An Act mainly to improve the transparency of enterprises – Québec leads the way towards enforcing corporate transparency
This article is a continuation of a series of previous publications by Me Mélanie Masson, specialist in corporate law within the real estate and transactional law department of Gascon & Associates, L.L.P.. To consult these articles, please follow the following links:
The outcomes of the enactment of bill no. 78 an act mainly to improve the transparency of enterprises
The Québec government’s new requirements regarding corporate transparency
The beneficial ownership and new corporate obligations of the federal private corporations coming into force as of June 2019
On June 8, 2021, Québec’s National Assembly sanctioned Bill 78, namely the Act to improve transparency of enterprises (hereinafter the “Act”), which was introduced before the National Assembly in December of 2020 by Québec’s Minister of Labour, Employment and Social Solidarity, Mr. Jean Boulet.
Proposing an amendment to the legislative framework currently governing the registration requirements of businesses operating in Québec, that is, the Act respecting the legal publicity of enterprises(commonly referred to as the “LPLE”), it appears from the Act that Mr. Legault’s caquist government is seeking, among other things, to impose on enterprises falling within the scope of the LPLE an obligation to declare to the Registraire des Entreprises du Québec (the “REQ”) certain information relating to the natural persons that are the “ultimate beneficiaries” of such enterprises, a term for which the definition, however, leaves room for uncertainty as to its full scope.
As a result of the Act, section 0.4 of the LPLE will define an “ultimate beneficiary” of a business subject to the LPLE as a natural person who :
“ 1° […] holds, even indirectly, or is the beneficiary of, a number of shares or units in the registrant which entitles them to exercise 25% or more of the voting rights attached to such securities;
2° […] holds, even indirectly, or is the beneficiary of a number of shares or units with a value equal to 25% or more of the fair market value of all the shares or units issued by the registrant;
3° […] has such direct or indirect influence that, if exercised, would result in de facto control of the registrant;
4° […] is the general partner of the registrant or, if a general partner of the registrant is not a natural person, meets one of the conditions referred to in paragraphs 1 and 3 or is a party to an agreement referred to in the second paragraph in respect of that general partner;
5° […] is its fiduciary.
Where natural persons who hold, even indirectly, or are beneficiaries of shares or units in the registrant have agreed to jointly exercise the voting rights attached to those shares or units and where such agreement effectively confers on them the power to exercise together 25% or more of those rights, each of them shall be deemed to be an ultimate beneficiary of the registrant. […] ”
Under this definition, an “indirect beneficiary” would be a natural person (i.e., an individual) who is a “holder, even indirectly”, or a “beneficiary” of shares carrying 25% or more of the fair market value of all the shares issued by the concerned corporation, or who exercises a ” de facto control” over it.
Section 98 of the LPLE will thus be amended so as to require that the register of the REQ will henceforth publicly indicate “the name and domicile of the ultimate beneficiaries as well as the type of control exercised by each of them or the percentage of shares or units they hold or of which they are beneficiaries” Also, the date on which they became an ultimate beneficiary and, if applicable, the date on which they ceased to be an ultimate beneficiary will have to be entered in the forthcoming register.
Moreover, in its current form the Act would not only allow the REQ to make this information public and accessible to all, but it would also be possible to search the register by directly inquiring for the names of individuals who are the ultimate beneficiaries, directors or officers of a specific corporation, a feature that has caused many privacy activists to question the impact that the Act will have on the privacy of individuals whose personal information would be made freely accessible.
This represents a different approach from the existing federal initiative to modernize the transparency threshold for companies governed by the Canada Business Corporations Act (the “CBCA”). Indeed, as of June 2019, the CBCA in turn provides for the establishment of a registry of personal information of “ultimate beneficiaries” of the relevant corporations. However, this information remains hidden from the public eye, being only accessible to certain federal administrative and tax authorities, as well as to its shareholders and creditors.
In contrast with the willingness to protect individuals’ private information, it is clear from the Act that in the wake of the Panama Papers scandal and other more recent international efforts to address tax evasion, Québec government’s is seeking to more actively combat money laundering and corruption by first focusing on the transparency of corporations doing business in Québec, as outlined in a press briefing by Mr. Jean Boulet:
“The bill we passed today redefines the mission of the Enterprise Registrar. I am proud to say that we are finally reclaiming our leadership role in corporate transparency by proposing the most advanced provisions in North America. For example, the implementation of mechanisms to counter abusive tax avoidance and corruption will increase public confidence in our businesses and their owners. The adoption of this bill sends a strong signal of the government’s willingness to draw on best practices to make Québec a place of choice for doing business in complete transparency.” [our translation]
At this time, the effective date of the Act’s provisions aimed primarily at improving corporate transparency is unknown, but it is expected to come into effect by October 2022. Any failure by a subject company to comply with the new requirements could trigger the existing penalties and administrative measures under the LPLE, which could include automatic deregistration and penalties ranging from $500 to $25,000.