NEW TRANSPARENCY RULE FOR BUSINESSES

NEW TRANSPARENCY RULE FOR BUSINESSES

In Quebec, the new obligations to improve business transparency come into effect on March 31, 2023. You will be required to provide this information to the Registrar of Companies starting from that date.

While the exact justification for this new measure may not be clear yet, the Registrar of Companies indicates that it is essential in the fight against fraud and tax evasion. Here are the elements that will be subject to mandatory disclosure:

Who is the Registrar of Companies?

The organization, as its name suggests, is mandated to maintain a register displaying all businesses operating legally in its territory. It is also committed to acting in a way that increases transparency and accountability in domestic and international operations.

Declaring Ultimate Beneficial Owners

Certain companies covered by the Business Corporations Act must declare to the Registrar of Companies information about their ultimate beneficial owners, such as their name, residence, and date of birth.

Providing Copies of Identification Documents

Companies will need to provide a copy of an identification document for the current directors declared in the business registry as proof of their identity. Moreover, they must declare the date of birth of any individual listed in the registry, along with the home address in the case of a natural person. However, it will be allowed to declare the professional address of the individual listed in the registry so that their home address is not accessible to the business registry.

Upon the entry into force of this law, it will be possible to conduct a search using the name and first name of a natural person in the business registry to find out who is associated with a business. However, certain personal information (e.g., date of birth) cannot be part of such a search.

It should be noted that any company with a non-voting shareholder but with influential powers over operations will have to disclose the identity of such a shareholder. This may pose a problem in the case of an investor who wishes to remain discreet.

March 31, really?

This measure is not entirely new; it was supposed to come into effect in 2021, but it seems that the government’s administrative apparatus was not ready to accommodate the integration of this information. Furthermore, the measure raises many questions and reluctance among the public, especially among business people, and there is a desire for its entry into force to be postponed again.

Pushing Investment Elsewhere?

The relevance of the new measure is in question. The current law does not prohibit an entrepreneur from investing in another business, without voting rights, while preserving certain powers in management to protect their investment. Some individuals, for entirely legitimate reasons, want to keep their involvement discreet; they are usually referred to as “Angel Funds,” “Love Money,” or “Silent Partners” because they wish to support start-up or struggling businesses while maintaining anonymity from the public, without seeking to evade their tax responsibilities.

In an economic climate where entrepreneurship is necessary to grow our economy and the collective wealth of society, such a measure could hinder this objective. Such an investor might be tempted to invest in companies operating elsewhere where this measure does not exist.

While attempts are made to justify this measure by invoking the need for transparency, these pieces of information are already disclosed to potential buyers in the context of business transactions. So, besides the desire to reduce tax evasion, it is challenging to see who will truly benefit from the new measure, and there are other ways to address this issue.

WARNING: The information contained in this article, while of a legal nature, does not constitute legal advice. It is recommended to consult with a professional for advice that will address your specific situation.