Foreign Private Issuers: Overview of Securities Law Requirements

  • Rationale for Foreign Private Issuer Accommodations
  • Benefits of FPI status
  • What is a foreign private issuer (FPI)?
  • U.S. securities law overview
  • Trading FPI securities in the U.S. – alternatives and process
  • Corporate governance requirements for listed FPIs
  • Life as a U.S. public company
  • Deregistration and delisting
  • Multijurisdictional Disclosure System (MJDS)
  • Regulation S – offshore transactions
  • Rule 144A
  • Cross-Border Tender Offer Rules

Rationale for Foreign Private Issuer Accommodations

  • Encourage listing on a U.S. market
  • Facilitate investment by U.S. investors in foreign companies
  • Reduce regulatory arbitrage
  • Reduce cost of raising capital across borders and encourage free flow of capital across borders
  • Comity considerations with home country
  • U.S. investors can invest directly abroad (e.g., on the London Stock Exchange), so U.S. regulators consider it preferable to provide some added U.S. investor protection rather than none

Benefits of being a Foreign Private Issuer

  • Accommodations in securities registration process and ongoing public reporting requirements:
    • Ability to use particular registration and reporting forms specific to foreign private issuers.
    • Ability to use U.S. GAAP, International Financial Reporting Standards (IFRS) or home country accounting standards reconciled to U.S. GAAP.
    • More time to file Form 20-F Annual Report (120 days after fiscal-year end).
    • More limited executive compensation disclosures.
    • Quarterly reporting on Form 10-Q and current reporting on Form 8-K are not required.
    • Financial information goes “stale” more slowly.
    • Exempt from proxy rules, Regulation FD, and Section 16 reporting and short-swing profit liability.

Benefits of being a Foreign Private Issuer

  • Foreign private issuers may elect to use the same registration and reporting forms that domestic companies use, but in making such an election the company must comply with all of the requirements of the domestic company forms, absent a specified accommodation.
  • Foreign private issuers that voluntarily file on domestic forms may file financial statements prepared under:
    • “Home country” GAAP and provide a reconciliation to U.S. GAAP, or
    • IFRS as issued by the IASB without reconciliation to U.S. GAAP.
    • In both cases the filings should prominently disclose that the company meets the foreign private issuer definition but is voluntarily filing on domestic forms.
  • If an FPI elects to use the forms for domestic issuers, it should assess whether it qualifies as a smaller reporting company (SRC). An FPI that qualifies as an SRC may take advantage of the scaled disclosure requirements for SRCs. However, companies that elect to avail themselves of the scaled disclosure regime for SRCs must use the forms for domestic issuers, and present their financial statements in accordance with U.S. GAAP.
  • Stock exchange rules permit compliance with “home country” corporate governance standards.

Definition of “Foreign Private Issuer”

  • A company qualifies for “foreign private issuer”(FPI) status if it is incorporated/organized outside the U.S. and 50% or less of its outstanding voting securities are held by U.S. residents; or
    • If more than 50% of its outstanding voting securities are directly or indirectly owned of record by U.S. residents, then none of the following three circumstances may apply:
      • A majority of its directors or executive officers are U.S. citizens or residents;
      • More than 50% of its assets are located in the United States; or
      • Its business is principally administered in the United States (primarily directed or controlled).
    • If an issuer has two boards of directors, the determination is made with respect to the board that performs the functions most closely related to those undertaken by a U.S.-style board of directors. If those functions are divided between both boards, the issuer may aggregate the members of both boards for purposes of calculating the majority.
    • When determining ownership, one must "look through" nominee accounts held in the U.S., the company's home jurisdiction, and the jurisdiction of its principal trading market if different from its home jurisdiction
  • New registrants must test their status as of a date within 30 days of initial filing of a registration statement with the SEC and, thereafter, companies must test annually on the last business day of the second fiscal quarter.

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