New Record Keeping Requirements for Ontario Corporations

Posted on: Thursday, February 23rd, 2017

The Change:

On December 10, 2016 the Forfeited Corporate Property Act, 2015, S.O. 2015, c. 38, Sched. 7 (“FPCA”) came into force and introduced an important new amendment to the Ontario Business Corporations Act, R.S.O. 1990, c. B.16 (“OBCA”). This amendment, sets out in Section 140.1 of the OBCA,  a more onerous record keeping requirement on OBCA corporations that have an ownership interest in land in Ontario. This section states:

Register of interests in land in Ontario
140.1 (1) A corporation shall prepare and maintain at its registered office a register of its ownership interests in land in Ontario. 
(2) The register shall,
(a) identify each property; and
(b) show the date the corporation acquired the property and, if applicable, the date the corporation disposed of it. 
Supporting documents
(3) The corporation shall cause to be kept with the register a copy of any deeds, transfers or similar documents that contain any of the following with respect to each property listed in the register:
1. The municipal address, if any.
2. The registry or land titles division and the property identifier number.
3. The legal description.
4. The assessment roll number, if any.

This new record keeping requirement applies ONLY to ownership interests in land located in Ontario; any land owned by an OBCA corporation that is outside of the province is not subject to these new requirements. Importantly, the term “ownership interests” as outlined in s. 140.1(1) is not defined, which may present some problems with regards to interpretation. For example, a broad interpretation would include both registered and beneficial interests in land as well as leasehold and easement interests. Arguably, this is the interpretation that should be adopted and considered by corporations that are implementing these new changes as they will be covering all of the bases until the term “ownership interests” is further defined.

The purpose of the new amendment can be analyzed by considering the intent behind the FCPA. As noted by the Ministry of Finance, the FCPA has the following primary goals:

  • to mitigate risks imposed upon Ontario taxpayers where corporate property is forfeited following dissolution and thus transferred to the Crown;
  • to reduce the total number of properties forfeited to the Crown;
  • to increase corporate accountability for costs associated with forfeited property;
  • to increase transparency and certainty in the management and disposition of forfeited property; and
  • to increase the productive use of property by having a quicker and more efficient turn around rate.

Previously, when an OBCA corporation was dissolved, any property that had not been disposed of by the date of dissolution immediately vested in the Crown. Under the new scheme, one of the purposes is to ensure that registered interests in land will be identified and transferred to a new owner, by way of a registered transfer, prior to dissolution, thus assisting with the achievement of the above-noted goals.

Implementation Procedure:
These amendments took force on December 10, 2016 and require all corporations incorporated or continued under the OBCA prior to this date to ensure compliance within a two year time frame (thus records must be up to date by December 10, 2018), while those corporations that were incorporated or continued on or after this date are immediately subject to the new record keeping rules.

Practical Implications:
While small corporations with minimal interests in land may not be drastically affected by these new rules, those corporations that have a significant amount of real estate holdings (such as real estate development corporations) will now face additional administrative costs and challenges. For example, some corporations may hold hundreds or thousands of properties and may engage in the acquisition and disposition of property on a weekly/ daily basis. Under the new rules, these corporations are responsible for preparing, maintaining and storing a detailed register that contains all supporting documents relating to each property (s. 140.1(3)). Ensuring that the register complies with the new rules may therefore become an administratively onerous and time-consuming task requiring daily attention.

A further consideration relates to the real estate transactions themselves. Oftentimes, when corporations are selling property, they make certain representations and warranties that their corporation is in compliance with all applicable laws. Therefore, in order for a corporation to be able to provide such representations to purchasers, creditors or other interested parties, they must ensure that their records are completely up-to-date with regard to their current real estate holdings. A failure to comply with this new provision may therefore prevent certain corporations from entering into financing arrangements or other commercial transactions if they are unwilling/ unable to provide these representations.

Failure to Comply: 
Non-compliance with the new record keeping rules can result in significant penalties for both the corporation and its directors and officers. Where a corporation fails or neglects to comply with these requirements, without any reasonable cause, they are deemed guilty of an offence and subject to a fine of up to $25,000. Furthermore, directors and officers can be held personally liable for a fine of up to $2,000, imprisonment for up to a year, or a combination of the two. As such, compliance is crucial.

As discussed above, the new record keeping requirements may have a significant impact on the overall administration of certain OBCA corporations. These new administrative burdens may be significant meaning it is vital that all corporations incorporated or continued under the OBCA ensure that proper monitoring and compliance programs are established within a reasonable time.

For those existing corporations, it is recommended that they begin preparing and updating their register as soon as practical in order to ensure compliance by the December 10, 2018 deadline. For those corporations incorporated/ continued on or after December 10, 2016, it is important that they are cognizant of these new requirements so that they can ensure immediate compliance. This is especially true considering the substantial consequences that can result in a case of non-compliance.

The content of this Blog is intended to provide a general guide to the subject matter. The information does not constitute legal advice and a solicitor and client relationship is not created.

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