Going Public for Foreign Issuers
Many foreign issuers seek to access the U.S. markets as part of their financing strategy. Foreign issuers that do not wish to become subject to the SEC’s reporting requirements have a number of options in their going public and financing transactions. These include private placements of debt securities and Rule 144A offerings.
For foreign issuers that choose to go public in the U.S., recent developments have dramatically changed the going public process. A company’s status as a foreign private issuer has many benefits for a foreign company seeking public company status. These benefits include less stringent narrative and financial statement disclosure in public offering documents making the SEC registration statement process less burdensome.
Upon completion of a going public transaction, foreign companies become subject to less stringent SEC periodic reporting requirements. Additionally, upon obtaining public company status, foreign companies are not subject to the proxy rules which impose disclosure and procedural obligations for companies who solicit shareholder votes.
The term “foreign private issuer” is not determined by solely where an issuer is incorporated or domiciled. Instead it is defined under the securities laws. Foreign issuer status offers many benefits to issuers in going public transactions.
Qualification as a Foreign Issuer
A foreign company’s qualification as a foreign private issuer is determined initially as of a date within thirty days prior to its filing with the SEC of an initial registration statement in a going public transaction or listing in the U.S on a securities exchange. After completion of its going public transaction, the foreign company’s status as a foreign issuer is determined annually on the last business day of its second fiscal quarter. If a company ceases to be a foreign private issuer, then it must comply with the requirements of a U.S. issuer beginning on the first day of the fiscal year following the determination date.
Under U.S. securities laws a foreign issuer is any foreign entity that does not meet the conditions below:
(1) more than 50 percent of the issuer’s outstanding voting securities are directly or indirectly held of record by residents of the U.S. residents.; and
(2) any of the following:
(i) the majority of the issuer’s executive officers or directors are U.S. citizens or residents;
(ii) more than 50 percent of the issuer’s assets are located in the U.S.; or
(iii) the issuer’s business is administered principally in the U.S.
Under the above definition, a foreign company domiciled outside the U.S. will be deemed a foreign private issuer if more than 50 percent of its voting securities are held by non-U.S. residents (without considering the three tests in (2) above). Even where 50% of a foreign company’s equity securities are held by U.S. residents, it will be treated as a foreign private issuer, so long as it does not satisfy any of the three tests above.
For further information about this securities law blog post, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton, Florida, (561) 416-8956, by email at [email protected] or visit www.securitieslawyer101.com. This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute legal advice on any specific matter, nor does this message create an attorney-client relationship. Please note that the prior results discussed herein do not guarantee similar outcomes.
Hamilton & Associates | Securities Lawyers
Brenda Hamilton, Securities Attorney
101 Plaza Real South, Suite 202 North
Boca Raton, Florida 33432
Telephone: (561) 416-8956
Facsimile: (561) 416-2855