Transparency Registers are a new concept for corporations in Canada, but it is a concept that is quickly spreading.
This article aims to introduce you to the concept of a Transparency Register, provide some background about why it is fast becoming a requirement throughout Canada, and explain how it impacts your business and what you should do about it.
What is a Transparency Register?
The word “register” simply refers to a list; a “register” is a list that is stored in a central location and that contains specific information.
A “Transparency Register” is a list that is stored in a corporation’s minute book at the registered office address of the corporation. The list is required to contain specific information about the individuals that control the corporation. The information required usually includes full name, residential address, birth date, citizenship, tax residency, and an explanation of how they control the corporation (control is usually referred to as having a stake of 25% or greater in the company or equivalent power to control the corporation).
Transparency Registers look like a sheet of paper (or a PDF) that contains a table; the columns of the table show the categories of information that need to be recorded, and the rows of the table identify the various individuals whose information needs to be recorded.
The individuals listed in the table are sometimes referred to as “individuals with significant control” or “ISCs”.
Where did Transparency Registers come from, and why are they important?
Background
Transparency has become a hallmark of modern corporate governance, embodying the ideals of accountability, ethical conduct, and responsible business practices. To fortify this foundation, countries worldwide have embraced transparency registers as a powerful tool in the fight against financial crimes and to uphold corporate integrity. Canada, as a global economic player, is no exception.
The federal government first introduced the concept in Canada as a requirement of the Canada Business Corporations Act. Since that time, many of the provincial jurisdictions have adopted similar requirements, most notably British Columbia and Ontario.
Understanding Transparency Registers
As mentioned above, a transparency register is a centralized repository that provides insight into the beneficial ownership of a company. It reveals the individuals or entities that possess a significant level of control or ownership in a corporation. By exposing the true owners behind legal entities, transparency registers serve as a deterrent to illicit financial activities, such as money laundering, tax evasion, environmental crimes, and terrorist financing. They enhance regulatory oversight and bolster corporate accountability, ultimately contributing to a fairer and more transparent business environment.
Benefits of Transparency Registers
Proponents of transparency registers would list an array of benefits, such as:
a. Enhanced Corporate Governance
Transparency registers promote responsible ownership by discouraging hidden ownership structures. This leads to improved corporate governance, ethical decision-making, and sustainable business practices.
b. Effective Regulation and Enforcement
With access to comprehensive ownership information, regulatory authorities can more effectively combat financial crimes and enforce laws aimed at preserving the integrity of the financial system.
c. Investor Confidence
Transparent ownership structures instil confidence in investors and stakeholders, enabling informed decision-making and attracting both domestic and foreign investments.
d. Level Playing Field
Transparency registers level the playing field for all companies, preventing unfair advantages that can arise from obscured ownership arrangements.
e. Global Reputation
Embracing transparency registers aligns Canada with international best practices, enhancing its reputation as a responsible and trustworthy destination for business and investment.
Challenges and Considerations
While transparency registers offer substantial advantages, they are not without challenges:
a. Data Accuracy
Ensuring accurate and up-to-date ownership information can be challenging, especially for corporations with complex ownership structures involving subsidiaries, trusts, and multiple shareholders.
b. Privacy Balancing Act
Striking the right balance between transparency and individual privacy rights can be a challenge. Careful measures must be taken to avoid undue exposure of personal information.
c. Administrative Burden
Smaller businesses may find it burdensome to comply with the administrative requirements of maintaining a transparency register. However, solutions such as the tobuso.ca platform have been developed to make it an easy and seamless process.
d. Cybersecurity Concerns
Digital records could be vulnerable to cyber threats, necessitating robust cybersecurity measures to safeguard sensitive ownership data.
e. Interjurisdictional Harmonization
Achieving harmony between transparency register regulations within Canada (amongst the provinces and the feds) and those of other international jurisdictions is imperative to prevent regulatory gaps that could be exploited by wrongdoers.
What does this mean for you and your business?
High Level
Transparency registers hold significant implications for companies operating in Canada:
a. Compliance Integration
Companies need to integrate transparency register obligations seamlessly into their existing corporate governance practices. This may require adapting internal processes, revising shareholder agreements, and training personnel.
b. Enhanced Due Diligence
Companies must adopt comprehensive due diligence procedures to ensure the accuracy and completeness of transparency register data. Regular audits and reviews are crucial.
c. Technological Adoption
Embracing digital solutions, such as Tobuso, can streamline transparency register maintenance and safeguard data.
d. Stakeholder Communication
Transparent communication with shareholders, directors, and executives about the importance of transparency registers is essential to foster a culture of compliance.
e. Risk Management
Complying with transparency register obligations mitigates legal and reputational risks associated with non-compliance.
f. Global Alignment
Companies with international operations must ensure their transparency register practices align with global regulatory standards to prevent inconsistencies across jurisdictions.
Practically Speaking
If your corporation does not already have a transparency register, then you will need to create one. It is easy to do on the Tobuso platform.
In the process, you will need to speak with shareholders of the corporation about the transparency register and the information required; shareholders will need to be educated and trained about these requirements.
There are ongoing obligations associated with transparency registers. Once your transparency register is created, it needs to be updated on a regular basis (whenever there is a change and at least annually). Again, it’s easy to do so on the Tobuso platform.
There are soon-to-be annual filing requirements for some transparency register information as well (particularly for federal Canadian corporations and BC companies), which will be the subject of a separate article.
Conclusion
Transparency registers are an indispensable component of modern corporate governance, contributing to the prevention of financial crimes and environmental crimes, fostering investor trust, and promoting responsible business conduct. For many companies in Canada, the adoption of transparency registers is shifting from being a best practice to a legal requirement. While challenges such as data accuracy and privacy concerns exist, the benefits of transparency registers far outweigh these obstacles, and Tobuso will help you to overcome those challenges. As Canada positions itself at the forefront of transparent business practices, companies are poised to play a pivotal role in shaping a more accountable, equitable, and resilient corporate landscape.
