Foreign Private Issuer Status: Timing of Determination Considerations

Public companies listing on U.S. exchanges—whether through an IPO or business combination—may be surprised to discover that they do not automatically qualify as a Foreign Private Issuer (FPI), even if their operations are outside the United States. However, through proper analysis and planning, companies may still achieve FPI status under the Securities Exchange Act of 1934, bringing significant compliance and cost-saving benefits.

Understanding the Definition of a Foreign Private Issuer

According to Rule 3b-4, a company qualifies as an FPI if it meets a two-part test:

1. It is organized under the laws of a non-U.S. jurisdiction; and
2. It has less than 50% of voting securities held by U.S. residents, or, if more than 50% are U.S.-held, it must meet all of the following:
• A majority of its executive officers and directors are not U.S. citizens or residents
• More than 50% of its assets are located outside the U.S.
• The business is principally administered outside the U.S.

The test requires a thorough, fact-specific evaluation—superficial factors such as a U.S. mailing address or bank account are not determinative.

Timing the FPI Status Determination

The SEC allows reclassification to FPI status only once a year, on the last day of the company’s second fiscal quarter. For calendar-year companies, that date is June 30. If the company qualifies as an FPI on that date, it may begin filing as such at the start of the next fiscal year.

Example: If a company qualifies on June 30, 2025, it will continue filing Form 10-Q and 8-K through 2025. Beginning January 1, 2026, it becomes an FPI and files Form 20-F by April 30, 2026. Missing the June 30 date means waiting another year to re-evaluate.

Key Advantages of FPI Status

• Use of IFRS financial statements without U.S. GAAP reconciliation
• Only two years of audited financials required (versus three)
• Exemption from Form 10-Q and 8-K reporting
• Disclosure of material events via Form 6-K
• Exemption from U.S. proxy rules under Regulation 14A/14C

Steps to Transition from Domestic Issuer to FPI

Transitioning to FPI status requires early planning. Companies should:

• Engage transfer agents and conduct ownership surveys
• Track officer and director residency, asset location, and decision-making authority
• Start preparations in Q1 to meet the Q2 deadline

Special attention is required for dual-class voting structures—ensure voting securities, not just shares, are evaluated. Avoid assuming qualification based on foreign operations alone.

Strategic Considerations and Legal Support

FPI reclassification can offer strategic and cost advantages, but the eligibility criteria and timing rules are strict. Engaging experienced securities counsel and auditors is essential to ensure compliance and a successful transition.

This article is for general informational purposes only and does not constitute legal advice. Consult your legal advisor to determine if FPI status is appropriate for your specific situation.

Contact: Nick L. Torres, Esq. and Zhiqi (Camilla) Zheng, Esq.