Faculty of law blogs / UNIVERSITY OF OXFORD

SEC Issues Interpretations for Determining ‘Foreign Private Issuer’ status for US securities law purposes


Freshfields Bruckhaus Deringer


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2 Minutes

Companies that qualify as a ‘foreign private issuer’ benefit from many special exemptions under the US securities laws.  The Division of Corporation Finance of the SEC recently issued interpretations clarifying various aspects of the definition of a ‘foreign private issuer’ for US securities law purposes.

The SEC rules define a foreign private issuer as an entity incorporated or organized under the laws of a foreign country (other than a foreign government), unless both of the following two tests are met:

  • Shareholder Test – more than 50% of the outstanding voting securities of the issuer are directly or indirectly owned of record by ‘US residents’; and
  • Business Contacts Test – any of the following apply:
    • the majority of the executive officers or directors are ‘United States citizens or residents’; or
    • more than 50% of the ‘assets of the issuer are located in the United States’; or
    • the business of the issuer is ‘administered principally’ in the United States.

The staff interpretations provide the following guidance with respect to the above definition.

  • While a person who has permanent resident status in the United States is presumed to be a US resident, individuals without such status may also be US residents for purposes of the foreign private issuer definition, based on various factors, including tax residency, nationality, mailing address, physical presence, the location of a significant portion of their financial and legal relationships, or immigration status.  
  • In determining whether the shareholder test is met, issuers with multiple classes of voting stock may either (i) look to whether more than 50% of the voting power of their classes of stock on a combined basis is owned of record by US residents, or (ii) determine whether the shareholder test is satisfied based on the number of voting securities.
  • Determination of whether a majority of the issuer’s executive officers or directors are US citizens or residents requires four separate evaluations: (i) the citizenship status of executive officers, (ii) the residency status of executive officers, (iii) the citizenship status of directors and (iv) the residency status of directors.   
  • In evaluating whether more than 50% of their assets are located outside the United States, issuers can use the geographic segment information contained in the footnotes to their financial statements as well as any other reasonable methodology applied on a consistent basis.
  • The staff confirmed that there is no single factor or group of factors that are determinative for evaluating whether the issuer’s business is administered principally in the United States. Issuers must assess on a consolidated basis the location from which their officers, partners or managers primarily direct, control and coordinate their activities. The mere fact that the issuer holds a shareholder or board meeting in the United States would not, absent other factors, necessarily result in a determination that its business is administered principally in the United States.

This post comes to us from Freshfields Bruckhaus Deringer and has first appeared here.


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