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Foreign Private Issuers

Registration Statement Undertakings

Every four years we go through a regulatory dead zone as the SEC prepares for a change in administration with new priorities, new interpretations, and a whole new rulemaking agenda, including the potential unwinding of the prior administration’s rules.  While waiting for the significant changes to come, I’ll continue to dive into the endless detailed topics of disclosure and other requirements of the federal securities laws.  This week I’ll cover the ongoing requirements associated with an effective registration statement – known as “Undertakings.”

Every registration statement filed pursuant to the Securities Act of 1933 (“Securities Act”), whether by a domestic company or foreign private issuer (“FPI”) requires the registrant to include a statement as to certain affirmative undertakings by such company.  Item 512 of Regulation S-K sets forth the undertakings, and registration statements on Forms S-1, S-3, F-1 and F-3 must include all items set forth in Item 512.  Registration Statements on Form S-8 need only include the undertakings in

Foreign Private Issuers – SEC Registration And Reporting And Nasdaq Corporate Governance – Part 3

Although many years ago I wrote a high-level review of foreign private issuer (FPI) registration and ongoing disclosure obligations, I have not drilled down on the subject until now.  While I’m at it, in the multi part blog series, I will cover the Nasdaq corporate governance requirements for listed FPIs.

In Part 1 in this series, I covered the definition of a foreign private issuer (FPI), registration and ongoing reporting requirements – see HERE.  In Part 2 I covered Rules 801 and 802 of the Securities Act, which give FPI’s registration exemptions for rights offerings and exchange offers, respectively – see HERE.  In this Part 3, I discuss the Nasdaq corporate governance requirements for FPIs.

Nasdaq Corporate Governance

In addition to its quantitative listing standards, Nasdaq imposes certain corporate governance and board composition requirements as part of its listing standards.  FPIs, however, are exempt from numerous of these standards and may instead opt to comply with home

Foreign Private Issuers – SEC Registration And Reporting And Nasdaq Corporate Governance – Part 2

Although many years ago I wrote a high-level review of foreign private issuer (FPI) registration and ongoing disclosure obligations, I have not drilled down on the subject until now.  While I’m at it, in the multi part blog series, I will cover the Nasdaq corporate governance requirements for listed FPIs.

In Part 1 in this series, I covered the definition of a foreign private issuer (FPI), registration and ongoing reporting requirements – see HERE.  In this Part 2 I will cover Rules 801 and 802 of the Securities Act, which give FPI’s registration exemptions for rights offerings and exchange offers, respectively.

Rule 801 – Exemption in Connection with Rights Offerings

Rule 801 provides an exemption from registration for certain rights offerings by FPIs.  A “rights offering” is defined for these purposes as the sale for cash of equity securities in which existing securities holders of a particular class (including holders of ADRs) are

Foreign Private Issuers – SEC Registration And Reporting And Nasdaq Corporate Governance – Part 1

Although many years ago I wrote a high-level review of foreign private issuer (FPI) registration and ongoing disclosure obligations, I have not drilled down on the subject until now.  While I’m at it, in the multi part blog series, I will cover the Nasdaq corporate governance requirements for listed FPIs.

Definition of a Foreign Private Issuer

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:

Related Party Transactions – Foreign Private Issuers

About a year ago, the SEC brought several enforcement proceedings targeting shortcomings in related party transactions disclosures, including by Lyft.  The action provides a reminder that Item 404(a) is broadly construed and reminded me that related party transactions are a topic worthy of blogging about.  Last week I published a blog on related party transaction disclosures for domestic companies (see HERE) and this week covers foreign private issuers (FPIs).

Item 404 of Regulation S-K sets forth the related party disclosure obligations for domestic companies that must be included in various periodic reports and registration statements under the Securities Exchange Act of 1934 (“Exchange Act”) and in registration statements under the Securities Act of 1933 (“Securities Act”).  Foreign private issuers can comply with Item 404 by providing the information required by Item 7.B of Form 20-F plus any additional information required by its home.

