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Here's the Deal:
- A foreign private issuer ("FPI") is generally anyforeign issuer (other than a foreign government) incorporated ororganized under the laws of a jurisdiction outside of the UnitedStates that meets certain specified conditions.
- An FPI seeking to raise capital publicly for the first time inthe United States must register its securities, and subsequentlymust file with the Securities and Exchange Commission("SEC") annual and periodic reports, similar to adomestic issuer, but subject to certain disclosure and otheraccommodations.
- Under Rule 12g3-2(b) of the Securities Exchange Act of 1934, asamended, (the "Exchange Act"), certain FPIs are exemptfrom the Exchange Act's reporting obligations, provided certainconditions are met.
- Directors and officers of FPIs may still incur liability underU.S. securities laws.
- Officers, directors, and shareholders of an FPI are not subjectto the short-swing provisions of Section 16 of the Exchange Act.However, directors, officers, and certain beneficial owners of anFPI are subject to the disclosure requirements of Section 13 of theExchange Act.
- If an FPI no longer wishes to comply with ongoing reportingrequirements, an FPI can deregister its securities by filing a Form15F with the SEC.
- If an FPI determines that it no longer qualifies as an FPI, itis generally required to comply with rules for U.S. domesticcompanies beginning on the first day after the end of its fiscalyear.
What's the Deal?
Foreign companies enjoy a number of benefits by becoming U.S.public companies. These benefits include increased visibility,access to the U.S. capital markets, and the ability to offerequity-based compensation instruments to key employees.
However, companies may encounter obstacles when accessingcapital in the United States. Becoming and remaining a U.S. publiccompany is expensive and time-consuming and may require changing acompany's operations in ways that a company would notnecessarily choose absent U.S. requirements. Registering as an FPIaffords foreign companies the ability to strike a healthy balanceby providing access to the U.S. capital markets, while at the sametime permitting foreign companies to benefit from certaindisclosure, reporting, and corporate governance accommodations.
Assessing FPI Status
The federal securities laws define a "foreign issuer"as any issuer that is a foreign government, a foreign national ofany foreign country or a corporation, or other organizationincorporated or organized under the laws of any foreigncountry.
An FPI is any foreign issuer (other than a foreign government)incorporated or organized under the laws of a jurisdiction outsideof the United States, unless more than 50% of the issuer'soutstanding voting securities are held directly or indirectly ofrecord by residents of the United States, and any of the followingapplies:
- the majority of the issuer's executive officers ordirectors are U.S. citizens or residents,
- more than 50% of the issuer's assets are located in theUnited States, or
- the issuer's business is administered principally in theUnited States.
Calculating Outstanding Voting Securities. Thepercentage of outstanding voting securities held of record by abroker, dealer, bank, or nominee for the accounts of customersresiding in the United States is based on the number of separateaccounts for which the securities are held in the United States. Inaddition, any shares reported as beneficially owned by a U.S.resident in a filing made under Section 13(d) of the Exchange Act,or any comparable reporting provision of another country, shall betreated as owned of record by U.S. residents. If an FPI hasmultiple voting classes and wants to determine the percentage ofits voting stock held by U.S. residents, it can either calculatethe voting power of those classes on a combined basis or simplycalculate the number of voting securities.
A person who has permanent resident status (i.e., a Green Cardholder) is presumed to be a U.S. resident. The SEC Staff hasexplained that even individuals without permanent resident statusmay be deemed U.S. residents (for purposes of Rule 405 and Rule3b-4(c)) based on tax residency, nationality, mailing address,physical presence, the location of a significant portion of theperson's financial and legal relationships, or immigrationstatus. The SEC Staff has not directed use of any one specificcriteria when determining who is a U.S. resident. Rather, the SECrequires that the FPI determine the criteria it will use and applythem consistently.
Assessing whether an FPI's Executive Officer or Directorsare U.S. Citizens or Residents. To determine whether a majority ofan FPI's executive officers or directors are U.S. residents orcitizens under Rule 405 and Rule 3b-4(c), the following factorsmust be assessed for each officer and director:
- the citizenship status of its executive officers,
- the residency status of its executive officers,
- the citizenship status of its directors, and
- the residency status of its directors.
Assessing an FPI's Assets. When determining if morethan 50% of an FPI's assets are located in the United States,an FPI can either use the geographic segment information determinedin the preparation of its financial statements or apply, on aconsistent basis, any other reasonable methodology in assessing thelocation and amount of its assets.
Assessing Whether an FPI's Business is AdministeredPrincipally in the United States. There is no determinativefactor to evaluate whether an FPI's business is administeredprincipally in the United States. Rather, an FPI must analyze whereits officers, partners, or managers primarily direct, control, andcoordinate its activities. An FPI must review its status as an FPIon the last business day of its most recently completed secondfiscal quarter. If an FPI no longer satisfies the required criteriafor FPI status, it will become subject to U.S. domestic reportingrequirements on the first day of its fiscal year immediatelysucceeding such determination.
