New Year… new rules for Quebec enterprises in terms of corporate transparency!
Bill 78 modifies the Act on the legal publicity of companies (Loi sur la publicité légale des entreprises ("LPLE")) and the Regulation respecting the application of the Act respecting the legal publicity of enterprises, by introducing new rules regarding the corporate transparency and what information must be disclosed by entities. All shareholders, partners, directors and officers of enterprises registered with the Québec Enterprise Register ("REQ"), as well as their legal advisors, accountants and tax advisors, will have to become familiar with these changes, as their impact is significant.
What are the new requirements?
From now on, registrants will be required to declare the ultimate beneficiaries of their enterprises, provide identification documents for all their directors and declare the dates of birth of all individuals listed on the REQ.
In addition, Bill 78 will allow individuals operating a sole proprietorship to declare a professional address. While this does not exempt them from declaring their residential address, the latter may not be consulted unless it is by a court bailiff in the practice of their profession.
Finally, the REQ intends to optimize its search engine for the benefit of those who use it, so that users may be able to conduct a search using an individual’s first and last name. However, it should be noted that this function will only be available as of March 31, 2024.
Important Dates to Remember
Amendments made to the LPLE by Bill 78 will also come into force on March 31, 2023, requiring enterprises to comply with the proposed changes. That being said, the Quebec government has planned a gradual implementation of Bill 78 to allow for compliance over the course of the next year.
In the case of an entity that isn’t yet registered with the REQ by March 31, 2023, it will have to declare information regarding its ultimate beneficiaries upon filing of a declaration of registration, an initial declaration or a declaration of reregistration. Note that this applies to any corporation incorporated after March 31, 2023 that carries out activities in Quebec.
In the case of existing registrants, such as an enterprise carrying out activities in Quebec or one incorporated under the Business Corporations Act, the declaration of mandatory information regarding its ultimate beneficiaries must be provided no later than its first annual updating declaration due and filed after March 31, 2023, or the filing of a current updating declaration, whichever comes first. For further clarification, any change or modification to the information disclosed on the REQ will require registrants to file a current updating declaration, even if the annual declaration filing period has not yet expired.
In this regard, it should be noted that the Quebec government mentions in its directives of Bill 78 that enterprises eligible for joint filing will be able to check "no" on boxes 39 or 436 of the applicable tax return form, as the case may be, when filling their first income tax return following the implementation of these new rules.
An enterprise will then have to file their annual updating declaration directly with the REQ when declaring new information, and not in one step. Following that first declaration, enterprises will once again be able to file their annual updating declaration via their income tax return declaration as it is currently possible to do so.
Which enterprises will have to declare an ultimate beneficiary?
As a result of the recent amendments to the LPLE, the following enterprises (Quebec, Canadian or international) that will have to declare an ultimate beneficiary :
- Business corporations carrying on an activity covered by the LPLE in Quebec;
- Individuals operating a sole proprietorship;
- Partnerships (e.g., limited partnerships, general partnerships) carrying on an activity covered by the LPLE in Quebec;
- Cooperatives carrying on an activity covered by the LPLE in Quebec, except for financial services cooperatives;
- Trusts operating a commercial enterprise in Quebec.
Additionally, certain entities are exempt from these new rules, such as :
- Legal persons established in the public interest;
- Non-profit legal persons;
- A reporting issuer within the meaning of sections 68 and following of the Securities Act;
- Financial institutions referred to in paragraphs 1 to 3 of section 4 of the Insurers Act, i.e. insurers authorized to carry insurer activities under the Insurers Act, deposit institutions authorized under the Deposit Institutions and Deposit Protection Act, and financial services cooperatives within the meaning of the Act respecting financial services cooperatives;
- Trust companies governed by a provincial or federal law, or by the laws of another province or territory of Canada;
- Banks and authorized foreign banks listed in Schedules I, II and III of the Bank Act;
- Associations within the meaning of the Civil Code of Quebec;
- Joint ventures (undeclared partnerships) within the meaning of the Civil Code of Quebec.
What is an ultimate beneficiary?
For entities subject to these new requirements, it is important understand what is meant by the term “ultimate beneficiary”. An ultimate beneficiary is an individual that holds an interest in a given entity in such a way that it enables them to benefit from a portion of its revenue or assets, or to direct or influence its activities. In short, this refers to any individual who has an influence and an impact over the affairs of an enterprise, whether through legal or de facto control. Moreover, an enterprise may have several ultimate beneficiaries. It is therefore important that each beneficiary is declared to REQ.
In accordance with Bill 78, an ultimate beneficiary is  :
- A person who holds, directly or indirectly, 25% or more of the voting rights;
- A person who holds, directly or indirectly, 25% or more of the fair market value of all shares or units issued by the enterprise;
- A person who has a direct or indirect influence which could result in a de facto control.
Through an inherently subjective analysis, de facto control can exist in situations where an individual influences the decisions of an enterprise in an important way. As such, de facto control is closely linked to the interpretation given to it under the Taxation Act, with necessary adaptations.
Determining whether a person has such influence requires a factual and legal analysis that largely depends on a given situation. To determine whether a person has a direct or indirect influence over an enterprise so that, if exercised, it would result in a de facto control, all relevant factors must be considered.
Examples of de facto control include the influence of a family member, a long-time employee, a client or even a major creditor over the management of an enterprise. However, it should be noted that situations of de facto control are not limited to these examples. As such, it is recommended to consult the Quebec government’s guide on the matter and review further with a lawyer.
