Over the last few years, the federal and provincial governments have made considerable efforts to improve corporate transparency and to fight corruption, tax evasion and money laundering. For instance, Canadian business corporations now have to maintain a register of individuals who significantly control a corporation. In the same context, the National Assembly assented to Bill 78 on June 8, 2021 (”Bill 78”) amending the Act respecting the legal publicity of enterprises (the “ALPE”). Under the new provisions of the ALPA, enterprises will now be required to transmit to the Quebec Enterprise Registrar (the “REQ”) information concerning their “ultimate beneficiaries”, and this will enable the search for information by a natural person’s name. The entry into force of the new obligations is expected for March 31, 2023.
The following entities registered with the REQ (Quebec, Canadian or foreign) will have to publicly disclose specific new information, notably regarding their ultimate beneficiaries, this to prevent the use of nominees for tax evasion:
- Business corporations;
- Natural persons operating a sole proprietorship;
- Partnerships (ex.: limited and general partnerships);
- Cooperatives except financial services cooperatives;
- Trusts operating a commercial enterprise;
These enterprises will also be obligated to disclose with the REQ the following information for every physical person (directors, officers, shareholders, and ultimate beneficiaries):
- Full name;
- Address (home and professional address of the natural person if the person does not want the home address to be available for consultation)
- Date of birth (however, this information will not be published in the REQ therefore will not be public);
and the following information regarding the ultimate beneficiaries:
- Other names used (ex. pseudonym);
- The date on which a natural person became and/or ceased to be, as applicable, an ultimate beneficiary; and
- Type of control exercised by an ultimate beneficiary, or the percentage of shares or units held, or of which he or she is a beneficiary.
The registrants will also be required to provide for each of their directors active with the REQ, and for any newly elected director, a copy of valid identification, in order to improve the reliability of the information contained in the REQ.
We strongly advise our clients to avoid sending their identity documents by e-mail. If you would like us to file your directors’ identity documents, please contact us and we will provide you with access to a secure platform.
The declared name of every associated person (directors, officers, shareholders, and ultimate beneficiaries) will be available as a search term in the REQ as of March 31, 2024. This will enable the public to identify all enterprises with which a natural person is associated, although information that cannot be consulted (ex. date of birth) will not serve as the basis for a search.
Certain enterprises, however, are exempted from this new obligation to declare their ultimate beneficiaries, in particular:
- Non-profit legal persons established for a private interest;
- Legal persons governed by public law;
- Some financial institutions;
- Banks; and
- Associations within the meaning of the Civil Code of Quebec.
Definition of ultimate beneficiary
The concept of an “ultimate beneficiary” refers to the idea of legal control or control in fact of a legal entity. Thus, under the new law, an ultimate beneficiary means a natural person who meets any of the following conditions in respect of a registrant:
- Is the holder, even indirectly or beneficiary, of a number of shares or units of the registrant, conferring on the person the power to exercise 25% or more of the voting rights attached to the shares or units;
- Is the holder, even indirectly or beneficiary, of a number of shares or units the value of which corresponds to 25% or more of the fair market value of all the shares or units issued by the registrant;
- Is an individual who exercises direct or indirect influence that would, in effect, result in control in fact of the registrant, for example, pursuant to a shareholder or indivision agreement;
- Is a general partner of a limited partnership, or if the general partner is a legal person, the natural person who exercises legal control or control in fact of the general partner;
- Is the trustee of the registrant;
- And any other additional condition set by the government.
When natural persons holding shares or units of the registrant have agreed to jointly exercise the voting rights attached to the shares or units, and when the agreement confers on them, together, the power to exercise 25% or more of those voting rights, each of those natural persons is considered to be an ultimate beneficiary of the registrant. And, lastly, a natural person operating a sole proprietorship is presumed to be the only ultimate beneficiary of the sole proprietorship, unless he or she declares otherwise.
Penalties applicable in the event of non-compliance
The penalties and administrative measures already provided for in the ALPA apply in the event of non-compliance to the new obligations. Under the ALPA, the REQ can apply administrative penalties such as the ex officio cancellation of the enterprises that do not comply with an obligation, and penal sanctions corresponding to $500 to $25,000 fines.
When will the new obligations come into force?
The new obligations come into force on March 31, 2023. It is as of this date that the persons concerned will be required to provide the REQ with the information he or she is obligated to disclose.
You must therefore provide this information to the REQ, at the latest, upon filing your first annual updating declaration following the effective date of these new obligations. It is important to note that, given the addition of these new obligations, an enterprise which has indicated, as of March 31, 2023, in its tax return that their information is up-to-date with the enterprise registrar, will be automatically considered in default and must therefore remedy the failure within 60 days after being requested to do so by the registrar by filing a current amending declaration declaring such new obligations.
We, therefore, strongly advise that the enterprises subject to these new obligations file their next annual updating declaration independently to their annual tax return.
It is only as of March 31, 2024 that it will be possible to carry out a search in the enterprise registrar using the surname and first name of a natural person.
While the announced amendments may add an additional administrative burden, their purpose is to rebuild public trust in the interest of transparency. From a broader standpoint, they contribute to the international fight against tax havens and corruption. To follow the right path and to comply with the new rules, do not hesitate to contact our team or refer to the Quebec Government website (in French only) at Nouvelles obligations pour la transparence des entreprises | Gouvernement du Québec (quebec.ca).
With our team of professionals, lawyers, notaries and tax specialists covering the entire Quebec territory, Cain Lamarre is the most well-established law firm in Quebec and one of the largest in the province.
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