What Does an Individual With Significant Control (ISC) Mean?
In the business world, transparency and accountability are crucial pillars that uphold the integrity of corporate entities. To ensure this transparency, Canada, like many other countries, has introduced regulations that require companies to disclose information about individuals who have significant control over the company. These regulations aim to promote corporate accountability and prevent the misuse of corporate structures for illicit purposes.
Starting on January 24, 2024, it will be mandatory for all federal incorporations in Canada to comply with these regulations, under amendments made to the Canada Business Corporations Act which will require disclosing information about individuals with significant control not only in the annual returns but also in the articles of incorporation and when updating corporate records.
In this article, we will explore the concept of “individuals with significant control” (ISC) in the context of federal incorporations, changes, and annual returns in Canada.
Who Can Be an Individual With Significant Control?
Individuals with Significant Control, often abbreviated as ISC, refer to individuals with significant influence or control over a corporation. This control can be exerted through various means, such as ownership of shares, voting rights, or the ability to influence corporate decisions. The introduction of ISC regulations in Canada is part of a global effort to combat money laundering, tax evasion, and other financial crimes by increasing corporate ownership and control transparency.
The Individual or, on occasion, joint individuals have 25% of the controlling interest in the corporation. There can be instances where no person holds 25% of the corporation’s ownership, and this option can be selected. Public corporations are not required to provide the ownership criteria holding 25%.
- Person/Persons holding 25% of the corporation ownership
- No person/persons hold 25% of the corporation ownership
- Publicly held corporation where this item is not applicable
Key Requirements For ISC Registers
- 1. Identification of ISC: Corporations must identify and record the individuals with significant control over the company. This includes individuals who own or control, directly or indirectly, 25% or more of the corporation’s shares or voting rights.
- 2. Required Information: The ISC register must include the full name, date of birth, and the last known address of each individual with significant control. It should also specify the nature and extent of their control or influence.
- 3. Updating the Register: Corporations must keep their ISC register current. When there are changes in the individuals with significant control, the register must be updated within 15 days of becoming aware of the change.
- 4. Access to the Register: The ISC register is not a private document; it is accessible to the public. Anyone can request to inspect the register, and corporations are obliged to provide access within a reasonable timeframe.
What Are the Benefits of ISC Regulations?
- 1. Enhanced Transparency: ISC regulations enhance transparency by revealing the true ownership and control of a corporation. This information is valuable to shareholders, investors, and regulatory authorities.
- 2. Deterrence of Illicit Activities: By requiring corporations to disclose individuals with significant control, these regulations deter individuals from using corporate structures for money laundering, tax evasion, or other illicit activities.
- 3. Improved Corporate Governance: Corporations that maintain accurate ISC registers are more likely to have better corporate governance practices, as the
- Information can be used to hold decision-makers accountable.
- 4. International Compliance: ISC regulations align with international standards for combating financial crimes and contribute to Canada’s commitment to global anti-money laundering and anti-corruption efforts.
What Information is Required By the Individual With Significant Control To Corporations Canada? Public/Private
- Full Name: The ISC must provide their full legal name, including any middle names or initials. It’s important that the name matches the individual’s legal identification documents.
- Date of Birth: The ISC should provide their date of birth to confirm their identity accurately. This information helps prevent confusion in case there are individuals with similar names.
- Residential Address: The ISC must provide their last known residential address. This is the address where the ISC can be reached and is available for communication and verification purposes.
- Nature and Extent of Control: The ISC needs to specify the nature and extent of their control or influence over the corporation. This includes detailing the basis for their significant control, such as ownership of shares, voting rights, or other means of control.
- Ownership Details: If the significant control is based on share ownership, the ISC should provide details of their shareholdings, including the number of shares held and their class or type.
- Indirect Control: If the significant control is exerted indirectly (e.g., through a holding company or trust), the ISC must provide information about the intermediary entities involved, including their names and details.
It’s important to note that this information is typically provided to the corporation and is maintained in the corporation’s register of individuals with significant control (ISC register). This register is accessible to the public, regulatory authorities, and other stakeholders as part of the transparency requirements.
Starting on January 24, 2024, corporations in Canada are required to include information about the individuals with significant control for new federal incorporation, articles of amendment (commonly), director changes and annual returns (2024+).
When Incorporating a Federal or Canada New Corporation
As of January 24, 2024, each new Canada incorporation will be required to list the details of the Individual With Significant Control as part of the incorporation process. The only exception is for publicly trading corporations. It is important to have the details ready as you complete the incorporation process.
Change of Director/Address
If you are updating federal corporate information prior to January 24, 2024, the ISC will not be required. Once the date of January 24, 2024 occurs, any update will require that you also provide this additional information
Federal Annual Returns
If you are completing Federal Annual Returns prior to the 2024 year, the ISC information is not required. When a corporation is filing the 2024 or any subsequent yearly filing, these details will be required or confirmed with every submission.
Federal Articles of Amendment and Other Changes and Updates
Corporations should be aware that changes such as filing federal articles of amendment due to an ownership or control structure change may trigger updates to the ISC register including common events that necessitate the sale of shares, changes in voting rights, or the transfer of control to new individuals. Corporations must stay proactive in monitoring and updating their ISC registers, to remain compliant with the law. The filing to update the corporate record with Corporations Canada is due within 15 days of any change.
OverallCorporations are responsible for collecting and maintaining this information accurately and ensuring that it is updated promptly whenever there are changes in the ISC’s status or control over the corporation. Accurate ISC information helps promote transparency, accountability, and compliance with regulatory requirements. Failure to provide or update this information can result in penalties of up to 1,000,000 (1 million dollars) or legal consequences for both the ISC and the corporation.
Continuing Out of Federal Jurisdiction
If the corporate shareholders or owners of the corporation do not wish to continue to operate with this additional required provision, an option is available to change jurisdictions from the federal or Canada jurisdiction to a provincial jurisdiction by completed Articles of Continuance such as in Ontario where the ISC information is not required.
As we learn more details, we will update this article to include those details and provide the updates to the relevant pages on our website.
Office Hours: 9:00am – 5:00pm
Monday – Friday E.S.T.
Ontario Business Central Inc. is not a law firm and cannot provide a legal opinion or advice. This information is to assist you in understanding the requirements of registration within the chosen jurisdiction. It is always recommended, when you have legal or accounting questions that you speak to a qualified professional.