07/10/2025 | Press release | Distributed by Public on 07/10/2025 14:28
Jul 10, 2025
Categories:
Publications
Authors:
I. Bobby Majumder Max J. Fournier
On June 4, 2025, the SEC voted to publish a concept release ("Concept Release") seeking public comment on changes to the definition of a foreign private issuer ("FPI"). The changes, if approved, could have significant implications for foreign companies, investors, and other stakeholders.
The Concept Release seeks to reassess decades-old assumptions that underpin the current FPI framework. When the FPI definition was first adopted, the core assumption was that most of the eligible FPIs would be subject to meaningful disclosure and regulatory oversight in their foreign jurisdictions and the primary trading market would be outside the U.S. According to SEC analysis, however, the data seems to show a trend that does not reflect those assumptions. For instance, in 2023, 55% of FPIs were traded exclusively or almost exclusively in the U.S. Similarly, when comparing data from 2003 and 2023, the SEC analysis found that the most common jurisdiction for incorporation in 2023 was the Cayman Islands, in contrast to Canada and the United Kingdom in 2003. This data seems to suggest that foreign based entities are accessing U.S. markets without the meaningful disclosure and oversight assumptions that the FPI framework was designed upon. Thus, the objective with the Concept Release is to strike a balance between attracting foreign companies to U.S. markets while not creating a disadvantage to domestic issuers.
Under the current definition, an FPI is defined as any issuer that is incorporated outside the United States, except for an issuer that (1) has more than 50% of its voting shares U.S. owned (the "Shareholder Test"); and (2) the majority of its officers or directors are U.S. citizens or residents; more than 50% of its assets are located in the U.S.; or its business is principally based in the U.S. (collectively, the "Business Contacts Test"). An issuer that qualifies as an FPI receives significant regulatory accommodations and reporting exemptions compared to domestic issuers. This includes (but not limited to), (1) reduced annual, quarterly, and current reporting obligations; (2) exemptions from SEC's proxy solicitation rules; (3) exemptions from Section 16 of the Securities Exchange Act (limited insider reporting); and (4) more flexibility in corporate governance.
However, in light of the SEC analysis, the Concept Release proposes a series of changes to the definition of FPIs. Below are the key changes under consideration.
Currently, the SEC is seeking comments for each of the proposed changes, in which the comment period will remain open until September 8, 2025. If the changes do get approved, there could be significant implications for FPIs, investors, and other stakeholders. First, the narrowing of the FPI definition could mean that some current FPIs will lose their FPI status. This would subject issuers to full U.S. domestic reporting requirements and regulatory oversight. Additionally, clients may need to restructure their organization or relocate their operations in order to increase non-U.S. trading volumes, list on a major foreign exchange, or reincorporate in a jurisdiction that is deemed to have meaningful regulatory oversight.1
For more information and assistance as it relates to the topics covered above, please contact the authors or any attorney with Frost Brown Todd's Securities & Corporate Governance team.
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