Spotlight on Québec law: New rules on ultimate beneficiary disclosure

Ana-Ioana Ioanas (00:05): You want to do business in Québec, and admittedly, there’s a lot to take in. Among other things, you heard their new disclosure requirements relating to the ultimate beneficiaries under the Act respecting the legal publicity of enterprises. So, what do you need to know? My name is Ana-Ioana Ioanas, I am a corporate associate in Torys’ Montréal corporate department and I’m here with Guillaume Lavoie, partner in the same department. So, Guillaume, can you give us a high-level rundown of these fairly new requirements?

Guillaume Lavoie (01:34): Certainly, thank you Ana. So, if you want to do business in Québec, you’ll have to register with the Québec Enterprise Registrar. And with the new requirement, what it means is that you will be required to disclose certain information concerning your ultimate beneficiaries. We’ll come back to what it means, but that means you’ll need to disclose, with respect to those ultimate beneficiaries, their name, the address of their domicile, their date of birth, the type of control that they have—we’ll come back to that as well—and the date on which they became an ultimate beneficiary and if applicable, the date on which they ceased to be an ultimate beneficiary. But not everyone is subject to those new disclosure requirements.

Ana-Ioana Ioanas (01:12): You’re right. So certain entities are exempt from such obligations, such as not-for-profit legal persons established for private interest, Crown corporations, reporting issuers in the province of Québec, certain financial institutions and banks, and trust companies governed by federal statute, as well as trust companies governed by statute from another province.

Guillaume Lavoie (02:34): So, the notion of an ultimate beneficiary—what the statute is looking at—first of all, a natural person. So that means an individual that owns directly or indirectly, with respect to a reporting entity, they’re really going to be looking at the individual that, all the way up the chain that ultimately owns 25% or more of the voting securities of that entity, 25% or more of the fair market value—so looking at economic rights—the individuals that have control in fact. When it comes specifically to limited partnerships, an ultimate beneficiary will also include the general partner or general partners of the limited partnership, in the context of a trust, the trustees.

Ana-Ioana Ioanas (02:15): And going back to the voting aspect of it, what if there’s a voting agreement between multiple natural persons who each individually own less than 25%, but pursuant to the voting agreement, they vote together and together they hold more than 25% of the voting rights?

Guillaume Lavoie (02:32): So, in the example you’re mentioning, that means that each of those individuals would be deemed to be an ultimate beneficiary of the reporting entity.

Ana-Ioana Ioanas (02:39): So that means a reporting entity can have multiple ultimate beneficiaries?

Guillaume Lavoie (02:44): Absolutely. So, any of the tests that we mentioned, if an individual meets any of the criteria, they are an ultimate beneficiary and there actually can be none at all.

Ana-Ioana Ioanas (03:58): What can you tell us about someone, a natural person who has control in fact of the reporting entity?

Guillaume Lavoie (03:04): So, what the Legal Publicity Act tells us about the notion of control in fact, they defer us to the Taxation Act (Québec). So, the test that has to be applied is the one that we apply for tax purposes. That means that all factors that are relevant to the circumstances must be taken into consideration. It has to be a case-by-case analysis. But we can think of veto rights or rights of that nature that could give a control in fact.

Ana-Ioana Ioanas (03:26): Let’s take a concrete example. Let’s say ABC Inc. is an entity incorporated in Spain and wants to do business in Québec, and thus wants to register in Québec and must disclose its ultimate beneficiaries. It is wholly owned by XYZ Inc., who in turn is wholly owned by BubbleGum Inc., and BubbleGum Inc. is a reporting issuer in Québec. What happens then?

Guillaume Lavoie (04:47): So, in your example, we’re looking at the individuals, we would be doing a look through XYZ. So, XYZ would not be an ultimate beneficiary. When we get to BubbleGum we are actually in luck because there’s an exemption. So BubbleGum, by being a reporting issuer in Québec, they would be exempt from the requirement to identify the ultimate beneficiaries up their chain.

So that means that BubbleGum, even if it’s not a natural person, would actually be disclosed as ultimate beneficiary. But we don’t have to look through to see if there’s anyone else above BubbleGum that would fit the criteria.

Ana-Ioana Ioanas (04:18): And can we stop the analysis here?

Guillaume Lavoie (04:21): Well, unfortunately, no, we’re exempt from looking at BubbleGum, but we still need to make sure that there’s no one else that meets the criteria that we’ve discussed earlier. So, for example, there was a question of control in fact, we would still need to look at the different agreements to see if there’s anyone else that would have control in fact of the reporting entity.

Ana-Ioana Ioanas (04:36): And what if, for purposes of our example, there’s no one who has control in fact. But what if BubbleGum is not a reporting issuer in the province of Québec, but is rather a reporting issuer in another country or in another province?

Guillaume Lavoie (05:48): The exemption we were just talking about, it’s very important that we’re talking about a reporting issuer in the province of Québec, so a reporting issuer in another province would not be exempt. Same thing if BubbleGum is listed on the Madrid Stock Exchange, and it has never been a reporting issuer in the province of Québec, the exemption would not apply and then we would have to look through BubbleGum.

Ana-Ioana Ioanas (05:06): That’s very interesting. And it seems like it can get quite complicated. And what if ABC, after an investigation, can’t say with certainty whether it has an ultimate beneficiary?

Guillaume Lavoie (05:20): So, what the obligation that’s imposed on that entity is, is to take all necessary measures. In the commentary published by the Québec Enterprise Registrar, what we see is that they consider that necessary measures means more than just taking reasonable measures. Beyond that, it’s still a little bit unclear as to what that means. We’ll have to see as the practice evolves, if the Québec Enterprise Registrar provides more guidance in the future (or what the jurisprudence says) about what it practically means. But given the fact that it’s more than taking reasonable measures, we can assume that it requires a heavy burden in terms of efforts to retrieve the information.

Ana-Ioana Ioanas (06:57): And we must say, when it comes to what information is made public, the following information will be made public. So, the name, the type of control, the date on which the person became an ultimate beneficiary, and the address if no professional address is disclosed to the Québec Enterprise Registrar. However, the date of birth of the ultimate beneficiaries will not be made public. And we must also mention that a reporting entity doesn’t only have an obligation to disclose this information, but also has an obligation to keep this information up to date.

Ana-Ioana Ioanas (06:27): So, reporting entities have an obligation to keep every single information disclosed to the REQ, up to date and updated within 30 days of any change, right?

Guillaume Lavoie (06:38): Absolutely. Thank you very much, Ana.

Ana-Ioana Ioanas (06:40): Thank you.

Guillaume Lavoie (06:41): And thank you all for listening. See you in our next video.

Ana-Ioana Ioanas (06:43): Bye.