The Government of Québec has recently taken steps to significantly enhance corporate transparency, particularly with regard to beneficial ownership of businesses. In a summary of its 2020-2021 Budget, released on March 10, 2020, the government highlighted the importance of identifying the individuals with ultimate ownership or control of businesses, and introduced measures that would require that information on such individuals be made publicly available. The proposed measures are part of a continued effort to combat issues such as money laundering, tax evasion and the financing of illicit activities, and will be included in a bill to be tabled in the coming months.

Background

Business entities operating in Québec are currently required to register with the Registraire des entreprises du Québec (REQ). This enterprise registry serves as a database of all businesses constituted or carrying on activities in the province, and is available to the public free of charge. The level of information made publicly available through Québec’s registry is unique in Canada, making the province a national leader in corporate transparency.

Currently, businesses are required to disclose various pieces of information for publication in the registry, including the business name, domicile, constituting form (e.g., partnership, corporation, trust) and date of constitution. Further information is also required detailing the partners, up to three main shareholders, and directors and officers, as applicable. While business entities are searchable on the REQ, natural persons are not; information on individuals can only be found through the listing of the business entity with which such individual is involved.

The REQ certainly offers the public, as well as government, a great deal of information on businesses and their controlling parties. In practice, however, ownership or control is often exercised through holding companies or trusts, which are only required to register (and thereby become searchable) if formed or carrying out business in Québec in their own right. Where such entities cannot be searched, it is not immediately apparent who ultimately owns or controls the given entity, leaving a gap in information in a registry that exists to provide answers to such questions.

Proposed requirements

As part of their efforts to close this gap and strengthen corporate transparency, the Government of Québec has proposed changes that would allow for more effective identification of the beneficial owners of legal entities and enable the public to verify with whom they are ultimately doing business. Specifically, it would require that information on the beneficial owners (i.e., the individuals with ultimate ownership or control) of businesses be transmitted to the REQ and publicized.

Changes would also be made to enable natural persons to be searched by name in the registry, while other proposed measures are aimed at protecting personal information.

Notably, transmitting information to the REQ is (and will continue to be) required for legal persons carrying on business in Québec, regardless of whether these entities were formed under Québec law. The proposed requirements would apply to most enterprises currently registered with the REQ, with the exclusion of publicly-traded entities, which are subject to separate disclosure requirements, as well as public interest and non-profit organizations, which do not typically have beneficial owners.

The term “beneficial owner”, as it relates to who would need to be identified in the case of a private corporation or similar entity, is defined in the budget summary as an individual who:

• holds, directly or indirectly, at least 25 percent of the entity’s shares (measured either by voting shares or by fair market value);
• exercises direct or indirect control or direction over at least 25 percent of the entity's voting shares or all of the legal person's shares measured by fair market value;
• has any direct or indirect influence that, if exercised, would result in “control in fact” (as decided on a case-specific basis) of the entity; or
• holds jointly a proportion of shares, or exercises control, direction or influence as contemplated by one of the foregoing situations, or having entered into an agreement for that purpose.

In the case of partnerships and trusts, the requirements would be adapted to identify the individuals ultimately controlling or directly benefitting from such entities.

All applicable individuals will have to provide identifying information, such as name, month and year of birth, type of control exercised and percentage held, and an address for service. For most such individuals, this information will be made publicly accessible. Exceptions are proposed for minors who are beneficiaries of trusts and, in keeping with the REQ’s current practice, any individual for whom disclosing such information would pose “a serious threat to the safety of the person.”

Looking forward

The proposed measures will be tabled as a legislative amendment in the coming months. If passed into law, the measures would come into effect gradually, allowing businesses one year to fulfil requirements and submit the required information to the REQ.

The move by Québec follows the implementation of a rule scheduled to come into effect on May 1, 2020 in British Columbia with similar requirements to record (albeit not to make publicly available) beneficial ownership¹. It represents a step towards the Government of Canada’s stated goal of working with the provinces and territories to create a pan-Canadian beneficial ownership registry.² Québec, for its part, has gone further than any other province to date, requiring all companies doing business in the province to register in the REQ and making the registry available to the public in the spirit of complete transparency.³ Other jurisdictions, including the United Kingdom and the European Union, have similarly advanced transparency regimes in place.⁴

It remains to be seen whether a pan-Canadian registry will be adopted, and to what extent such efforts will be coordinated and harmonized between jurisdictions. Entities carrying on business in Québec will need to pay particular attention to these rules, as they may be required to disclose information they would otherwise believe would remain confidential.

We will provide further updates on the new Québec legislation and proposed measures in other provinces as they become available.

For further information on the proposed measures or coordinating the Québec registration process for your business at any stage, please contact John Papagiannis or Scott Rozansky.

The authors gratefully acknowledge the contributions of Bryan Fuchs.    

1. As discussed in a previous Insight, British Columbia has finalized details of a rule requiring companies to keep records of indirect or beneficial ownership. These records, known as transparency registers, will be private corporate records accessible by governmental and regulatory authorities, but not by the public, other shareholders or the company’s creditors.↩
2. Confronting Money Laundering and Terrorist Financing: Moving Canada Forward. Report of the Standing Committee on Finance.↩
3. Federal corporations (i.e., those incorporated under the Canada Business Corporations Act) are required to maintain a beneficial ownership register detailing the individuals who exercise “significant control” over the corporation (see our previous Insight for further information on this topic). The register is accessible to shareholders and creditors of the relevant corporation, as well as to the Canadian Revenue Agency in the context of an investigation.↩
4. For a comparison of European countries’ regimes, see Dentons’ interactive tool for key information on transparency laws.↩