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Foreign Private Issuers Presentation – Shareholders

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Foreign Private Issuers: Overview of Securities Law

  • Rationale for Foreign Private Issuer Accommodations

  • Benefits of FPI status

  • What is a foreign private issuer (FPI)?

  • U.S. securities law overview

  • Trading FPI securities in the U.S. – alternatives and

  • Corporate governance requirements for listed FPIs

  • Life as a U.S. public company

  • Deregistration and delisting

  • Multijurisdictional Disclosure System (MJDS)

  • Regulation S – offshore transactions

  • Rule 144A

  • Cross-Border Tender Offer Rules

Rationale for Foreign Private Issuer Accommodations

  • Encourage listing on a U.S. market

  • Facilitate investment by U.S. investors in foreign

  • Reduce regulatory arbitrage

  • Reduce cost of raising capital across borders and encourage
    free flow of capital across borders

  • Comity considerations with home country

  • U.S. investors can invest directly abroad (e.g., on the London
    Stock Exchange), so U.S. regulators consider it preferable to
    provide some added U.S. investor protection rather than none

Benefits of being a Foreign Private Issuer

  • Accommodations in securities registration process and ongoing
    public reporting requirements:

    • Ability to use particular registration and reporting forms
      specific to foreign private issuers.

    • Ability to use U.S. GAAP, International Financial Reporting
      Standards (IFRS) or home country accounting standards reconciled to
      U.S. GAAP.

    • More time to file Form 20-F Annual Report (120 days after
      fiscal-year end).

    • More limited executive compensation disclosures.

    • Quarterly reporting on Form 10-Q and current reporting on Form
      8-K are not required.

    • Financial information goes “stale” more

    • Exempt from proxy rules, Regulation FD, and Section 16
      reporting and short-swing profit liability.

Benefits of being a Foreign Private Issuer

  • Foreign private issuers may elect to use the same registration
    and reporting forms that domestic companies use, but in making such
    an election the company must comply with all of the requirements of
    the domestic company forms, absent a specified accommodation.

  • Foreign private issuers that voluntarily file on domestic forms
    may file financial statements prepared under:

    • “Home country” GAAP and provide a reconciliation to
      U.S. GAAP, or

    • IFRS as issued by the IASB without reconciliation to U.S.

    • In both cases the filings should prominently disclose that the
      company meets the foreign private issuer definition but is
      voluntarily filing on domestic forms.

  • If an FPI elects to use the forms for domestic issuers, it
    should assess whether it qualifies as a smaller reporting company
    (SRC). An FPI that qualifies as an SRC may take advantage of the
    scaled disclosure requirements for SRCs. However, companies that
    elect to avail themselves of the scaled disclosure regime for SRCs
    must use the forms for domestic issuers, and present their
    financial statements in accordance with U.S. GAAP.

  • Stock exchange rules permit compliance with “home
    country” corporate governance standards.

Definition of “Foreign Private Issuer”

  • A company qualifies for “foreign private
    issuer”(FPI) status if it is incorporated/organized outside
    the U.S. and 50% or less of its outstanding voting securities are
    held by U.S. residents; or

    • If more than 50% of its outstanding voting securities are
      directly or indirectly owned of record by U.S. residents, then none
      of the following three circumstances may apply:

      • A majority of its directors or executive officers are U.S.
        citizens or residents;

      • More than 50% of its assets are located in the United States;

      • Its business is principally administered in the United States
        (primarily directed or controlled).

    • If an issuer has two boards of directors, the determination is
      made with respect to the board that performs the functions most
      closely related to those undertaken by a U.S.-style board of
      directors. If those functions are divided between both boards, the
      issuer may aggregate the members of both boards for purposes of
      calculating the majority.

    • When determining ownership, one must “look through”
      nominee accounts held in the U.S., the company’s home
      jurisdiction, and the jurisdiction of its principal trading market
      if different from its home jurisdiction

  • New registrants must test their status as of a date within 30
    days of initial filing of a registration statement with the SEC
    and, thereafter, companies must test annually on the last business
    day of the second fiscal quarter.

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The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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