Foreign Private Issuers (FPIs) enjoy unique registration and reporting rules under U.S. securities law, allowing them to comply with more tailored requirements compared to domestic companies. FPIs are granted this flexibility because they are foreign entities with significant non-U.S. operations, which could make adhering to standard U.S. disclosure requirements overly burdensome.

In this blog, we break down the critical aspects of FPI registration, reporting obligations, and the distinct advantages FPIs have when raising capital or listing on U.S. exchanges like Nasdaq or the NYSE.

1. Definition of a Foreign Private Issuer (FPI)

An FPI is defined under both the Securities Act of 1933 and the Securities Exchange Act of 1934 as a foreign entity that meets certain criteria. It is not merely about the company's domicile but involves factors like U.S. share ownership and business operations. If more than 50% of a foreign company’s voting securities are owned by U.S. residents and it meets other specific conditions (e.g., its officers are primarily U.S. residents), it does not qualify as an FPI.

2. Registration Process for FPIs

FPIs that intend to offer securities in the U.S. must either register under the Securities Act or find an exemption, just like U.S. companies. However, FPIs have the option of using specialized forms like Form F-1 for initial offerings, Form F-3 for seasoned issuers, and Form F-4 for mergers and acquisitions. The flexibility in choosing reporting formats helps FPIs streamline compliance efforts.

Additionally, the SEC provides certain accommodations for FPIs regarding the staleness of financial statements. While U.S. companies must refresh financials every 135 days, FPIs benefit from a more lenient 9-month deadline.

3. Ongoing Reporting Obligations

Once registered, FPIs must file annual reports on Form 20-F within four months of their fiscal year-end. Unlike U.S. companies, FPIs are not required to file quarterly reports, though some exchanges, like Nasdaq, may mandate semi-annual financial updates. Periodic reports on Form 6-K are required for material developments that would otherwise trigger an 8-K filing for U.S. companies.

4. Deregistration for FPIs

FPIs can deregister and cease reporting if they meet certain criteria, such as maintaining less than 300 worldwide shareholders or less than 5% of their securities being traded in the U.S. This flexibility allows FPIs to remain listed in their home country without the burden of U.S. compliance once their shareholder base drops.

5. Use of ADRs for U.S. Investors

Many FPIs issue American Depository Receipts (ADRs), which allow U.S. investors to hold shares in foreign companies without dealing directly with foreign stock exchanges. ADRs are issued by U.S. banks, and companies seeking ADR listing must file with the SEC under Form F-6.

Conclusion

FPIs provide a unique investment opportunity for U.S. investors, while offering foreign companies a way to tap into U.S. capital markets. The regulatory framework surrounding FPIs is designed to facilitate cross-border investment while accommodating the international nature of these businesses. Companies considering FPI status or those looking to register securities in the U.S. can benefit greatly from understanding the full scope of registration, reporting, and deregistration obligations, and working closely with experienced securities attorneys to ensure compliance.

For more information or to discuss FPI registration and compliance, contact qualified securities attorney at Law Offices of Destiny Aigbe PLLC.

For the full blog on "Foreign Private Issuers: SEC Registration and Reporting and Nasdaq Corporate Governance – Part 1," you can visit the source at Securities Law Blog.