Corporations Canada Increases Scrutiny of ISC Register Filings by Federal Corporations

Private corporations governed by the Canada Business Corporations Act (the “CBCA”) should ensure that their register of individuals with significant control (an “ISC Register”) is complete, accurate and up to date. Corporations Canada has begun issuing official inquiries to certain CBCA corporations in connection with their ISC Register filings, particularly where a corporation has reported that it has no individuals with significant control (“ISCs”).

Since June 2019, most private CBCA corporations have been required to prepare and maintain an ISC Register. The register is intended to identify the individuals who ultimately own or control a corporation and forms part of the federal government’s broader corporate transparency regime, which is aimed at assisting in combating tax evasion, money laundering and terrorist financing. For more information on what needs to be recorded in an ISC Register, please see our bulletin: New Push for Corporate Transparency - Private Corporations Must Soon Report Beneficial Ownership to Federal Government.

Since January 22, 2024, all CBCA corporations are also required to file certain information from their ISC Registers or about their exempt status with Corporations Canada. These filings are generally required upon incorporation, within 30 days following an amalgamation or continuance under the CBCA, on an annual basis, as part of filing an annual return, and within 15 days of any changes to the information for any ISC that is recorded in the corporation’s ISC Register.

In accordance with the Agreement to Strengthen Beneficial Ownership Transparency entered into in 2017 by the Canadian federal and provincial finance ministers, all Canadian provinces, other than Alberta, have adopted similar ultimate beneficial ownership disclosure regimes. For more information, please see our bulletin: Measure for Measure – Federal Government to Create New Public Transparency Register For Private Federal Business Corporations.

The Province of Alberta has recently undertaken a public consultation process on its proposed beneficial ownership register.

Corporations Canada's Enforcement Powers

Corporations Canada is the federal corporate regulator responsible for administering the CBCA. Corporations Canada has been granted enforcement powers with respect to the ISC Registers, including the ability to make inquiries relating to compliance with the CBCA. The CBCA also requires a person to respond to an inquiry made by the Director.

Corporations Canada has recently begun issuing official inquiries by email to CBCA corporations that have filed their annual returns. These inquiries appear to be directed at confirming whether the corporation has taken appropriate steps to identify its ISCs and whether the “no ISC” filing is properly supported.

Official Inquiries by Corporations Canada

Based on the form of inquiries currently being issued, a corporation may be required to respond in one of two ways:

1. If the corporation has ISCs, the corporation must update and file its ISC information through Corporations Canada’s federal corporation information page.
2. If the corporation has no ISCs, the corporation must provide supporting documentation to Corporations Canada, which may include:

1. a copy of the corporation’s ISC Register showing that the corporation has no ISCs;
2. a summary of the steps taken by the corporation to identify its ISCs; and
3. the corporation’s shareholder list.

This means that a corporation should be prepared to demonstrate not only the conclusion reached in its ISC Register, but also the process followed to reach that conclusion. In particular, where a corporation has reported that it has no ISCs, it should ensure that its records clearly document the reasonable steps taken to identify whether any individual meets the applicable ownership or control thresholds.

Under the CBCA and the guidance documents published by Corporations Canada, taking reasonable steps to keep an ISC Register up-to-date means, at a minimum, sending an information request at least once a year to:

• any ISCs in the register, to confirm or update their information;
• all shareholders of the corporation, to ask if they have become an ISC and, if yes, request the required information to add to the register; and
• any other person that the corporation has reasonable grounds to believe may have relevant knowledge with respect to an ISC over the corporation, or any person who may have relevant knowledge about such a person.

Consequences of Failing to Respond

Failure to respond to an inquiry within 30 days from the date of the notice may result in the corporation being considered in default. Corporations Canada may also take additional compliance measures, which may include refusing to issue a Certificate of Compliance, applying to court for a compliance order or taking steps toward administrative dissolution.

Further, failure to comply with the ISC Register requirements can have significant consequences. A corporation that fails to comply with these requirements may be subject to fines and other enforcement measures, including dissolution in certain circumstances. Separately, directors, officers and shareholders who knowingly contravene the ISC Register requirements, authorize, permit or acquiesce in a contravention, or provide false or misleading information may be liable to fines of up to $1,000,000 and/or imprisonment for a term of up to five years.

Key Takeaways

Corporations Canada’s recent inquiries signal a more active monitoring and enforcement approach to ISC Register compliance under the CBCA. Corporations should ensure that their ISC Registers are accurate, current and supported by appropriate corporate records documenting the reasonable steps taken to confirm or update the information in the ISC Registers.

Key points for CBCA corporations include:

• ISC compliance is an ongoing obligation. Private CBCA corporations must maintain an ISC Register and file required ISC information with Corporations Canada at prescribed times, including on an annual basis and following certain changes.
• “No ISC” filings should be supportable by evidence or reasonable steps taken to confirm this conclusion. Where a corporation has reported that it has no ISCs, it should be prepared to demonstrate the steps taken to reach that conclusion, including by producing its shareholder list and related supporting records.
• Failure to respond can have serious legal consequences. A corporation that does not respond to an inquiry within the required timeframe may be considered in default and may face further compliance measures, including potential refusal of a Certificate of Compliance, court-ordered compliance, administrative dissolution or prosecution for regulatory offences.

Looking Ahead

Corporations Canada’s recent enforcement activity suggests that ISC compliance will remain an area of increased regulatory attention. Private CBCA corporations should consider reviewing their ISC Registers and related ownership records as part of their regular annual corporate maintenance process.

If you have any questions about the ISC Registers, or if you need assistance in responding to an inquiry from Corporations Canada, please contact:

• Dierk Ullrich (British Columbia)
• Brendan Sawatsky (Alberta)
• Claire Gowdy (Ontario)
• Emilie Clairoux (Quebec)

Disclaimer: This bulletin is for general information purposes and is subject to the particular facts of each case; certain requirements may have been simplified, and the law may have changed since the date of this bulletin.