Item 7.B of Form 20-F

                General Disclosure

Item 7.B of Form 20-F requires certain disclosure

Terminating Reporting Obligations In An Abandoned IPO

It has been a tough few years for small cap (and all) initial public offerings (IPOs). Although I have been seeing a small up-tick in priced deals recently, we are not yet near the highs of 2020 – 2022. Among the various challenges facing IPO issuers, lengthy Nasdaq/NYSE review periods and trouble building out sufficient allocations have been especially difficult resulting in a lengthier IPO process than expected.
An increased IPO timeline adds significant expense to the process. A registration statement cannot go effective with stale financial statement. Financial statements for domestic issuers go stale every 135 days requiring either a new quarterly review or annual audit and an amended registration statement. Likewise, financial statements for foreign private issuers (FPIs) go stale every nine months. When an issuer is nearing the end date for financial statements, and it appears that a closing of an IPO may be imminent, they sometimes choose to go effective and rely on Rule 430A.

F-3 Eligibility

The ability to utilize a shelf registration statement on Form F-3 or S-3 offers significant advantages to publicly traded companies.  A Form F-3/S-3 allows for variably priced offerings – that is offerings made either at-the-market or at other than fixed prices.  Only companies that are eligible for F-3/S-3 can complete primary (or indirect primary) offerings at prices other than a fixed price (for more on primary offerings see HERE).

I have previously written a detailed blog related to S-3 eligibility (see HERE) and although the requirements for an F-3 are substantially similar, there are some key differences due to the different regulatory framework applicable to foreign private issuers (“FPIs”) – i.e. “F Filers.” Like an S-3, F-3 eligibility is comprised of both registrant or company requirements and transaction requirements.

Moreover, like Form S-3, a Form F-3 specifies generally that the Form may not be used for an offering of asset-backed securities.

Registrant Requirements

Companies that meet the

SEC Suspends New Share Repurchase Disclosure Rules

In a win for conservatives, the recent amendments to the share repurchase rules are officially on hold.  Adopted on May 3, 2023 (see HERE) the new disclosure requirements would have taken effect for inclusion in the upcoming 10-K season.  Following a successful court challenge, on November 22, 2023, the SEC issued an order postponing the effective date of the new rules pending further SEC action.

Background

On May 3, 2023, the SEC adopted amendments to Securities Exchange Act Rule 10b-18, which provides issuers and affiliates with a non-exclusive safe harbor from liability for market manipulation under Sections 9(a)(2) and 10(b) and Rule 10b-5 under the Securities Exchange Act of 1934, as amended (“Exchange Act”) when issuers bid for or repurchase their common stock.

The SEC allows for limited methods that an issuer can utilize to show confidence in its own stock and assist in maintaining or increasing its stock price.  One of those methods is Exchange Act Rule

SEC Adopts New Share Repurchase Disclosure Rules

On May 3, 2023, the SEC adopted amendments to Securities Exchange Act Rule 10b-18, which provides issuers and affiliates with a non-exclusive safe harbor from liability for market manipulation under Sections 9(a)(2) and 10(b) and Rule 10b-5 under the Securities Exchange Act of 1934, as amended (“Exchange Act”) when issuers bid for or repurchase their common stock.  The proposed rules were part of a broader SEC initiative aimed at market manipulation and insider trading, including the recently adopted amendments related to Rule 10b5-1 Insider Trading Plans (see HERE).

Following publishing the proposed rules, on December 7, 2022, the SEC re-opened the comment period for an additional 30 days after publication in the federal register.  The reason for re-opening the comment period was that the Inflation Reduction Act of 2022 added a corporate non-deductible excise tax equal to one percent of the fair market value of any stock of the corporation repurchased by such corporation during the taxable year (see

SEC Approves Nasdaq Board Diversity Rule

On August 6, 2021, the SEC approved Nasdaq’s board diversity listing standards proposal.  Not surprisingly, the approval vote was divided with Commissioner Hester Peirce dissenting and Commissioner Elad Roisman dissenting in part.  On the same day as the approval, Chair Gary Gensler and Commissioners Peirce, Roisman and Allison Herren Lee and Caroline Crenshaw issued statements on the new Rules.

