Foreign private issuers and federal US securities regulations

Last month in this column, we discussed the offering of American depository receipts (ADRs) in the US by Chinese companies as foreign private issuers. To follow up, this article discusses the contents of periodic reports and the requirements applicable to foreign private issuers’ financial statements, as well as the provisions of the Sarbanes-Oxley Act of 2002 (SOX) applicable to foreign private issuers.

Foreign private issuers

Under US securities laws, a “foreign private issuer” is defined as a non-US issuer (other than a foreign government) the majority of whose stockholders, directors and officers are non-US persons, the majority of whose assets are located outside the US and whose business is administered principally outside the United States. Foreign private issuers who sell and/or list securities in the United States become subject to certain reporting requirements of the US federal securities laws and to certain provisions of SOX.

Before an issuer can list securities on a US securities exchange, including securities represented by ADRs, the securities must be registered under section 12 of the Securities and Exchange Act of 1934. This requirement is in addition to the registration statement under the Securities Act of 1933 in connection with a securities offering, which was discussed in this column last month. The issuer must satisfy requirements for initial listing and for continued listing, including various financial and corporate governance requirements. Even if a foreign private issuer does not wish to list in the US, but merely registers securities for an offering (either to raise capital or to complete an acquisition using securities as payment), the foreign private issuer becomes subject to the 1934 act for a period of at least one year, during which it must file periodic reports.

Julie Allen is the co-chair of the capital markets practice group of Proskauer Rose. Her practice focuses on capital markets and public company representation, including M&A.