NASDAQ Corporate Governance Requirements for Foreign Private Issuers

Public companies that are foreign private issuers listed on the Nasdaq Stock Exchange are subject to specific corporate governance requirements, which are less stringent than those applied to U.S.-based issuers. These issuers may adhere to their home country’s corporate governance practices, provided they meet certain Nasdaq mandates. Key requirements include:

• Publicly disclosing any Nasdaq rule not followed, along with a description of the home country practice adopted instead.
• Avoiding disproportionate restrictions or reductions in the voting rights of common shareholders, unless permitted by home country laws and subject to specific exceptions.
• Promptly notifying Nasdaq if an executive officer becomes aware of any noncompliance with exchange rules.
• Maintaining an audit committee that complies with the standards outlined below.

A foreign private issuer seeking to follow home country practices in lieu of corporate governance practices must provide Nasdaq with a written certification from independent legal counsel in its home country, confirming that the adopted practices comply with local laws.

While U.S. regulations now require most listed issuers to establish compensation committees composed of independent directors, foreign private issuers on Nasdaq may opt to follow their home country’s executive compensation practices. However, they must detail any deviations from U.S. practices in their Form 20-F filings with the SEC.

Audit Committee Requirements

Nasdaq rules mandate that foreign private issuers maintain an audit committee of at least three members, each meeting the independence criteria outlined in SEC Rule 10A-3. This rule stipulates that audit committee members must:

• Be members of the company’s board of directors.
• Be independent from the company, meaning they cannot accept any consulting, advisory, or other compensatory fees from the issuer or its subsidiaries (except for fees related to their roles on the audit committee, board, or other board committees).
• Not be affiliated persons of the company or its subsidiaries.

Exemptions are available in specific cases. For instance, during an initial public offering (IPO), at least one audit committee member must meet independence requirements at the time of the registration statement’s effectiveness. Other members may be exempt from independence requirements for up to 90 days post-registration, and less than half may be exempt for up to one year from that date.

Foreign private issuers with an existing board of auditors or similar body may be partially or fully exempt from audit committee requirements if specific conditions are met. Nasdaq and SEC Rule 10A-3 also define the audit committee’s responsibilities, including oversight of registered public accounting firms, establishing complaint-handling procedures, engaging advisers, and securing funding.

Additional SEC Corporate Governance Requirements

Beyond Nasdaq’s rules, the SEC imposes governance obligations on all public companies, including foreign private issuers. These include:

• Certifications by the CEO and CFO in the company’s Form 20-F filings.
• Prohibitions on loans to executive officers.
• Requirements to review auditor relationships to ensure ongoing independence.
• Obligations for attorneys to report evidence of material violations.
• Whistleblower protections.
• Adoption and maintenance of a code of ethics for senior financial officers.
• Clawback provisions requiring recovery of erroneously awarded incentive-based compensation from current or former executive officers in the event of an accounting restatement, as updated by SEC rules in 2023.

Practical Considerations for U.S. Public Companies

Foreign private issuers entering the U.S. public market should also consider practical governance implications, such as:

• Disclosing aggregate annual compensation (including stock options and other equity-based awards) for executive officers and directors.
• Ensuring transactions involving shareholders, officers, directors, or affiliates are fair, appropriately approved, and, if material, publicly disclosed.
• Publicly disclosing significant ongoing litigation, which may impact litigation strategy or settlement outcomes.
• Restricting access to material nonpublic information to a need-to-know basis.
• Establishing clear communication channels for engaging with analysts and other financial stakeholders.
• Centralizing the review of all public disclosures.
• Educating officers and directors on their responsibilities, potential liabilities, and the importance of indemnification and directors’ and officers’ liability insurance, particularly for independent directors.
• Monitoring securities transactions by officers, directors, and affiliates, including assisting with required filings and sales.
• Implementing formal procedures and schedules for routine corporate actions, such as board and shareholder meetings.

If you are considering an IPO on the NASDAQ or NYSE or need to hire a securities attorney, Hamilton & Associates Law Group, P.A. is ready to assist you. Our Founder, Brenda Hamilton, is a nationally known and recognized securities attorney with over two decades of experience assisting issuers worldwide with going public on the Nasdaq, NYSE, and OTC Markets. Since 1998, Brenda Hamilton has been a leading voice in corporate and securities law, representing both domestic and international clients across diverse industries and jurisdictions. Whether you are taking your company public, raising capital, navigating regulatory challenges, or entering new markets, Brenda Hamilton and her team deliver the experience, strategic insight, and results-driven representation you need to succeed.

To speak with a Securities Attorney, please contact Brenda Hamilton at 200 East Palmetto Rd, Suite 103, Boca Raton, Florida, (561) 416-8956, or by email at info@securitieslawyer101.com.

Hamilton & Associates | Securities Attorneys
Brenda Hamilton, Securities Attorney
200 E Palmetto Rd, Suite 103
Boca Raton, Florida 33432
Telephone: (561) 416-8956
Facsimile: (561) 416-2855
www.SecuritiesLawyer101.com