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US Securities Laws Obligations Applicable to Foreign Private Issuers
Practical Law Legal Update 2-547-8806 (Approx. 4 pages)
US Securities Laws Obligations Applicable to Foreign Private Issuers
by Practical Law Corporate & Securities
| Published on 12 Dec 2013 • USA (National/Federal) |
A discussion of issues that attorneys providing advice to a non-US issuer accessing US capital markets should be familiar with when determining its status as a foreign private issuer (FPI) and identifying ongoing disclosure and reporting obligations. It also discusses the Rule 12g3-2(b) exemption available to FPIs.
Every year there is a large number of foreign private issuers (FPIs) who undertake initial public offerings in the US or first time US issuances of securities using the F-series registration statements. In 2012, 16 FPIs completed IPOs and this number grew substantially in 2013, with 36 completed IPOs as of December 10th.
Non-US companies that access the US public or private capital markets become subject to the US securities laws. These laws generally apply to both US and non-US companies alike. However, sometimes these laws make accommodations for non-US companies. Often these accommodations make it easier for non-US companies to access the US markets to encourage non-US companies to enter the US capital markets. In particular, FPIs can benefit from the following:
- Registering securities on F-series registration statements.
- Filing and submitting periodic reports on Form 20-F and Form 6-K.
- Not being subject to the US proxy rules or Regulation FD (Fair Disclosure).
- Having its insiders exempt from the requirement to file beneficial ownership reports under Section 16(a) of the Exchange Act and not be subject to the short-swing trading rules of Section 16(b) of the Exchange Act.
- Providing only limited executive compensation information in registration statements and annual reports.
Assessing Qualification to be a Foreign Private Issuer
The more relaxed regulatory regime that can apply to FPIs is an attractive incentive for non-US companies to examine whether they qualify as FPIs. However, where no special exemption applies to FPIs, the existing US rule or regulation usually applies to FPIs just as it does for US companies.
Practical Law's Practice Note, Which Non-US Companies Qualify as Foreign Private Issuers? can help counsel to determine whether a foreign issuer is an FPI. Key topics include:
- The "looking through" record ownership test to determine whether more than 50% of their voting securities are beneficially owned by US residents.
- Timing for assessing compliance with the FPI definition.
Periodic Reporting Obligations of FPIs
Practical Law's Practice Note, Periodic Reporting and Other Disclosure Obligations of Foreign Private Issuers: Overview addresses the periodic reporting and other disclosure obligations of FPIs, including:
- The requirement to file reports with the SEC on Form 20-F and Form 6-K.
- The SEC review process and other disclosure obligations of public FPIs, including requirements for non-GAAP financial measures and the application of Regulation FD.
- A summary of the risk of potential liability for false or misleading disclosure, stockholders' beneficial ownership reporting requirements and the significant exemptions from disclosure obligations specially afforded to FPIs.
Other resources which may assist with preparation of periodic reports include:
Rule 12g3-2(b) Exemption for Registration and Periodic Disclosure Requirements for FPIs
Rule 12g3-2(b) under the Exchange Act exempts certain FPIs from the requirement to register a class of equity securities under the Exchange Act and, as a result, from compliance with the ongoing periodic reporting requirements of the Exchange Act for those securities. One of the requirements for registration is that the class of shares is held of record by 300 or more US resident shareholders. It is easy for US investors to electronically trade shares directly in a company's home market, so FPIs who have not directly sold their shares into the US capital markets or have little connection with the US may still find that they have 300 or more US resident shareholders.
These companies generally use Rule 12g3-2(b) to exempt themselves from the requirement to register their shares under the Exchange Act and file periodic reports with the SEC. Because they do not have securities registered under the Exchange Act, these FPIs are also not subject to the corporate governance, accounting and certification requirements of Sarbanes-Oxley.
Practical Law's Practice Note, Rule 12g3-2(b) Filing Exemption: Why and How to Qualify explains how a FPI can qualify for this exemption. It also discusses why a FPI would want to rely on this exemption, what non-US disclosure information is required to be electronically published and the potential problem of unsponsored American Depositary Receipt programs.