Going public is a significant undertaking for any private company. However, the process can be even more complex for private issuers who need to incorporate under the laws of a country other than the United States. Foreign filers will need to navigate a range of legal and regulatory requirements that may differ significantly from those in their home country. Therefore, careful planning and attention to detail are crucial for ensuring a successful initial public offering (IPO) and compliance with all relevant laws and regulations.
Despite the challenges, going public can offer many benefits for private companies, including increased access to capital, greater visibility in the market, and improved liquidity for shareholders. With the right guidance and support, foreign filers can successfully navigate the complexities of going public and reap the rewards of a successful IPO.
This guide aims to provide a comprehensive overview of the key considerations for foreign issuers looking to list on a US stock exchange.
What is Foreign Issuer?
Foreign companies (not incorporated or organized under US law) that are listed on the US stock market are commonly referred to as "foreign issuers." These are companies that are headquartered outside of the United States but have shares that are publicly traded on US stock exchanges such as the New York Stock Exchange (NYSE) or the NASDAQ.
Foreign issuers are subject to the same reporting requirements and regulatory obligations as US-based companies. Foreign issuers are required to file annual reports (Form 10-K), quarterly reports (Form 10-Q), and current reports (Form 8-K) with the Securities and Exchange Commission (SEC), among other regulatory filings.
Why listing in the US?
As the US capital markets are among the most liquid in the world, many foreign companies opt to go public in the United States.
SEC Registration
One of the first steps for a foreign issuer looking to list on a US stock exchange is to register with the Securities and Exchange Commission (SEC) under the Securities Exchange Act of 1934. This involves submitting a Form F-1, which is similar to a US-based initial public offering (IPO) registration statement. The registration process requires detailed disclosures about the company's business, financials, management, and other key aspects.
Not all offerings of securities must be registered with the Commission. Some exemptions from the registration requirement include:
- private offerings to a limited number of persons or institutions;
- offerings of limited size;
- intrastate offerings; and
- securities of municipal, state, and federal governments.
By exempting many small offerings from the registration process, the SEC seeks to foster capital formation by lowering the cost of offering securities to the public.
Financial Statements
Foreign issuers must also comply with US Generally Accepted Accounting Principles (GAAP) and file financial statements with the SEC. The financial statements must be in English and include an audited balance sheet, income statement, cash flow statement, and statement of changes in shareholders' equity.
Reporting Requirements
Once a foreign issuer has listed its securities on a US stock exchange, it must comply with ongoing reporting requirements. These include filing an annual report (Form 10-K) and quarterly reports (Form 10-Q) with the SEC. In addition, foreign issuers must file current reports (Form 8-K) to report material events such as changes in management, mergers and acquisitions, and other significant developments.
Corporate Governance
Foreign issuers are also subject to corporate governance requirements, including listing standards set by the stock exchange on which they are listed. These standards typically include requirements for board composition, independence, and committee structure, among other factors.
Assessing your FDI status--U.S. Shareholder Test
1. What is Foreign Private Issuer (FDI)?
A foreign private issuer (FDI) is a type of foreign issuer (other than a foreign government) that meets certain requirements set by the SEC. To qualify as a foreign private issuer, the company must have more than 50% of its outstanding voting securities held by non-US residents and meet certain other criteria related to its size, revenue, and other factors.
An FPI is any foreign issuer (other than a foreign government) incorporated or organized under the laws of a jurisdiction outside of the United States, unless more than 50% of the issuer's outstanding voting securities are held directly or indirectly of record by residents of the United States, and any of the following applies:
- the majority of the issuer's executive officers or directors are U.S. citizens or residents,
- more than 50% of the issuer's assets are located in the United States, or
- the issuer's business is administered principally in the United States.
2. What are the differences between Foreign Issuer and Foreign Private Issuer?
The main difference between a foreign issuer and a foreign private issuer is the level of regulatory requirements and reporting obligations they must comply with when they list their securities on a US stock exchange. Foreign private issuers are subject to less stringent reporting requirements due to their ownership structure and other characteristics.
Foreign private issuers have reduced reporting requirements compared to foreign issuers. For example, they are not required to file quarterly reports (Form 10-Q), and their annual reports (Form 20-F) are subject to less stringent disclosure requirements than the Form 10-K filings of foreign issuers.
Conclusion
Listing on a US stock exchange can provide foreign companies with access to a deep pool of capital and increased visibility in the global market. However, foreign issuers must comply with various regulatory requirements and reporting obligations to ensure transparency and protect investors. By understanding the key considerations and working with experienced legal and financial advisors, foreign issuers can navigate the process of listing on a US stock exchange and achieve success in the US market.
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References:
- Key Considerations for Non-US Companies Listing in the US | Insights | Skadden, Arps, Slate, Meagher
- Information about Foreign Issuers - Division of Corporation Finance
- FOREIGN PRIVATE ISSUER GUIDE
- What's The Deal? – Foreign Private Issuers - Shareholders - United States
- Defining Foreign Private Issuers: Are You a Wizard or a Muggle?
- Foreign Listings on U.S. Exchanges - IPOhub
- The Laws That Govern the Securities Industry | Investor.gov