Foreign private issuers

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• Securities and Exchange Commission
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• Public Company
• Shareholders
• Voting Securities
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• GAAP
• IFRS
• Equity Securities
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• Capital Markets
• Disclosure Requirements
• Exchange Act
• Registration Statement
• Domestic Issuer

What Is Foreign Private Issuer?

A foreign private issuer (FPI) is a company organized outside the United States that satisfies specific conditions related to U.S. ownership and business contacts, allowing it to adhere to a distinct set of regulatory requirements when offering or listing securities in U.S. capital markets. This classification falls under the broader financial category of regulatory compliance for cross-border transactions. The U.S. Securities and Exchange Commission (SEC) provides certain accommodations to companies that qualify as foreign private issuers, differentiating them from domestic issuers in terms of reporting and corporate governance standards.⁷⁷, ⁷⁸

History and Origin

The concept of regulating foreign entities listing securities in the U.S. dates back to the early days of U.S. securities laws. The U.S. Securities and Exchange Commission (SEC) first provided accommodations for certain foreign issuers in 1935.⁷⁵, ⁷⁶ The current definition of "foreign private issuer" was adopted in 1983 and was substantively amended in 1999 to more closely reflect beneficial ownership rather than record ownership of securities by U.S. residents.⁷³, ⁷⁴

These regulatory frameworks were designed to balance the objectives of attracting foreign companies to U.S. markets and providing U.S. investors with investment opportunities, while also ensuring appropriate investor protections.⁷² The accommodations for foreign private issuers were largely based on the understanding that these companies were already subject to home country oversight and disclosure requirements.⁷¹ However, due to significant changes in the population of FPIs since 2003, including a growing number of FPIs with limited foreign regulatory oversight or whose securities trade primarily in the U.S., the SEC began exploring potential amendments to the definition in 2025.⁶⁹, ⁷⁰

Key Takeaways

• A foreign private issuer (FPI) is a non-U.S. company that meets specific criteria related to U.S. ownership and business activities, qualifying it for modified SEC reporting and compliance.
• FPIs benefit from various accommodations, such as different financial reporting standards (e.g., IFRS without U.S. GAAP reconciliation), less frequent reporting, and exemptions from certain U.S. proxy rules.⁶⁷, ⁶⁸
• The determination of FPI status is made annually and is critical for deciding the applicable regulatory regime.⁶⁵, ⁶⁶
• The SEC has recently sought public comment on potentially revising the definition of FPI due to changes in the global financial landscape and the characteristics of companies listing in the U.S.⁶⁴

Formula and Calculation

A foreign company qualifies as a foreign private issuer (FPI) if it is organized under the laws of a non-U.S. country and meets specific conditions under Exchange Act Rule 3b-4(c). There are two primary tests: the U.S. shareholder test and the three-part U.S. business contacts test.⁶², ⁶³

A company is not considered an FPI if both of the following conditions are met:

1. More than 50% of its outstanding voting securities are directly or indirectly held of record by U.S. residents.⁶⁰, ⁶¹
   AND
2. Any one of the following is true:⁵⁸, ⁵⁹
   • A majority of its executive officers or directors are U.S. citizens or residents.
   • More than 50% of its assets are located in the U.S.
   • Its business is administered principally in the U.S.

To summarize the logic for FPI qualification:

FPI Status = NOT ( (U.S. Shareholder Test Failed) AND (U.S. Business Contacts Test Failed) )

Where:

• U.S. Shareholder Test Failed = More than 50% of outstanding voting securities are held by U.S. residents.
• U.S. Business Contacts Test Failed = (Majority of executive officers or directors are U.S. citizens/residents) OR (More than 50% of assets are in U.S.) OR (Business is principally administered in U.S.).

A foreign company must test its FPI status annually, typically on the last business day of its second fiscal quarter.⁵⁶, ⁵⁷

Interpreting the Foreign Private Issuer Status

The classification as a foreign private issuer dictates the regulatory framework a company must follow with the SEC and U.S. exchanges. For companies seeking to access U.S. markets, qualifying as an FPI offers significant flexibility. For instance, FPIs are permitted to present their financial statements using International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board, often without reconciliation to U.S. Generally Accepted Accounting Principles (U.S. GAAP).⁵⁴, ⁵⁵ This differs considerably from U.S. domestic issuer requirements, which mandate U.S. GAAP.⁵³

Furthermore, the FPI status influences ongoing disclosure requirements. FPIs generally file annual reports on Form 20-F, which has a later due date than the Form 10-K required for U.S. companies, and are typically not required to file quarterly reports on Form 10-Q or current reports on Form 8-K.⁵¹, ⁵² This reduced reporting burden can make U.S. listing more attractive for foreign companies by aligning U.S. compliance more closely with their home country regulations.⁵⁰

Hypothetical Example

Consider "GloboTech Inc.," a multinational technology company based in Germany, looking to list its shares on a U.S. exchange. GloboTech wants to understand if it qualifies as a foreign private issuer.

First, GloboTech examines its shareholders. It determines that 45% of its outstanding equity securities are held by U.S. residents, while the remaining 55% are held by non-U.S. residents. Since less than 50% of its voting securities are held by U.S. residents, GloboTech passes the U.S. shareholder test.⁴⁹

Next, even though it passed the shareholder test, GloboTech also reviews the business contacts test for a comprehensive assessment. It finds that:

• Only 30% of its executive officers and directors are U.S. citizens or residents.
• Less than 40% of its total assets are located in the U.S.
• Its primary business administration and operational headquarters are in Germany, not the U.S.

