How Can a Foreign Issuer Use 12g3-2 To Go Public?

Under federal securities laws, a foreign company that meets the definition of the Securities and Exchange Commission (SEC) of a foreign private issuer must register an offering of its securities under the Securities Act of 1933, as amended (Securities Act) or a class of securities under the Securities Exchange Act of 1934 (the “Exchange Act”) or both, if:

  • The foreign private issuer conducts a public offering of its securities in the U.S.
  • The foreign private issuer seeks to list a class of its securities listed on a national securities exchange
  • The foreign private issuer’s size; or
  • The foreign private issuer has a certain number of shareholders.

What Is a U.S. Public Offering?

Under the federal securities laws, an offer or sale of securities must be registered pursuant to the Securities Act or exempt from such registration. If no exemption or safe harbor is available, offers and sales by foreign issuers must be subject to a registration statement under the Securities Act.

The OTC Markets Group in the United States provides significant opportunities to entrepreneurs and companies seeking to grow and expand. This is true for startup as well as established companies. For foreign issuers, the U.S. markets offer opportunity for prestige and raising capital.

The traditional method for a foreign issuer to enter the U.S. markets is by filing a registration statement under the Securities Act of 1933, as amended (the “Securities Act”) with the Securities and Exchange Commission (the “SEC”). Where a foreign issuer is listed on a foreign stock exchange, this process can be costly and duplicative because of the myriad of U.S. securities    laws, rules and  regulations  that apply to the going public process.  An alternative to a traditional listing is a dual listing on the OTC Markets. In the context of this guide, a dual listing  refers to a  security listed on a foreign exchange that subsequently lists on the OTC Markets which provides a fully electronic interdealer quotation system affording investors and broker-dealers access through online and full-service brokerage firms in the U.S.

A dual listing on the OTC Markets can be structured a variety of ways.  This guide will focus on the exemption provided by Rule 12g3-2(b) of the  Securities Exchange Act of 1934, as amended (the “Exchange Act”) and how it can be used to list on  the OTC MARKETS.

What is Rule 12g3-2(b)?

Rule 12g3-2(b) of the Securities Exchange Act of 1934 (the “Exchange Act”), exempts a foreign private issuer from having to register a class of equity securities if certain conditions are met.

What does Rule 12g3-2(b) require?

In order to avail itself to the Rule 12g3-2(b) exemption, a foreign private issuer does not have to file a registration statement with the SEC or even notify the SEC of their OTC Markets  listing if they satisfy the following criteria:

 No Existing SEC Reporting Obligations: The foreign private issuer cannot be obligated to comply with the SEC reporting requirements under Sections 13(a) or 15(d) of the Exchange Act (i.e. the foreign company has not listed or publicly offered securities in the S.;

  • Foreign Listing: The foreign private issuer must be listed on one or more non-S. exchanges as the primary trading market for the security to be listed in the U.S.
  • Publication of Disclosures: The foreign private issuer must publish electronically in English specified disclosure documents that date back to the first day of the company’s most recently completed fiscal year. This is typically done via the company’s website and only requires the translation of the previous disclosure documents into

In order to be eligible for dual listing, foreign private issuer must meet one of the following conditions:

  • Be eligible to rely on the exemption from registration provided by Exchange Act Rule 12g3-2(b) and be current and fully compliant in its obligations under the rule; or
  • Have a class of securities registered under Section 12(g) of the Exchange Act and be current and fully compliant in the SEC reporting

If the foreign company is not eligible to rely on the exemption from registration under Exchange Act Rule 12g3-2(b) because the company does not (i) meet the definition of a “foreign private issuer” as the term is used in the Exchange Act Rule 12g3-2(b); or (ii) does not maintain a primary trading market in a foreign jurisdiction as set forth in the Exchange Act Rule 12g3-2(b)(ii); and is not otherwise required to register under Section 12(g), then the company must be current and fully compliant with the obligations of a company relying on the exemption from registration provided by Exchange Act.

What Information Must be Published in English?

The Rule 12g3-2(b) exemption requires that the issuer publish certain specified information in English for potential U.S. investors. A portion of this information can be published in summary form if translation into English is not specifically required by Rule 12g3-2(b) and a SEC registered issuer could have provided such  summary under Form 6-K. Form 6-K allows a summary of translation of any document that is not a press release or is not required to be, and has not been, distributed to the issuer’s security holders or pursuant to Exchange Act Rule 12b-12(d)(3), which permits summaries of any documents that are not charter documents, instruments defining the rights of the security holders, voting agreements, contracts to which certain entities or individuals related to the issuer are not parties, contracts upon which the issuer’s business is substantially dependent, audited annual and interim consolidated financial information, or any document that is or will be subject to a confidential treatment request. In general, the information that must be published in English in non-summary form includes:

  • Information the issuer has made public or been required to make public pursuant to the laws of the country of its incorporation, organization, or domicile;
  • Information that the issuer has filed or required to file with the principal stock exchange in its primary trading market on which its securities are traded and which has been made public by that exchange; or information that the issuer has distributed or been required to distribute to its security holders;
  • Its annual report, including or accompanied by annual financial statements;
  • Interim reports that include financial statements;
  • Press releases; and
  • All other communications and documents distributed directly to security holders.

In order to comply with the eligibility requirements of Rule 12g2-3(b), an issuer must publish on its website and in English any information material to an investment decision regarding the issuer’s securities. There is not currently any formal defining what constitutes material information. There are informal indications by the SEC that non-material information may be omitted from otherwise required documents. Material information includes:

  • Results of operations or financial condition;
  • Changes in business;
  • Acquisitions or dispositions of assets;
  • The issuance, redemption or acquisition of securities;
  • Changes in management or control;
  • The granting of options or the payment of other remuneration to directors or officers; and
  • Transactions with directors, officers or principal security

For further information, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real South, Suite 202 North, Boca Raton, FL, (561) 416-8956, or by email at [email protected].  This securities law Q & A is provided as a general or informational service to clients and friends of Hamilton & Associates Law Group, P.A. 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 prior results discussed herein do not guarantee similar outcomes.

Hamilton & Associates | Securities Lawyers
Brenda Hamilton, Going Public Attorney
101 Plaza Real South, Suite 202 North
Boca Raton, Florida 33432
Telephone: (561) 416-8956
Facsimile: (561) 416-2855