Individuals with Significant Control

Understanding Individuals with Significant Control and Compliance Requirements

In Canada, businesses are required to maintain transparency about individuals who have substantial influence over the company. These individuals, referred to as Individuals with Significant Control (ISC), play a key role in the ownership, decision-making, and strategic direction of a business. Understanding who qualifies as an ISC and how to report this information is essential for compliance with Canadian corporate regulations.

What is an Individual with Significant Control?

An Individual with Significant Control (ISC) is a person who has substantial ownership, rights, or influence over a corporation. This typically includes individuals who:

• Directly or indirectly own or control 25% or more of the corporation’s shares.
• Possess 25% or more of the voting rights within the corporation.
• Exert a substantial influence over the corporation through other agreements, financial interests, or arrangements.

The designation of ISC applies primarily to individuals, rather than corporations, as a measure to enhance transparency and accountability within corporate governance.

Why is Identifying ISCs Important?

The ISC requirement is designed to:

• Increase Corporate Transparency: By identifying individuals with substantial influence, Canadian regulations aim to reduce the potential for illegal activities, such as money laundering and tax evasion.
• Protect Shareholders and Stakeholders: Access to information about ISCs provides stakeholders with greater insight into the company’s ownership and decision-making.
• Ensure Regulatory Compliance: Failure to maintain an accurate record of ISCs can lead to penalties, which could impact the reputation and operations of the business.

Key Requirements for Corporations

Corporations subject to ISC requirements must:

1. Identify ISCs: Determine the individuals who meet the ISC criteria.
2. Maintain an ISC Register: Corporations are required to keep an updated register listing all ISCs, including their names, date of birth, address, residency status, and the nature of their control over the corporation.
3. Update the ISC Register Annually: The ISC register must be reviewed and updated annually, and any changes in ownership or control must be promptly recorded.
4. Disclose Information Upon Request: The corporation must be prepared to disclose ISC information to authorized parties, such as law enforcement agencies, when requested.

Information to Include in the ISC Register

Corporations are legally obligated to record specific information for each ISC in the company’s register, including:

• Full Name: First, middle, and last names.
• Date of Birth: Essential for accurate record-keeping.
• Current Address: For correspondence and verification.
• Residency and Citizenship: Whether the ISC is a Canadian resident and their citizenship status.
• Date of Control: The date on which the individual acquired significant control.
• Details of Control: A description of the specific rights or interests granting the ISC influence over the corporation.

Keeping Your ISC Register Accurate and Up to Date

Businesses are required to review their ISC register each year to ensure accuracy and completeness. Any changes in significant control, such as transfers of shares, must be updated immediately.

For added transparency, corporations are advised to notify ISCs about their inclusion in the register and inform them of their rights and responsibilities.

Consequences of Non-Compliance

Failing to comply with ISC regulations can result in penalties for the corporation and its officers. Businesses that do not maintain a complete and accurate ISC register may face fines or other enforcement actions. Ensuring your ISC records are up to date protects your business from these risks and reinforces its credibility.

Need Help with ISC Compliance?

Understanding and complying with ISC requirements can be complex. Cali Discovery offers expert guidance to help you establish and maintain a compliant ISC register, giving you peace of mind and freeing you to focus on your business growth.  CLICK HERE to get started today.