corporation’s shares, either by value or votes.

“The main thing is that part of the registry is going to be publicly accessible, and that is a very big change,” Roseman said.

Toronto lawyer Addison Cameron-Huff said the relatively high ownership threshold for registration means that larger corporations with many shareholders are the least likely to be affected by the new law when it passes.

“It’s family businesses, consulting companies and other smaller corporations who are targeted by this,” he said. “You can imagine the kind of information mining that could go on once you make personal addresses available, and I think there should have been a lot more thought put into issues like personal privacy and the permanence of the information.”

Although C-42 would create an exception for those who can demonstrate that disclosure would present a serious threat to their personal safety, Cameron-Huff said it may be easier for beneficial owners to consult with a lawyer about using their office as an address for service, rather than providing a home address.

“This bill is certainly going to create more paperwork and business for lawyers, but I don’t think that should be anyone’s objective in changing the way corporations work,” he added.

C-42 is the latest in a series of corporate and beneficial-ownership transparency measures enacted by the federal government. Last year, trust reporting legislation went into force, requiring any non-resident trust that files a T3 tax return and virtually all express trusts resident in this country to turn over beneficial ownership information to the Canada Revenue Agency.

Meanwhile, the CRA is readying itself for a fresh wave of avoidance transaction reports following an expansion of its mandatory disclosure regime.

In an explanatory note accompanying C-42, the Justice Department said the proposed legislation would bring Canada into line with international best practices, billing the measures as an aid to law enforcement efforts to counter money laundering, terrorist financing and other misuses of federally incorporated companies.

But Cameron-Huff remains skeptical that the potential benefits outweigh the likely cost of the proposed amendments, noting that the CBCA already requires corporations to turn over the information in their private ISC register on request by the CRA or law enforcement.

“In theory, these kinds of measures might seem useful, but in practice, they’re not,” he said, pointing to recent controversy surrounding the U.K.’s Companies House, which has come under fire from financial institutions because of the large number of stale and fake entries on its public corporate registry.

“You can’t get at criminals by relying on them to submit their proper information,” Cameron-Huff added.

However, Sasha Caldera of Publish What You Pay Canada, which has campaigned for years with Transparency International Canada for a corporate beneficial ownership registry, said that public access will have a deterrent effect on those who want to remain anonymous for nefarious reasons.

“Canada’s aim is to not replicate the same mistakes as the U.K., and there are plans to verify the data that is being entered to make sure it is good quality,” he said.

According to Cameron-Huff, federally incorporated business owners who are concerned about the changes may consider switching their registration to the provinces in which they operate.

“Incorporation is one of the few areas where federal and provincial governments compete for business, and this could hurt the federal jurisdiction’s competitiveness,” he said.

However, Roseman said any displacement effect is likely to be temporary, since C-42 creates a mechanism for provinces and territories that wish to create their own public beneficial ownership registries to share their information with the federal version.

“We haven’t seen Alberta or other provinces follow suit yet, but I would expect them to at some point in the future,” Roseman said. “Eventually, those companies will run out of options and will have to make their information publicly available.”