• Non-U.S. Shareholders. At least half of its outstanding voting securities are owned, directly or indirectly, by non-U.S. residents; or
• Based and Managed Outside the United States. If it fails the non-U.S. resident ownership test, each of the following applies:
  • A majority of its directors and a majority of its executive officers are not S. citizens or residents;
  • Over half of its assets are located outside the United States; and
  • The business is not managed principally in the United States.

If a company is able to show that it has less than 50% U.S. ownership or, even if it has over 50% U.S. ownership, that it is not located or managed in the United States, or managed by U.S. personnel, then the entity will be a foreign private issuer and be entitled to the benefits of less stringent reporting and governance requirements than U.S.-based companies.

A foreign private issuer tests its continuing status as a foreign private issuer at least annually on the last business day of its second quarter. If it no longer meets the test, it generally must comply with U.S.-company registration and reporting obligations on the first day of its upcoming fiscal year.

The nine principal benefits are:

1. No Quarterly or Current Reports. Foreign private issuers need not file quarterly reports on Form 10-Q or current reports on Form 8-K. However, for those foreign private issuers listed on the NYSE, the NYSE requires the filing of semiannual unaudited interim financial information covering the company’s first two fiscal quarters.
2. Section 16 Reporting and Short-Swing Relief. Insiders of foreign private issuers are not subject to 1934 Act Section 16(a) reporting of their securities transactions. In addition, Section 16(b)’s “short-swing” profit disgorgement requirements do not apply. 
3. SEC Proxy Rule Exemption. The SEC’s proxy statement disclosure requirements and proxy solicitation rules do not apply to foreign private issuers, which are governed by home country proxy rules. 
4. Dodd-Frank Act Exemptions. Several key corporate governance reforms of the Dodd-Frank Act do not apply to foreign private issuers, including those related to proxy statement matters, such as say-on-pay and golden parachute disclosure, and voting and disclosure relating to chair/CEO overlaps and performance-to-pay ratios.
5. GAAP Flexibility. In preparing its financial statements to be provided to the SEC, a foreign private issuer can choose among U.S. GAAP, non-U.S. GAAP (with a reconciliation to S. GAAP) or the International Financial Reporting Standards.
6. Reduced Executive Compensation Disclosure. Foreign private issuers may provide significantly reduced executive compensation disclosure compared to S. companies, including in most cases by providing aggregate rather than individual disclosure of executive compensation.
7. No Accelerated Filing. A foreign private issuer using a Form 20-F annual report may file the report up to 120 days after the end of the fiscal year.
8. Exemption from Regulation FD. Regulation FD expressly exempts foreign private issuers from its requirements. As a result, Regulation FD does not mandate foreign private issuers to make simultaneous or prompt public disclosure of material nonpublic information. However, many foreign private issuers comply with Regulation FD as a “best practice,” even though they are exempt. To do otherwise could be the basis for liability for violation of U.S. and foreign securities law – not under Regulation FD but under the long-standing principles that form the basis of the regulation.
9. NYSE and Nasdaq Corporate Governance Exemptions. Foreign private issuers listed on the NYSE or Nasdaq are generally exempt from most of the exchanges’ corporate governance rules, other than SEC Audit Committee requirements, to the extent not required by the issuer’s home country laws. The exemptions cover independence determinations, Compensation and Nominating & Governance Committees, and other matters, including certain shareholder approval requirements relating to equity-based compensation plans and issuances of shares in various situations otherwise requiring shareholder approval. Foreign private issuers are required to disclose how their corporate governance rules materially differ from those of U.S. companies.

In spite of these benefits, some foreign private issuers voluntarily become subject to all, or selectively adopt some, general SEC and NYSE/Nasdaq requirements due to potential market or investor preferences.

• Makes public in accordance with the laws of its home country;
• Files with any exchange on which its securities are traded and which information the exchange makes public; or
• Distributes or is required to distribute to its security holders.

The limited nature of the triggers above results in relatively few mandatory Form 6-K filing requirements, although many foreign private issuers file additional Form 6-Ks to voluntarily disclose additional information to the market.

Corporate Governance Standards

Foreign private issuers listed on the NYSE or Nasdaq are generally exempt from most of the exchange’s corporate governance rules to the extent compliance with those rules is not required by the issuer’s home country laws. However, the NYSE and Nasdaq require the foreign private issuer to disclose the significant differences in its corporate governance practices from those practices required of U.S. companies under the exchange’s corporate governance rules. This can be a brief general summary of any significant differences included in annual reports on Form 20-F. Foreign private issuers not using Form 20-F may include the “significant difference” disclosure on their websites in English or in their annual reports to shareholders.

Neither the NYSE nor Nasdaq exempts foreign private issuers from rules governing the composition and independence of Audit Committees. In addition, the NYSE and Nasdaq require certain notifications, certifications and affirmations relating to compliance with corporate governance rules.