In situations where individuals who directly or indirectly hold, or are beneficiaries of shares or units in a given entity agree to jointly exercise voting rights attached to these shares or units, and the effect of such agreement would grant this group the power to exercise 25% or more of the voting rights in an entity, each of them is considered to be an ultimate beneficiary.
In the case of a sole proprietorship, the individual who operates the business is presumed to be the only ultimate beneficiary unless declared otherwise.
Finally, it should be noted that the Quebec government may establish by regulation other situations and conditions under which an individual would be considered an ultimate beneficiary. It will therefore be important to follow developments on this matter over the upcoming years.
What kind of information do ultimate beneficiaries need to declare?
Ultimate beneficiaries need to declare the following information to the REQ:
- Their first and last names;
- Their residential address;
- Their date of birth;
- The date on which they became an ultimate beneficiary and that on which they ceased to be one; and
- How the ultimate beneficiary qualifies as such.
While some of this information is accessible to the public, this is not the case for dates of birth and residential addresses of ultimate beneficiaries (if they have also declared a professional address). In any case, it remains the responsibility of entities subject to the requirements of LPLE to declare this information.
It should be noted that dates of birth, as well as residential addresses, if a professional address is declared, will not be available to the public, whereas all other information will appear publicly on the REQ. However, a court bailiff may consult the information related to any individual’s residential address in the exercise of their profession.
Additionally, enterprises will have to update and modify the registers in their corporate minute book to take into account the notion of ultimate beneficiaries and document this information accordingly.
Proof of Identification Documents for Directors
It will now be mandatory for directors of an enterprise registered with the REQ, as well as for each newly named director, to provide a copy of identification in support of any declaration or updating of information relating to them, as a means to ensure the accuracy of the first and last name and date of birth of all directors of an enterprise. For this purpose, the identification provided must be valid and issued by a government authority. Only identification with a first and last name and date of birth will be accepted.
What penalties do enterprises face if they fail to comply?
An enterprise that fails to comply with these requirements exposes itself to administrative sanctions, in addition to penalties of up to $20,000, depending on the situation. Such fines may be doubled in the event of a subsequent offence.
Key Points to Remember
In short, these new measures will usher in a new era of corporate transparency for those doing business in Quebec. These measures seek to strengthen the protection of the public and make it possible to fight against tax evasion, money laundering and corruption.
For any questions regarding Bill 78 and what this means for your business going forward, do not hesitate to contact a member of our business law team.
- Government Guide (French only)
 Act respecting the legal publicity of enterprises, RLRQ c P-44.1, art 0.2, 0.4, 33 (2.1), 33 (2.2), 35.2, 99.1, 68.1, 101 al. 2 et 3, [LPLE] as modified by Bill 78, Act mainly to improve the transparency of enterprises, 1e sess, 42e lég, Québec, 2021 (Given assent on June 8th 2021), c 19 [Bill 78].
 Ibid, art 99.1 al 2; see also the explanatory notes of Bill 78.
 Ibid, art 101.
 Government of Quebec, New requirements for company transparency, Quebec, 2022, online : https://www.quebec.ca/entreprises-et-travailleurs-autonomes/demarrer-entreprise/immatriculer-constituer-entreprise/nouvelles-obligations-transparence (consulted the (04-01-2023)) [Government Guide].
 LPLE, supra note 1, art 29.
 Government Guide, supra note 4, online : https://www.quebec.ca/entreprises-et-travailleurs-autonomes/demarrer-entreprise/immatriculer-constituer-entreprise/nouvelles-obligations-transparence/declarer-beneficiaire-ultime/faire-declaration (consulted the (04-01-2023)).
 Government Guide, supra note 4, online : https://www.quebec.ca/entreprises-et-travailleurs-autonomes/demarrer-entreprise/immatriculer-constituer-entreprise/nouvelles-obligations-transparence/declarer-beneficiaire-ultime/qui-doit-declarer (consulted the (04-01-2023)).
 LPLE, supra note 1, art 0.4.
 Government Guide, supra note 4, online : https://www.quebec.ca/entreprises-et-travailleurs-autonomes/demarrer-entreprise/immatriculer-constituer-entreprise/nouvelles-obligations-transparence/declarer-beneficiaire-ultime/trouver-identifier (consulted the (04-01-2023)).
 Ibid, online : https://www.quebec.ca/entreprises-et-travailleurs-autonomes/demarrer-entreprise/immatriculer-constituer-entreprise/nouvelles-obligations-transparence/declarer-beneficiaire-ultime/trouver-identifier (consulted the (04-01-2023)).
 De facto control of a business occurs when a person is able to significantly influence the decisions of a business. To determine whether such influence exists, the Government Guide refers to sections 21.25 and 21.25.1 of the Taxation Act (chapters I-3).
 LPLE, supra note 1, art 0.4 al 2.
 Ibid, art 0.4 al 3.
 Ibid, art 0.4 al 6.
 LPLE, supra note 1, art 68.1.
 Government Guide, supra note 4, online : https://www.quebec.ca/entreprises-et-travailleurs-autonomes/demarrer-entreprise/immatriculer-constituer-entreprise/nouvelles-obligations-transparence/pieces-identite (consulted the (04-01-2023)).
 Act respecting the legal publicity of enterprises, RLRQ c P-44.1, art 152, 158.1 and 159.
 Ibid, art 162.1.