As more fully explained below, new Nasdaq Rule 5605(f) requires Nasdaq listed companies, subject to certain exceptions, to: (i) to have at least one director who self identifies as a female, and (ii) have at least one director who self-identifies as Black or African American, Hispanic or Latino, Asian, Native American or Alaska Native, Native Hawaiian or Pacific Islander, two or more races or ethnicities, or as LGBTQ+, or (iii) explain why the company does not have at least two directors on its board who self-identify in the categories listed above.  The rule changes also made headlines in most major

Section 12(g) Registration

Unlike a Securities Act of 1933 (“Securities Act”) registration statement, a Securities Exchange Act of 1934 (“Exchange Act”) Section 12(g) registration statement does not register securities for sale or result in any particular securities becoming freely tradeable.  Rather, an Exchange Act registration has the general effect of making a company subject to the Exchange Act reporting requirements under Section 13 of that Act.  Registration also subjects the company to the tender offer and proxy rules under Section 14 of the Act, its officers, directors and 10%-or-greater shareholders to the reporting requirements and short-term profit prohibitions under Section 16 of the Act and its 5%-or-greater shareholders to the reporting requirements under Sections 13(d) and 13(g) of the Act.

A company may voluntarily register under Section 12(g) at any time and, under certain circumstances, may also terminate such registration (see HERE).

In addition, unless an exemption is otherwise available, a company must register under Section 12(g), if as of the

Audit Committees – NYSE American

Like Nasdaq, I’ve written several times about the NYSE American listing requirements including the general listing requirements (see HERE) and annual compliance guidelines (see HERE).  As an aside, although the Nasdaq recently enacted significant changes to its initial listing standards, the NYSE American has not done the same and no such changes are currently anticipated.  I suspect that the NYSE American will see a large uptick in new company applicants as a result.

I recently drilled down on audit committee requirements and director independence standards for Nasdaq and in this and the next blog, I will do the same for the NYSE American.  As required by SEC Rule 10A-3, all exchange listed companies are required to have an audit committee consisting of independent directors.  NYSE American Company Guide Rule 803 delineates the requirements independent directors and audit committees.  Rule 803 complies with SEC Rule 10A-3 related to audit committees for companies listed on a national securities exchange.

SEC Adopts Amendments To Management Discussion And Analysis

It has been a very busy year for SEC rule making, guidance, executive actions and all matters capital markets.  Continuing its ongoing disclosure effectiveness initiative on November 19, 2020, the SEC adopted amendments to the disclosures in Item 303 of Regulation S-K – Management’s Discussion & Analysis of Financial Conditions and Operations (MD&A).  The proposed rule had been released on January 30, 2020 (see HERE).  Like all recent disclosure effectiveness rule amendments and proposals, the rule changes are meant to modernize and take a more principles-based approach to disclosure requirements.  In addition, the rule changes are intended to reduce repetition and disclosure of information that is not material.

The new rules eliminate Item 301 – Selected Financial Data – and amend Items 302(a) – Supplementary Financial Information and Item 303 – MD&A.  In particular, the final rules revise Item 302(a) to replace the current tabular disclosure with a principles-based approach and revise MD&A to: (i) to

Drill Down On NASDAQ Audit Committee Requirements

I’ve written several times about Nasdaq listing requirements including the general listing requirements (see HERE) and the significant listing standards changes enacted in August of this year (see HERE).  This blog will drill down on audit committees which are part of the corporate governance requirements for listed companies.  Nasdaq Rule 5605 delineates the requirements for a Board of Directors and committees.  The Nasdaq rule complies with SEC Rule 10A-3 related to audit committees for companies listed on a national securities exchange.

SEC Rule 10A-3

SEC Rule 10A-3 requires that each national securities exchange have initial listing and ongoing qualification rules requiring each listed company to have an audit committee comprised of independent directors.  Although the Nasdaq rules detail its independence requirements, the SEC rule requires that at a minimum an independent director cannot directly or indirectly accept any consulting, advisory or other compensation or be affiliated with the company or any of its subsidiaries.  The prohibition against compensation

The SEC’s 2018 Flex Regulatory Agenda

In December 2017, the SEC posted its latest version of its semiannual regulatory agenda and plans for rulemaking with the U.S. Office of Information and Regulatory Affairs. Prior to issuing the agenda, SEC Chair Jay Clayton had promised that the SEC’s regulatory agenda’s would be “more realistic” and he seems to have been true to his word.

