Learn about foreign private issuers, the eligibility criteria, and the process of going public and raising capital in the U.S.
Navigating the U.S. capital markets as a Foreign Private Issuer (FPI) can be a complex process. Foreign companies eligible for FPI status are not required to comply with the same regulations as domestic U.S. companies under the US Securities Exchange Act of 1934, as amended (the Exchange Act). However, understanding the eligibility criteria, ongoing reporting requirements, and the process of going public in the U.S. is crucial for FPIs looking to raise capital and expand their investor base. This article will cover:
An issuer is any organization, corporation, or government that issues securities to raise capital to fund operations and strategic initiatives. An issuer may issue various securities, each of which serves a unique purpose, for example, common or preferred equity securities, bonds, options, and warrants, to name a few.
Issuers that are looking to offer their securities for sale in the US or list their securities on national US exchanges may require to register such securities under an SEC registration statement.
Incorporated outside the United States, Foreign Private Issuers are not required to comply with the same regulations applicable to domestic U.S. companies. Compared to domestic companies, FPIs are granted more freedom regarding compliance with the U.S. capital markets’ rigorous reporting and disclosure standards.
The Issuer must be incorporated or organized under the laws of a jurisdiction outside of the United States. An issuer qualifies as a foreign private issuer if it passes the following Shareholder Test or the Business Contacts Test, as outlined in Rule 405 of Regulation C under the Securities Act and Rule 3b-4 under the Exchange Act.
Suppose the issuer fails to pass the Shareholder Test. In that case, it may still qualify if it meets all of the following standards:
A SPAC (special purpose acquisition company) can qualify as a foreign private issuer. It must meet the same eligibility criteria as any other potential foreign private issuer. Despite exemption from specific regulations, many SPACs operating as foreign private issuers provide comparable information to all investors. The significant advantage is that it does not require SEC review for mergers of foreign private issuers.
Foreign private issuers can become a public company in the U.S. by filing a registration statement on Form F-1 with the SEC and listing their securities on an exchange such as NASDAQ or NYSE. Going public for foreign private issuers is similar to traditional IPOs; however, there are specific differences since FPIs are not subject to all of the exact requirements of domestic companies.
Form F-1, which is also known as a Registration Statement, is a requirement under the Securities Exchange Act of 1933. F-1 registration statements are similar to Form S-1 filed by domestic companies and require extensive disclosures around, but the majority of the disclosure centers around information about the business, risk factors, management and compensation, financial statements and notes to the statements, material changes concerning accounting in the financial statements, and details on the securities offering. Issuers are required to file their audited financial statements along with Form F-1.
Foreign private issuers that are looking to directly list their stock on a U.S. national securities exchange or OTC markets and are not looking to raise capital can use Form 40-F (for Canadian foreign private issuers) or Form 20-F (for non-Canadian foreign private issuers).
After being subject to U.S. reporting obligations for a minimum of 12 months, a foreign private issuer can generally use Form F-3 to offer securities publicly within the United States. This form is similar to Form S-3 for domestic issuers and can be used by an FPI, provided that the FPI meets the registrant's criteria and applicable transaction requirements.
Form F-3 allows Foreign Private Issuers to minimize their prospectus disclosure by referencing more comprehensive information that FPI has already filed with the SEC, primarily through Annual Reports and Current Reports. This way, FPIs can easily provide investors with a thorough understanding of their company without going through extensive paperwork.
Foreign private issuers are required to provide ongoing reporting requirements under the Exchange Act.
A foreign private issuer is exempt from reconciling its financial statements to U.S. Generally Accepted Accounting Principles (U.S. GAAP) if it reports its financials in IFRS, as detailed above.
If the FPI is required to reconcile certain financial statements, the foreign private issuer must:
An FPI may not be required to make these reconciliations for Financial statements of businesses that the foreign private issuer:
Form 15F, otherwise known as the "Certification of a Foreign Private Issuer's Termination of Registration,” is a voluntary filing made by FPIs with the Securities and Exchange Commission (SEC).
Upon deregistering securities; an FPI must delist any securities listed on an exchange. To delist securities from a national exchange, such as the New York Stock Exchange or Nasdaq Stock Market, an FPI must file Form 25.
A foreign private issuer will be subject to the reporting requirements under U.S. federal securities laws:
Additionally, a foreign private issuer becomes subject to reporting requirements within 120 days after the first fiscal year when:
A foreign private issuer listed on the NYSE or Nasdaq typically only needs to comply with a few corporate governance rules of these exchanges, except for SEC Audit Committee requirements and any legal requirements of the FPI's home country.
Suppose a foreign private issuer no longer meets the qualifications to maintain its status as an FPI. In that case, it has to follow the same disclosure rules as domestic issuers starting from the day after its fiscal year ends.
Foreign private issuers can benefit from the advantages of going public in the U.S., including accessing capital, liquidity, and a more significant investor base. By engaging a consultant specializing in foreign issuers before going public, you can be better prepared and avoid unexpected surprises. Going public and maintaining your reporting requirements as a foreign private issuer can be complex. Our Corporate Strategy & Finance experts help foreign private issuers navigate the complex landscape of U.S. capital markets, from filing a registration statement to setting up corporate governance practices to filing your financial statements.