In June 2025 the SEC published a concept release and request for comment on the definition of a foreign private issuer (“FPI”). For a review of the current definition, information regarding SEC registration and reporting and Nasdaq corporate governance related to FPIs, see my three part blog HERE; HERE; and HERE.
FPI’s face unique challenges when accessing U.S. capital markets and as such over years the SEC has developed regulatory flexibilities allowing FPIs to follow the corporate governance rules of their home country and providing them with a modified disclosure regime. However, the SEC has noticed that the composition of FPI’s has changed over the last few decades and that most FPI’s almost exclusively trade in the U.S.
That is, at the time the current definition and accommodations for FPIs was established, the SEC through that most eligible FPI’s would be subject to meaningful disclosure and other regulatory requirements in their home country jurisdictions and would trade in foreign markets. As discussed below, the majority of FPI’s now tend to be China based businesses exclusively trading in the U.S. with lower average market caps. The SEC believes that the rules no longer have the intended benefit and as such has issued a concept release and request for comment.
In the first blog on the concept release I cover the current definition and regulatory framework for FPIs and the SECs general findings on the composition of FPIs – see HERE. In this second blog, I cover the SEC’s reassessment of the FPI definition.
Reminder of Current FPI Definition
Both the Securities Act of 1933, as amended (“Securities Act”) and the Securities Exchange Act of 1934, as amended (“Exchange Act”) contain definitions of a “foreign private issuer” (“FPI). Generally, if a company does not meet the definition of an FPI, it is subject to the same registration and reporting requirements as any U.S. company.
The determination of FPI status is not just dependent on the country of domicile, though a U.S. company can never qualify regardless of the location of its operations, assets, management and subsidiaries. There are generally two tests of qualification as a foreign private issuer, as follows: (i) relative degree of U.S. share ownership; and (ii) level of U.S. business contacts.
As with many securities law definitions, the overall definition of foreign private issuer starts with an all-encompassing “any foreign issuer” and then carves out exceptions from there. In particular, an FPI is any foreign issuer, except one that meets the following as of the last day of its second fiscal quarter (or if registering with the SEC for the first time, within 30 days of filing such initial registration statement under either the Securities Act or Exchange Act):
(i) a foreign government;
(ii) more than 50% of its voting securities are directly or indirectly held by U.S. residents; and any of the following: (a) the majority of the executive officers or directors are U.S. citizens or residents; (b) more than 50% of the assets are in the U.S.; or (c) the principal business is in the U.S. Principal business location is determined by considering the company’s principal business segments or operations, its board and shareholder meetings, its headquarters, and its most influential key executives.
That is, if fewer than a foreign company’s shareholders are located in the U.S., it qualifies as an FPI. If more than 50% of the record shareholders are in the U.S., the company must further consider the location of its officers and directors, assets and business operations.
Reassessment of the FPI Definition
Realizing that a high percentage of FPIs are China based businesses the SEC is focused on the following primary risks to U.S. investors: (i) poor disclosures and disclosure controls; (ii) lack of overall home country regulation; and (iii) no secondary foreign trading market regulation (as the majority of these companies trade solely in the U.S.). I note that many of these risks are also present for non-China based companies, but the SEC is clearly concerned with the China based entities as they have been for years (see here for Nasdaq’s newest efforts related to China HERE).
