Declaration of ultimate beneficiaries

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As of March 31, 2023, it will be required to declare the ultimate beneficiaries of companies in the enterprise register. The notion of ultimate beneficiary is defined in the Legal Publicity of Enterprises Act , as amended by the Act to improve the transparency of enterprises. An ultimate beneficiary is in all cases a natural person, thus excluding legal persons or any other grouping.

We offer an overview of the circumstances in which an individual is an ultimate beneficiary under the law, within a corporation.

A shareholder with 25% or more of the voting rights

One of the fundamental rights that can be attached to a corporation's shares is the right to vote at shareholders' meetings, including the right to vote on the election of directors. A person will qualify as an ultimate beneficiary if the voting rights conferred by his or her shares represent at least 25% of all existing voting rights in the share capital of the corporation.

Note that these are voting rights, regardless of the number of shares. Thus it is important to take into account the number of votes conferred by the voting shares of the company, for example the control shares which are sometimes multivoting.

By holding sufficient voting rights, a shareholder could qualify as an ultimate beneficiary even if he or she does not hold any shares entitled to receive dividends.

A shareholder owning shares representing 25% or more of the fair market value of all shares

If the shares held by a shareholder represent at least 25% of the fair market value of all the outstanding shares of the corporation, notwithstanding their class, the shareholder will qualify as the ultimate beneficiary and will have to be reported to the enterprise registrar.

If only common shares are issued, holding 25% or more of those shares will be sufficient to qualify the shareholder as an ultimate beneficiary. The situation can become complex if fixed value preferred shares are outstanding. A corporate valuation may be required to determine whether the preferred shares represent at least 25% of the fair market value. An estate freeze could potentially qualify as an ultimate beneficiary by virtue of holding preferred shares alone, especially in the early years following the freeze.

An indirect or beneficial owner of shares representing 25% of the voting rights or FMV

The definition of ultimate beneficiary also covers an indirect holder of shares or a beneficiary of shares representing 25% of the voting rights or the fair market value. This would include a holder of shares who has entered into an agreement with a nominee. Even if the nominee is the registered holder of the shares in the corporation's share register, the "real" shareholder who used the nominee will have to be reported as the ultimate beneficiary. This will also be the case for a person holding shares through a management company.

The same is true for the beneficiaries of a trust holding shares in a corporation. Where the trust is discretionary (e.g., a family trust), it is likely that each beneficiary of the trust will have to be declared as an ultimate beneficiary.

Any person with influence that may result in de facto control

A person who is not a shareholder of a corporation could be an ultimate beneficiary in certain circumstances such that the person could have control in fact over the corporation. The law refers here to sections 21.25 and 21.25.1 of the Taxation Act . For example, a family member with influence in the affairs of the corporation, or a significant creditor, could qualify under this category.

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