FPI Becoming Subject to U.S. Reporting Requirements
An FPI will be subject to the reporting requirements under U.S.federal securities laws if it:
- registers with the SEC the public offer and sale of itssecurities under the Securities Act of 1933, as amended (the"Securities Act"),
- lists a class of its securities on a U.S. securities exchange,or
- within 120 days after the last day of its first fiscal year inwhich the issuer had total assets that exceed $10 million and aclass of equity securities held of record by either: (1) 2,000 ormore persons or (2) 500 persons who are not accredited investors inthe United States (or, in the case of an FPI that is a bank holdingcompany or a savings and loan holding company, had total assetsthat exceeded $10 million and a class of equity securities held ofrecord by either 2,000 or more persons).
Going Public in the United States
An FPI seeking to raise capital in the United States publiclyfor the first time must register its shares on Form F-1. Aregistration statement on Form F-1 is similar to a Form S-1 filedby U.S. domestic issuers and requires extensive disclosure aboutthe FPI's business and operations.
Once an FPI has been subject to the U.S. reporting requirementsfor at least 12 calendar months, it generally may use Form F-3 tooffer securities publicly in the United States. Form F-3 is ashort-form registration statement (analogous to Form S-3 for U.S.domestic issuers) and may be used by an FPI if the FPI meets boththe form's registrant requirements and the applicabletransaction requirements. Form F-3 permits an FPI to discloseminimal information in the prospectus included in the Form F-3 byincorporating by reference the more extensive disclosures alreadyfiled with the SEC under the Exchange Act, primarily in theFPI's most recent Annual Report on Form 20-F and its Forms 6-K.The scope of the prospectus will generally depend on marketingneeds as determined by the FPI and its investment bankers.
An FPI may offer any type of securities that a U.S. domesticissuer is permitted to offer.
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As an expert in corporate law, particularly in the realm of foreign private issuers (FPIs) and their interaction with U.S. securities laws, I have a deep understanding of the concepts presented in the provided article. My expertise is grounded in extensive knowledge of the Securities Exchange Act of 1934, the regulations of the Securities and Exchange Commission (SEC), and the intricacies of U.S. reporting requirements for foreign companies.
The article primarily discusses the key considerations and processes for foreign companies, specifically FPIs, seeking to become publicly listed in the United States. Here's an analysis of the concepts covered:
-
Foreign Private Issuer (FPI):
- Definition: A foreign private issuer is generally a non-U.S. issuer (excluding foreign governments) incorporated or organized under the laws of a jurisdiction outside the United States.
- Criteria for FPI Status: Various conditions, such as the location of assets, citizenship/residency of executive officers and directors, and the business administration location, determine FPI status.
-
Reporting Obligations and Exemptions:
- FPIs raising capital in the U.S. must register securities and comply with SEC reporting requirements.
- Rule 12g3-2(b) exemption: Certain FPIs are exempt from regular reporting obligations under the Exchange Act.
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Liability and Disclosures:
- Liability: Directors and officers of FPIs may still incur liability under U.S. securities laws.
- Short-swing provisions exemption: Officers, directors, and shareholders are exempt, but disclosure requirements under Section 13 of the Exchange Act still apply.
-
Deregistration and Transition:
- Deregistration: FPIs can deregister securities by filing Form 15F with the SEC.
- Transition: If no longer qualifying as an FPI, compliance with U.S. domestic reporting rules begins after the fiscal year.
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Benefits and Challenges for Foreign Companies:
- Benefits: Access to U.S. capital markets, increased visibility, and equity-based compensation options.
- Challenges: Costly and time-consuming process with potential operational changes.
-
Assessment of FPI Status:
- Factors for assessment: Citizenship/residency of executive officers and directors, location of assets, and where business activities are administered.
- Criteria for U.S. residency: Citizenship, tax residency, nationality, mailing address, physical presence, financial and legal relationships, and immigration status.
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Becoming Subject to U.S. Reporting Requirements:
- Triggers: Registration of securities, listing on a U.S. exchange, or meeting specific asset and shareholder thresholds.
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Going Public in the U.S.:
- Registration Process: FPIs seeking to raise capital in the U.S. publicly must register on Form F-1.
- Continued Reporting: After 12 months of U.S. reporting, FPIs can use Form F-3 for subsequent public offerings.
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Mayer Brown Disclaimer:
- The article concludes with a disclaimer from Mayer Brown, emphasizing that the content is not comprehensive legal advice, and readers should seek specific legal advice.
In summary, the article provides a comprehensive overview of the regulatory landscape for foreign companies navigating U.S. capital markets, with a focus on FPIs and their obligations under U.S. securities laws.
