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What are the benefits of being Foreign Private Issuer?


Many foreign companies wish to have access to capital market an become publicly traded company in the United States. The reason is that being part of the largest and most liquid capital market bring many benefits including prestige, visibility, ability to attract and retain top talents, etc. To become a part of capital market in the United States and experience all the benefits that it carries, foreign company may undergo reorganization of corporate governance and operations. Foreign issuer in federal securities law is defined as foreign government, foreign national or corporation incorporated by any foreign country. Any foreign issuer (except foreign government) can be considered foreign private issuer except if more than 50% of the issuers outstanding voting securities are held by residents of United States and if any of the following applies: majority of issuer’s executives and directors are residents of United States, more than 50% of issuer’s assets is located in the United States or the issuer’s business in administered principally in the United States.
When it comes to requirements for foreign private issuer status SEC doesn’t have strict rules. For example Commission will allow issuer to choose one of two methods for calculating number of record ownership meaning that they must apply chosen methodology on consistent basis. Same goes when evaluating holder’s U.S. residency or determining whether majority of issuer’s assets is in the United States. To decide whether business is administered principally in the United States foreign issuer must assess the location from which its executives and directors mostly direct and coordinate its activities.
Compared to U.S domestic issuers foreign private issuers receive certain regulatory concessions:
FPIs must file annual report on Form 20 F within four months after the end of fiscal year compared to 60-90 days requirement for domestic issuers
Foreign private issuers are not required to file or make public quarterly financial information, unless they have class of shares listed on NYSE. In that case they must submit semi-annual unaudited financial statement on Form 6-K.
Foreign private issuers are not required to file proxy solicitation material in connection with annual or any other special meeting
Both foreign private and domestic issuers must annually assess their internal control over financial reporting and in many cases providing independent auditor for such control. FPIs are not obliged to assess changes in their internal control over financial reporting quarterly like domestic issuers.
Foreign private issuers are exempt from detailed disclosure requirement regarding individual executive compensation.
Directors and officers of an FPI don’t have to report their equity holdings and transactions.
Financial statement can be prepared in accordance with International Financial Reporting Standards.
Certain issuers that are registering for the first time with SEC may submit their registration statement on a confidential basis.
If the foreign private issuer satisfies certain conditions it can be automatically exempt from Exchange Act reporting obligations.
FPI may terminate its registrations of equity securities under Exchange Act and cease filing reports with SEC in certain conditions.
The SEC provides exemptions to independence requirement for audit committee in case of FPIs.
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