What are Foreign Private Issuers? (Going Public in the U.S.)

What is an Issuer?

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.

What is a Foreign Private Issuer?

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.

Who is Eligible?

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.

What is the Shareholder Test?

Issuer's outstanding voting securities

• U.S. residents must hold less than 50% of the issuer’s outstanding voting securities.
• Suppose a foreign private issuer has multiple voting classes and wants to gauge the proportion of its voting stock owned by U.S. residents. In that case, it can either analyze those classes together or simply count the available votes for each class. By doing so, corporations can easily calculate their ownership percentage from domestic investors.

What is the Business Contacts Test?

Suppose the issuer fails to pass the Shareholder Test. In that case, it may still qualify if it meets all of the following standards:

1. The majority of the issuer's executive officers or directors are not U.S. residents.
2. More than 50% of the issuer's assets are outside the U.S.
3. The issuer's business is administered principally outside the United States.

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Can a SPAC be a Foreign Private Issuer?

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.

How do Foreign Private Issuers Go Public in the U.S.?

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

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.

Form 20-F & Form 40-F

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).

Form F-3

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.

What are the Ongoing Reporting Requirements?

Foreign private issuers are required to provide ongoing reporting requirements under the Exchange Act.

Annual Reports

• Form 20-F: Non-Canadian foreign private issuers must file Annual Reports on Form 20-F with the Securities and Exchange Commission.
• Form 40-F: Canadian companies file annual reports on Form 40-F.
• Both annual reports require audited financial statements.
• Foreign private issuers benefit from reduced disclosure requirements compared to domestic companies that file Form 10-K.
• Annual Reports are due four months after the end of the fiscal year.

Quarterly Reports

• Foreign private issuers are not required to file quarterly reports.
• In contrast, domestic issuers must file quarterly reports on Form 10-Q.

Semi-Annual Reports

• Form 6-K: Foreign private issuers with a class of securities listed in the U.S. must file semi-annual reports with unaudited financials.
• Semi-annual reports are due within six months of the end of the second fiscal quarter.

Current Reports

• Form 6-K: Any material events must be disclosed by filing a Form 6-K with the SEC.
• In contrast, domestic issuers must report material events on Form 10-Q.
• Unlike Form 10-Q,  Form 6-K requires no specific disclosures.

International Financial Reporting Standards

• A Foreign private issuer can report its financial statements in  International Financial Reporting Standards (IFRS).
• The financial statements must comply with the English edition of IFRS distributed by the International Accounting Standards Board ("IASB").

U.S. Generally Accepted Accounting Principles

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:

1. provide a statement of cash flows that adhere to U.S. GAAP or IAS No. 7;
2. in a note accompanying the financial statements, precisely describe any noticeable discrepancies between cash/funds mentioned in the main financial records and those reported from preparation with U.S. GAAP standards applied on them.
   

An FPI may not be required to make these reconciliations for Financial statements of businesses that the foreign private issuer:

• plans to or has recently acquired
• is a minority interest holder in
• is in a joint venture with

How can Foreign Private Issuers deregister their securities?

Form 15F

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).

• Foreign private issuers that do not wish to raise capital in the U.S. capital markets or list their equity securities on a U.S. securities exchange can file a Form 15F with the SEC.
• To be eligible to file Form 15F, a company must have 300 or fewer shareholders.
• For a foreign private issuer to deregister its securities, it must submit an official notice of intent to register its securities via Form 6-K or attach the notice as an exhibit to Form 15F.
• FPIs must also issue the notice as a press release.
• The termination of registration goes effective under Section 12(b) 90 days after the FPI files the form.
• Form 15F allows foreign private issuers to significantly reduce costs and save time by eliminating their reporting obligations imposed by the Exchange Act and The Sarbanes-Oxley Act of 2002.

Form 25

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.

• Form 25 is an application to withdraw from listing on the exchange under Rule 12d2-2 of the Securities Exchange Act of 1934.
• Form 25 goes effective ten days after the FPI files the form with the SEC.

When do Foreign Private Issuers Become Subject to U.S. Reporting Requirements?

A foreign private issuer will be subject to the reporting requirements under U.S. federal securities laws:

• if the foreign issuer files a registration statement with the Securities and Exchange Commission
• it lists a class of its securities on a U.S. national securities exchange or the OTC markets
  

Additionally, a foreign private issuer becomes subject to reporting requirements within 120 days after the first fiscal year when:

• The issuer’s assets exceed $10 million and,
• Two thousand or more investors hold the issuer’s equity securities or,
• Five hundred non-accredited investors in the U.S. hold the issuer's equity securities.

What Exchange Exemptions are Available to Foreign Private Issuers?

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.

What happens when issuers lose foreign private issuer status?

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.

Navigating the U.S. Capital Markets as a Foreign Private Issuer

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.

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