A Change In The Playing Field: Should FPIs BeTreated Like U.S. SEC Registrants?

Author:Ms Sheri Fabian
Profession:Grant Thornton LLP

Many U.S. companies registered with the SEC may think foreign private issuers (FPIs) have it pretty easy, at least as far as SEC filing requirements go. Many of the differences in the reporting and disclosure requirements between FPIs and U.S. registrants were originally put in place to improve the accessibility of the U.S. market to foreign entities. When the filing requirements for FPIs were originally enacted, FPIs mainly filed in the United States as a secondary offering, and the SEC relied on regulations in the FPI's home country or related to its primary filing. Today, however, an FPI's primary filing (or only filing) is with the SEC and thus many, including the SEC, have begun to question whether there should be a more level playing field in the filing requirements between U.S. companies and FPIs.

The SEC defines a foreign issuer as a foreign government, a foreign national or corporation or other organization that is incorporated or organized under the laws of any country other than the United States. FPIs are foreign issuers other than a foreign government except when:

more than 50 percent of the entity's outstanding voting shares are directly or indirectly owned by individuals whose primary residence is the United States; and any one of the following conditions exists: the majority of the entity's executive officers or directors are U.S. citizens or residents, more than 50 percent of the entity's assets are located in the United States, or the entity's business is administered principally in the United States. Currently, FPIs are not required to make periodic filings with the SEC other than Form 20-F, which is the equivalent of the 10-K Annual Report filed by U.S. SEC registrants. Form 20-F is also used by FPIs for registration statements. Unlike U.S. registrants, FPIs are not required to file quarterly financial information on Form 10-Q or to make periodic filings on Form 8-K to report material business combinations, significant business transactions entered into or terminated, bankruptcy, a change in accountants or other material events. FPIs are only required to furnish,1 not file, with the SEC a Form 6-K, which includes information made available to investors outside the United States either by foreign laws or foreign stock exchange regulations. As Meredith Cross, director of the SEC's Division of Corporation Finance, recently stated, Form 6-K is essentially a cover sheet that is required to include only material...

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