The SEC is seeking public comment on all matters related to FPIs but in particular on potential changes to the definition and disclosure structure. The goal of any changes would be to ensure that FPIs are subject to the same or comparable robust regulations and reporting requirements as are domestic issuers. The concept release proposes several potential changes (and seeks comments on same) including:
- Amend the FPI definition to update the bifurcation test. For example, lower the existing 50% threshold of U.S. holders in the shareholder test to sooner trigger the business contacts analysis;
- Revise the existing list of criteria under the business contacts test by either adding new criteria or revising the existing threshold for assets located in the U.S.;
- Add a foreign trading volume test requiring a minimum of foreign trading to retain FPI status. For example, an amended definition could that FPIs assess their foreign and U.S. trading volume on an annual basis to determine continued eligibility for FPI status;
- Add a requirement that FPIs be listed on a major foreign exchange;
- Require that each FPI be (1) incorporated or headquartered in a jurisdiction that the SEC has determined to have a robust regulatory and oversight framework for issuers and (2) be subject to such securities regulations and oversight without modification or exemption;
- Develop a system of mutual recognition, with respect to Securities Act registration and Exchange Act periodic reporting, for issuers from selected foreign jurisdictions; and/or
- Require that an FPI certify that it is either incorporated or headquartered in, and subject to the oversight of the signatory authority of, a jurisdiction in which the foreign securities authority has signed the IOSCO Multilateral Memorandum of Understanding Concerning Consultation, Cooperation, and the Exchange of Information (“MMoU”) or the Enhanced MMoU (“EMMoU”).
The Author
Laura Anthony, Esq.
Founding Partner
Anthony, Linder & Cacomanolis
A Corporate and Securities Law Firm
Securities attorney Laura Anthony and her experienced legal team provide ongoing corporate counsel to small and mid-size private companies, public companies as well as private companies going public on the Nasdaq, NYSE American or over-the-counter market, such as the OTCQB and OTCQX. For more than two decades Anthony, Linder & Cacomanolis, PLLC has served clients providing fast, personalized, cutting-edge legal service. The firms reputation and relationships provide invaluable resources to clients including introductions to investment bankers, broker-dealers, institutional investors and other strategic alliances. The firm’s focus includes, but is not limited to, compliance with the Securities Act of 1933 offer sale and registration requirements, including private placement transactions under Regulation D and Regulation S and PIPE Transactions, securities token offerings and initial coin offerings, Regulation A/A+ offerings, as well as registration statements on Forms S-1, S-3, S-8 and merger registrations on Form S-4; compliance with the Securities Exchange Act of 1934, including registration on Form 10, reporting on Forms 10-Q, 10-K and 8-K, and 14C Information and 14A Proxy Statements; all forms of going public transactions; mergers and acquisitions including both reverse mergers and forward mergers; applications to and compliance with the corporate governance requirements of securities exchanges including Nasdaq and NYSE American; general corporate; and general contract and business transactions. Ms. Anthony and her firm represent both target and acquiring companies in merger and acquisition transactions, including the preparation of transaction documents such as merger agreements, share exchange agreements, stock purchase agreements, asset purchase agreements and reorganization agreements. The ALC legal team assists Pubcos in complying with the requirements of federal and state securities laws and SROs such as FINRA for 15c2-11 applications, corporate name changes, reverse and forward splits and changes of domicile. Ms. Anthony is also the author of SecuritiesLawBlog.com, the small-cap and middle market’s top source for industry news, and the producer and host of LawCast.com, Corporate Finance in Focus. In addition to many other major metropolitan areas, the firm currently represents clients in New York, Los Angeles, Miami, Boca Raton, West Palm Beach, Atlanta, Phoenix, Scottsdale, Charlotte, Cincinnati, Cleveland, Washington, D.C., Denver, Tampa, Detroit and Dallas.
Ms. Anthony is a member of various professional organizations including the Crowdfunding Professional Association (CfPA), Palm Beach County Bar Association, the Florida Bar Association, the American Bar Association and the ABA committees on Federal Securities Regulations and Private Equity and Venture Capital. She is a supporter of several community charities including the American Red Cross for Palm Beach and Martin Counties, Susan Komen Foundation, Opportunity, Inc., New Hope Charities, the Society of the Four Arts, the Norton Museum of Art, Palm Beach County Zoo Society, the Kravis Center for the Performing Arts and several others.
Ms. Anthony is an honors graduate from Florida State University College of Law and has been practicing law since 1993.
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