The agenda is separated into two categories: (i) Existing Proposed and Final Rule Stages; and (ii) Long-term Actions. The Existing Proposed and Final Rule Stages are intended to be completed within the next 12 months and Long-term Actions are anything beyond that. The semiannual list published in July 2017 only contained 33 legislative action items to be completed in a 12-month time frame, and the newest list is down to 26 items, whereas the prior fall 2016 list had 62 items.

The Unified Agenda of Regulatory and Deregulatory Actions

The Office of Information and Regulatory Affairs, which is an executive office of the

SEC Expands Ability To File Confidential Registration Statements

Nominate Us For ABA Journal’s Top Blog- HERE

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On June 19, 2017, the SEC announced that the Division of Corporation Finance will permit all companies to submit draft registration statements, on a confidential basis. Confidential draft submissions will now be available for all Section 12(b) Exchange Act registration statements, initial public offerings (IPO’s) and for secondary or follow-on offerings made in the first year after a company becomes publicly reporting.

The SEC has adopted the change by staff prerogative and not a formal rule change. On June 29, 2017, the SEC issued guidance on the change via new FAQs. The new policy is effective July 10, 2017.

Title I of the JOBS Act initially allowed for confidential draft submissions of registration statements by emerging growth companies but did not include any other companies, such as smaller reporting companies. Regulation A+ as enacted on June 19, 2015, also allows for confidential submissions of an offering circular by companies completing their

SEC Completes Inflation Adjustment Under Titles I And III Of The Jobs Act; Adopts Technical Amendments

On March 31, 2017, the SEC adopted several technical amendments to rules and forms under both the Securities Act of 1933 (“Securities Act”) and Securities Exchange Act of 1934 (“Exchange Act”) to conform with Title I of the JOBS Act. On the same day, the SEC made inflationary adjustments to provisions under Title I and Title III of the JOBS Act by amending the definition of the term “emerging growth company” and the dollar amounts in Regulation Crowdfunding.

Title I of the JOBS Act, initially enacted on April 5, 2012, created a new category of issuer called an “emerging growth company” (“EGC”). The primary benefits to an EGC include scaled-down disclosure requirements both in an IPO and periodic reporting, confidential filings of registration statements, certain test-the-waters rights in IPO’s, and an ease on analyst communications and reports during the EGC IPO process. For a summary of the scaled disclosure available to an EGC as well as the differences in

The SEC Has Issued New Guidance Related To Foreign Private Issuers

On December 8, 2016, the SEC issued 35 new compliance and disclosure interpretations (C&DI) including five related to the use of Form 20-F by foreign private issuers and seven related to the definition of a foreign private issuer.

C&DI Related to use of Form 20-F

In the first of the five new C&DI, the SEC confirms that under certain circumstances the subsidiary of a foreign private issuer may use an F-series registration statement to register securities that are guaranteed by the parent company, even if the subsidiary itself does not qualify as a foreign private issuer. In addition, the subsidiary may use Form 20-F for its annual report. To qualify, the parent and subsidiary must file consolidated financial statements or be eligible to present narrative disclosure under Rule 3-10 of Regulation S-X.

Likewise in the second of the new C&DI, the SEC confirms that an F-series registration statement may be used to register securities to be issued by the

Changes In India’s Laws Related To Foreign Direct Investments- A U.S. Opportunity; Brief Overview For Foreign Private Issuers

In June 2016, the Indian government announced new rules allowing for foreign direct investments into Indian owned and domiciled companies. The new rules continue a trend in laws supporting India as an open world economy.  A large portion of the U.S. public marketplace is actually the trading of securities of foreign owned or held businesses. Foreign businesses may register and trade directly on U.S. public markets as foreign private issuers, or they may operate as partial or wholly owned subsidiaries of U.S. parent companies that in turn quote and trade on either the OTC Markets or a U.S. exchange.

Brief Overview for Foreign Private Issuers

                Definition of Foreign Private Issuer

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.” Generally, if a company does not meet the definition of a foreign private issuer, it is subject to the same registration and

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