Because GloboTech holds less than 50% of its outstanding voting securities by U.S. residents, it qualifies as a foreign private issuer. This classification would allow GloboTech to benefit from the SEC's accommodations, such as filing an annual report on Form 20-F and potentially using IFRS for its financial statements without a full U.S. GAAP reconciliation.

Practical Applications

The foreign private issuer designation is crucial for non-U.S. companies looking to raise capital or list shares in the U.S. It provides a tailored regulatory pathway within the U.S. securities framework. For example, many foreign companies choose to list their shares in the U.S. through American Depositary Receipts (ADRs), and their FPI status significantly impacts the associated compliance.

The accommodations granted to FPIs encourage cross-border listings and investment. These practical applications include:

• Reduced Reporting Frequency: FPIs generally file annual reports on Form 20-F, typically within four months after the fiscal year-end, and are largely exempt from the quarterly and current reporting requirements (Forms 10-Q and 8-K) that apply to U.S. domestic issuers.⁴⁷, ⁴⁸ This reduces the administrative burden and costs associated with U.S. market access.
• Flexible Accounting Standards: FPIs can typically prepare financial statements using IFRS as issued by the IASB or their home country's GAAP with a reconciliation to U.S. GAAP, rather than being strictly mandated to use U.S. GAAP.⁴⁵, ⁴⁶
• Exemptions from Proxy Rules and Insider Trading Regulations: FPIs are exempt from U.S. proxy solicitation rules and the short-swing profit liability provisions of Section 16 of the Exchange Act, which apply to insiders of U.S. public companys.⁴³, ⁴⁴ This allows them to adhere more closely to their home country's corporate governance practices. The New York Stock Exchange (NYSE), for example, provides specific guidance for foreign private issuers to ensure compliance while allowing for home country practices.⁴⁰, ⁴¹, ⁴²

The SEC continues to evaluate the definition and accommodations for foreign private issuers to ensure they remain appropriate in an increasingly globalized market. In June 2025, the SEC sought public comment on whether to revise the FPI definition, particularly given the trend of some FPIs having little to no trading volume in their home markets and trading almost exclusively in the U.S.³⁸, ³⁹

Limitations and Criticisms

While the foreign private issuer framework offers significant accommodations, it also faces certain limitations and criticisms, primarily concerning investor protection and regulatory arbitrage. The flexibility granted to FPIs, particularly regarding accounting standards and corporate governance, can result in less frequent or less detailed disclosures compared to U.S. domestic issuers. For instance, FPIs are not subject to the same quarterly reporting on Form 10-Q or current reporting on Form 8-K.³⁶, ³⁷ This disparity means U.S. investors in FPIs may receive less timely information than they would from a U.S. company.

Another criticism centers on the potential for regulatory arbitrage. Some argue that the accommodations may incentivize companies to structure their operations or ownership to qualify as an FPI, thereby avoiding more stringent U.S. regulations even if their primary market presence or investor base is in the U.S.³⁵ The SEC itself has noted concerns that the current FPI definition may not align with the realities of today's global markets, especially given the increasing number of FPIs whose securities are traded almost exclusively in U.S. markets without robust foreign regulatory oversight.³³, ³⁴

There are also concerns regarding the application of certain U.S. laws, such as the Sarbanes-Oxley Act (SOX), where FPIs may have partial exemptions. While FPIs are generally subject to SOX certifications, they may be required to do so only annually, whereas domestic issuers must do so quarterly.³² This creates a divergence in the level of internal control oversight and accountability between FPIs and U.S. companies. These ongoing debates highlight the challenge of balancing investor protection with the desire to facilitate access to U.S. capital markets for foreign entities.

Foreign Private Issuer vs. Domestic Issuer

The primary distinction between a foreign private issuer and a domestic issuer lies in the regulatory requirements imposed by the U.S. Securities and Exchange Commission (SEC) and U.S. stock exchanges. A domestic issuer is any company incorporated in the U.S., regardless of where its operations or majority of shareholders are located. Foreign private issuers, on the other hand, are non-U.S. companies that meet specific criteria regarding U.S. ownership and business contacts, allowing them to benefit from certain accommodations.

Key differences include:

The confusion often arises because some large, globally recognized foreign companies operate extensively in the U.S. or have a significant U.S. investor base, yet they maintain their foreign private issuer status due to their non-U.S. incorporation and compliance with the specific SEC definition.

FAQs

What does it mean for a company to be a foreign private issuer?

It means the company is organized outside the U.S. and meets specific criteria set by the SEC regarding U.S. shareholder ownership and business contacts. This classification allows it to follow a more streamlined set of U.S. regulatory requirements compared to U.S. domestic issuers when its securities trade in U.S. markets.⁸, ⁹

Why do foreign private issuers have different rules than U.S. companies?

The different rules are primarily a result of the SEC's efforts to balance investor protection with the goal of attracting foreign companies to U.S. capital markets. The accommodations are based on the premise that foreign private issuers are already subject to regulatory oversight in their home countries.⁷

How often is foreign private issuer status determined?

A company determines its foreign private issuer status annually. This assessment typically occurs on the last business day of its second fiscal quarter.⁵, ⁶ If a company no longer qualifies as an FPI, it must transition to the reporting and compliance requirements applicable to U.S. domestic issuers.³, ⁴

What are some benefits of being a foreign private issuer?

Benefits include less frequent financial reporting (annual instead of quarterly), the ability to use international accounting standards like IFRS without U.S. GAAP reconciliation, and exemptions from certain U.S. proxy solicitation rules and insider trading regulations (Section 16).¹, ² These accommodations can reduce the burden and cost of listing in the U.S.