Changes to the Newfoundland and Labrador Corporations Act proposed in Bill 24 An Act to Amend the Corporations Act took effect on April 1, 2022, both imposing new obligations and removing old restrictions on Newfoundland and Labrador corporations.
By Beth McGrath, Corporate and Business Lawyer with McInnes Cooper
1. REGISTER OF INDIVIDUALS WITH “SIGNIFICANT CONTROL”
Newfoundland and Labrador corporations must now record, track, and disclose individuals with “significant control” over the corporation. This change brings Newfoundland and Labrador in line with the federal business corporations legislation and that of a number of other Canadian provinces and territories. The legislative trend toward transparency about the control of Canadian corporations is intended to address issues such as tax evasion, money laundering, and corruption, and is consistent with increased transparency driven by the global adoption of environment, social, and governance (ESG) principles.
Corporations must identify, record, and maintain a registry of individuals with significant control over the corporation. They must keep that registry current and take reasonable steps to ensure it identifies any changes to those with significant control at least once in each fiscal year. The registry must include all the following information about each individual with significant control:
their name, date of birth, and latest known address
their jurisdiction of residence for income tax purposes
the date on which they became or ceased to be an individual with significant control
a description of how they are an individual with significant control, including, as applicable, a description of their interests and rights in respect of the corporation’s shares
For some corporations, creating and maintaining this registry will be a simple exercise, similar to their registry of shareholders. For others, it will be a complicated and time-consuming exercise. A well-maintained corporate minute book, as well as a virtual minute book accessible from anywhere, will save corporations time and money when creating and maintaining the registry of individuals with significant control.
The definition of “significant control” is intended to catch the corporation’s named shareholders and its beneficial owners or controllers of shares: anyone who controls or influences 25 percent or more of the voting rights or outstanding shares of the corporation, whether they do so directly or indirectly. This will require corporations to, at a minimum, take reasonable steps to inquire as to any beneficial ownership status or other ownership issues with its shareholders. The Act requires shareholders to respond to such inquiries.
Corporations now have much broader disclosure obligations. They must disclose their significant control registry to certain third parties, including the following, upon their request: the Newfoundland and Labrador Registrar of Companies, certain investigative bodies, shareholders, and creditors. However, only certain requests as set out in the Act will trigger the corporation’s disclosure obligation. It’s therefore important that corporations implement a process to carefully review and evaluate disclosure requests to ensure that they disclose the registry only to those entitled to it. Corporations are also wise to ensure the information is readily available and up to date so they are prepared to respond to valid requests in a timely manner.
A well-maintained corporate minute book . . . will save corporations time and money
No Canadian residency requirements
Consistent with legislation in most Canadian provinces and territories, Newfoundland and Labrador corporations are no longer required to have any Canadian resident directors. This change broadens access to potential directors and is particularly beneficial to international corporations seeking to do business in Newfoundland and Labrador that might, at the outset, lack local contacts to fill director positions, making it easier for such corporations to do business in this province.
Mandated legislation review
Few changes have been made since the Act initially took effect in 1986. There will now be a mandatory review of the Act within five years after the changes took effect. The next review will happen by 2027 and will hopefully result in more changes to modernize the Act.
To discuss this or any other legal issue, contact any member of McInnes Cooper’s Corporate & Business Team. Read more McInnes Cooper Legal Publications and subscribe to receive those relevant to your business.
This article is information only; it is not legal advice. McInnes Cooper excludes all liability for anything contained in or any use of this article. © McInnes Cooper, 2022. All rights reserved.
Beth McGrath is an experienced corporate and business lawyer in McInnes Cooper’s St. John’s office. She routinely advises diverse clients on corporate procedures and day-to-day business operations, as well as business transactions including corporate reorganizations, mergers, acquisitions and dispositions, structured asset and share purchases, due diligence, commercial financings, and on securities matters. Contact Beth at beth.mcgrath@McInnesCooper.com or 709.570.7342.