On April 6, 2020 and September 18, 2020, the British Columbia government introduced several important changes to the transparency register rules for private companies. The transparency rules were originally introduced in 2019 and apply to private companies governed by the Business Corporations Act (British Columbia) (the "Act"). British Columbia was the first province to make good on a federal-provincial commitment to increase beneficial ownership transparency in order to combat money-laundering, terrorist financing and tax evasion. Similar legislation came into force in Manitoba on April 8, 2020 1 and in Prince Edward Island on September 1, 2020, 2 and Saskatchewan3 is expected to follow.
As we have previously discussed,4 now that the requirements are in force, each private company is required to maintain a transparency register listing "significant individuals" who have substantial ownership interests in the company or directly or indirectly control the company. The key changes introduced by the amended regulations are discussed below and the full text is available online: Order in Council No. 169/2020 .
New In-Force Date for Transparency Registers
As part of the B.C. government's response to the COVID-19 pandemic, the coming into force of the transparency register requirements for all private BC companies was postponed to October 1, 2020 (see our Fasken COVID-19 Alert of April 7, 2020).
New Exemptions from Transparency Register Requirements
As previously reported, certain B.C. companies are not considered "private" under the new transparency rules. These are reporting issuers in B.C. or another Canadian jurisdiction and companies listed on a "designated stock exchange" such as the TSX, NYSE or NASDAQ (a full list of designated stock exchanges is published by the Department of Finance Canada).
The amended regulations significantly expand the categories of companies which will not need to prepare transparency registers (the "Exempted Companies"). The Exempted Companies now include:
- Wholly owned subsidiaries of Canadian reporting issuers or of companies traded on designated stock exchanges
- British Columbia insurance companies
- British Columbia trust companies
- Companies whose voting shares are majority-owned by, which act as agents for, or are controlled by, the B.C. government
- Wholly owned subsidiaries of B.C. corporations created or continued by legislation or regulation (for example, universities)
- Companies incorporated or wholly owned by a municipality or regional district
- Companies operating an independent school in B.C.
- Business companies established by B.C. school boards and governed by the Act
- Companies that are wholly owned by one or more Indigenous nations (as defined in the Land Owner Transparency Act (British Columbia))
Exemptions for Indirect Control through Special Intermediaries
Individuals may indirectly control the shares of a private company or the right to elect, appoint, or remove the majority of its directors through an intermediary or a chain of intermediaries. The recent amendments now introduce the concept of "special intermediaries". A special intermediary breaks the chain of control from the private B.C. company to any individual at the top of the chain. In other words, where a special intermediary is part of the chain of intermediaries, no individual exercises indirect control through that chain. Similarly, where a special intermediary is the registered owner of the shares of a private company, no individual indirectly controls such shares, and where a special intermediary holds the right to elect, appoint or remove any director, no individual indirectly controls that right.5
In addition to the Exempted Companies, and the following entities are recognized as special intermediaries:
- Credit unions
- Federal or provincial statutory corporations
- Entities operating independent schools in B.C.
- Companies established by B.C. school boards under the School Act
- Trustees of a testamentary trust
- The B.C. Public Guardian and Trustee and public entities with similar functions established federally or by other provinces
Updated Transparency Rules in relation to Limited Partnerships
On September 18, 2020, the British Columbia government announced amendments to the transparency rules relating to the treatment of limited partnerships for the purpose of determining control of a partnership. The new rules are less onerous for private companies.6 Initially, each partner in a partnership was deemed to control the partnership. This meant, for example, that if a partnership owned a significant number of shares in a private company, or held the right or ability to elect, appoint, or remove the majority of the directors of a private company, each partner of the partnership was deemed to have indirect control of those shares, rights or abilities. Under the amendments, a person is only considered to have control of a partnership if the person is:
- a partner, other than a limited partner, in the partnership; or
- a limited partner, who
- is entitled to at least 25% of the profits of the partnership,
- is entitled to at least 25% of the assets of the partnership on windup,
- has at least 25% of the votes in partnership management, or
- has the right to appoint or remove the majority of the partnership's management.
These thresholds are independent and not cumulative. It is also important to note that the new exemptions only apply to limited partners and not to any other category of partners.
Expect Public Transparency Registers?
Earlier this year, the B.C. Ministry of Finance conducted consultations to determine whether and to what extent transparency register information should be stored in a publicly accessible centralized registry maintained by the B.C. government. A public register would be in line with transparency steps taken in other OECD countries such as the U.K. and the European Union. It would also be in line with another proposed public register: the public land ownership register that is coming into effect in B.C. under the Land Owner Transparency Act, albeit with different threshold tests. 7
*The original bulletin (published April 15, 2020), was updated on November 5, 2020.
1. See The Corporations Act, C.C.S.M. c. C225.
2. Prince Edward Island, Corporate and Business Names Registry, Corporate Transparency Requirements (August 3, 2020) <https://www.princeedwardisland.ca/en/information/corporate-transparency-requirements> accessed 2 November 2020.
3. Bill 191, The Business Corporations Amendment Act, 2019, 4th Sess, 28th Leg, 2019 (assented to 16 March 2020), SS 2019; online: Legislative Assembly of Saskatchewan <http://docs.legassembly.sk.ca/legdocs/Bills/28L4S/Bill28-191.pdf >
4. For a more detailed discussion of these requirements, please see our bulletins: "New Transparency Registry for all Private B.C. Companies in the Offing", and " New Transparency Registers for B.C. Private Companies".
5. However, the chain of control is not broken where a special intermediary is a B.C. trust company or an extraprovincial trust corporation and a person has, under the terms of a trust, the power to direct how the such corporate trustee exercises the rights attached to the shares of private company; the right to elect, appoint or remove its directors; or its control over an intermediary.
6. These amendments were introduced based on feedback from various stakeholders (including Fasken).
7. For more information on the Land Owner Transparency Act, please see our bulletin: " British Columbia's New Land Owner Transparency Registry - What You Need To Know".
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