/>iOn June 4, 2025, the Securities and Exchange Commission (SEC) issued a concept release, soliciting public comment on the definition of "foreign private issuer."
By way of background, under the current definitions in Rule 405 of Regulation C under the Securities Act of 1933, as amended, and Rule 3b-4 under the Securities Exchange Act of 1934, as amended, an issuer formed outside of the United States qualifies as a foreign private issuer if at least one of the following two tests is satisfied:
(1) 50 percent or less of its outstanding voting securities (measured by number of voting securities or voting power) are held by US residents — the so-called "shareholder test";
or
(2) All of the following are true:
(a) Less than a majority of its executive officers and less than a majority of its directors are US citizens or US residents;
(b) Less than a majority of its assets are located in the United States; and
(c) Its business is not principally administered in the United States.
For an issuer that is already an SEC reporting company, its status as a foreign private issuer is remeasured annually as of the last day of the issuer’s second fiscal quarter — meaning that, for issuers with calendar year fiscal years, their annual remeasurement date is June 30.
As noted in the concept release, issuers that qualify as foreign private issuers are eligible to take advantage of certain significant exemptions and accommodations with respect to SEC disclosure and filing requirements. For example, foreign private issuers are:
- permitted to prepare and present their financial statements in their SEC filings in accordance with (a) International Financial Reporting Standards as adopted by the International Accounting Standards Board, without a reconciliation to US Generally Accepted Accounting Principles (US GAAP) or (b) home country Generally Accepted Accounting Principles with a reconciliation to US GAAP;
- not subject to the requirements under Regulation FD;
- not required to follow US proxy solicitation rules or to file proxy statements; and
- allowed to follow various corporate governance practices in their home country in lieu of the SEC and US stock exchange rules that would apply if the issuer were a US domestic-listed company.
In addition, the insiders of foreign private issuers are not required to file Section 16 reports and are not subject to the short-swing liability provisions of Section 16.
The SEC's rules for foreign private issuers reflect an understanding that foreign companies should not be treated exactly the same as US domestic companies, including because they may be subject to laws in their home country jurisdiction and the rules and requirements of one or more stock exchanges outside of the United States that, in each case, may differ substantially from those otherwise applicable in the United States. Throughout the course of developing the SEC's filing and disclosure rules for foreign private issuers, the SEC has attempted to balance competing objectives — namely, attracting foreign companies to the US capital markets and protecting US investors in those companies, while also ensuring that US domestic companies are not at a competitive disadvantage because of applicable SEC rules and regulations.
The SEC staff noted and provided statistical information concerning the "significant changes" that have occurred among foreign private issuers since the SEC conducted its most recent previous review of foreign private issuer eligibility in 1999, which, according to the concept release, give rise to a need to reconsider the SEC's existing foreign private issuer definition. For example, in the concept release, the SEC noted that, as of fiscal year 2023, approximately 55 percent of SEC-reporting foreign private issuers had no or minimal trading of their equity securities on any non-US market and appear to maintain listings of their equity securities only on US national securities exchanges, which may undermine the idea that the SEC's accommodations for foreign private issuers are appropriate because they are otherwise subject to non-US rules and regulations. To that end, the concept release asks for public comment on various related changes that the SEC is considering, including, for example, updating the existing foreign private issuer definition to incorporate a foreign trading volume requirement or a requirement that an issuer’s securities be listed on a foreign exchange or establishing new mutual recognition systems, similar to the US-Canadian Multijurisdictional Disclosure System that is currently available to qualifying Canadian issuers.
As noted, this is merely a concept release — not a rulemaking. However, it would not be surprising if, in the relatively near term, after receipt of the input requested in the concept release, the SEC were to formally propose rules to tighten the "foreign private issuer" definition. As we consider and evaluate the potential impact of the proposals contained in the concept release, we welcome the opportunity to discuss this in further detail and receive any feedback you may wish to share.
