United States: SEC Staff Releases New Interpretations Relevant For Foreign Private Issuers And Rule 144A

On December 8, 2016, the SEC's Division of Corporation Finance released new "C&DI" interpretations, many of them applicable in particular to foreign private issuers. They provide welcome certainty for companies seeking to establish a US listing or maintaining an existing one. Other interpretations address the definition of US person in the Regulation S offshore placement exemption and the determination of "QIB" status under Rule 144A.

"Foreign Private Issuer" Status

The SEC's rules1 define "foreign private issuer" as a corporation or other organization incorporated or organized under the laws of a non-US jurisdiction, unless the company meets the following conditions as of the last business day of its most recent second fiscal quarter:

  • more than 50% of the company's outstanding voting securities are directly or indirectly owned of record by US residents; and
  • any one or more of the following:

    • the majority of the company's executive officers or directors are US citizens or residents; or
    • more than 50% of the company's assets are located in the United States; or
    • the company's business is administered principally in the United States.

The new interpretations provide guidance on how to apply these criteria.

Ownership Test. For the purpose of determining how many of the company's voting securities are owned of record by US residents:

  • Where the company has multiple classes of voting stock with different voting rights, the company has choice, as long as it applies it consistently. It may either look to whether more than 50% of the voting power of those classes on a combined basis is owned by US residents, or alternatively the company may choose to make the determination based on the number of voting securities.
  • A person who has permanent resident status in the United States (a so-called Green Card holder) is presumed to be a US resident.
  • Other individuals without permanent resident status may also be US residents for these purposes. The company must decide what criteria it will use to determine residency and apply them consistently without changing the criteria to achieve a desired result. Such factors could include tax residency, nationality, mailing address, physical presence, the location of a significant portion of the shareholder's financial and legal relationships or immigration status.

US Citizenship or Residence of Directors and Executive Officers. In determining whether a majority of the executive officers or directors are US citizens or residents, the tests must be applied separately for each group. In effect, there are four determinations: the citizenship status of executive officers, the residency status of executive officers, the citizenship status of directors and the residency status of directors. If the company has two boards of directors, it should make the determination with respect to the board that performs the functions most similar to those undertaken by a US-style board. If those functions are divided between both boards, the members of both boards may be aggregated for purposes of the determination.

Location of Assets. In determining whether more than 50% of the company's assets are located in the United States, a company may use the geographic segment information determined in the preparation of its financial statements. Alternatively, it may apply any other reasonable methodology in assessing the location and amount of its assets, so long as the company is consistent in applying the methodology chosen.

Location Where Business Is Principally Administered. In determining whether a company's business is administered principally in the United States, the company must assess on a consolidated basis the location from which its officers, partners or managers primarily direct, control and coordinate the company's activities. However, there is no single factor or group of factors that are determinative in this analysis. Holding shareholder meetings or occasional board meetings in the United States would not necessarily, absent other factors, result in a determination that the company's business is administered principally in the United States.

Regulation S: US Person

For purposes of the Regulation S safe harbor for offshore securities offerings, in determining whether a natural person is resident in the United States—and, therefore, a "US person"—the same factors should be considered as in the analysis of whether shareholders are US residents for purposes of the foreign private issuer definition, discussed above.

SEC Registered Debt Securities of Foreign Parent Companies With US Subsidiary Issuers or Guarantors

The new interpretations clarify that where a parent company that is a foreign private issuer guarantees securities issued by a subsidiary that is not a foreign private issuer, an F-series registration statement may be used to register the offering and, going forward, the company can use Form 20-F to comply with its Exchange Act reporting obligations. The same is true where a parent foreign private issuer issues securities that are guaranteed or co-issued by one or more subsidiaries that are not foreign private issuers. In both cases, the parent and subsidiary must be eligible to present consolidated financial information of the parent under Rule 3-10 of Regulation S-X or narrative disclosure, rather than separate financial statements of the subsidiaries.

Successor Registrants: Succeeding to the Reporting Obligations of a Reporting Foreign Private Issuer

Under Exchange Act Rule 12g-3, where a non-SEC-reporting issuer issues its securities to holders of securities of an SEC-reporting issuer in connection with a merger or similar transaction that qualifies as succession under Rule 12b-2 or related no-action letters, the acquiror automatically succeeds to the target's SEC registration and Exchange Act reporting obligations. Where both the acquiror and the target are foreign private issuers, the new interpretations provide that the acquiror's initial filing to evidence the succession should be a Form 6-K announcing the succession, filed on EDGAR using the Form 8-K submission type that is appropriate to the specific transaction. Thereafter, the successor issuer should make all other filings as appropriate.

Termination of Exchange Act Registration: Primary Trading Market

Under Exchange Act Rule 12h-6, a foreign private issuer may terminate its Exchange Act registration and its SEC reporting obligations if certain conditions are met. One of these conditions is that the company must have maintained a listing of the securities for at least 12 months on one or more exchanges in a non-US jurisdiction that, either singly or together with the trading of the securities in another foreign jurisdiction, constitutes the primary trading market for those securities. "Primary trading market" for these purposes means that at least 55% of the trading in the securities took place in a single foreign jurisdiction or in no more than two foreign jurisdictions during a recent 12-month period. The new interpretations provide that in making this determination, a company may consider all securities trading markets in the European Union as a single foreign jurisdiction.

Rule 144A: QIB Determination

The new interpretations provide additional clarity on the criteria for qualifying as a qualified institutional buyer ("QIB"), for purposes of the Rule 144A safe harbor for resales of securities. In order to qualify as a QIB, an institutional investor must own and invest on a discretionary basis at least $100 million in securities. The new interpretations provide that in determining whether the $100 million threshold is met, the institutional investor may include securities purchased or held on margin, as well as securities it owns but has loaned out. Borrowed securities and short positions do not count in calculating the $100 million threshold.

The interpretations also clarify that an investment company that is not registered under the Investment Company Act of 1940 may not aggregate the investments held by other funds in its family of funds.

Under Rule 144A, an entity is deemed a QIB if all of its equity owners are QIBs. In the case of a limited partnership, the equity owners are the limited partners, and the general partner need not be considered unless it is also a limited partner.


[1] Securities Act Rule 405; Exchange Act Rule 3b-4(c).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions