On June 4, 2025, the US Securities and Exchange Commission (the “SEC”) published a Concept Release on Foreign Private Issuer Eligibility (the “Release”)¹ seeking comment on the eligibility criteria for companies to qualify as a “foreign private issuer” (“FPI”). The FPI definition is important as numerous SEC accommodations for SEC-registered and reporting companies, or companies seeking to register with the SEC, are keyed to status as an FPI.

The SEC noted that it has long recognized the challenges that foreign entities experience when entering the US capital markets and that they consequently may merit different treatment from the SEC. However, the FPI definition requires more than the company simply being organized and located outside the United States. An FPI is currently defined to include a non-governmental² issuer incorporated outside the United States where non-US residents hold the majority of its voting shares, or that manages and conducts its business outside the United States, and has most of its assets located outside the United States. The definition of “foreign private issuer” is provided in two identical rules: Rule 405 under the Securities Act and Rule 3b-4 under the Exchange Act. Under these rules, a company is a foreign private issuer if it is incorporated outside the United States, and US residents do not hold a majority of its shares, or, if US residents do hold a majority of its shares, then: (1) a majority of its directors and officers are not US citizens or US residents, (2) its business is administered from outside the United States, and (3) a majority of its assets are located outside the United States.

The principal accommodations available to companies meeting the FPI definition include the following:

• FPIs may file registration statements under the Securities Act of 1933 (the “Securities Act”) on specially tailored forms, Forms F-1, F-3 and F-4, which have less stringent disclosure requirements in many respects from the corresponding registration forms for domestic issuers.
• FPIs may register classes of securities pursuant to Section 12 of the Securities Exchange Act of 1934 (the “Exchange Act”) on Form 20-F, which also has less stringent disclosure requirements in many respects than the corresponding Exchange Act registration form for domestic registrants (Form 10).
• Annual reporting for registered companies under the Exchange Act is simplified. FPIs only are required to file an annual report on Form 20-F and periodic reports on Form 6-K for other events publicly disclosed in their home jurisdiction. The annual report on Form 20-F is again tailored to the needs and circumstances of foreign companies, while Form 6-K is merely a cover page to which the home country disclosure document (translated into English) is appended.
• Form 20-F annual reports may be filed four months after the fiscal year-end, whereas domestic companies filing an annual report on Form 10-K may be required to file as soon as 60 days after fiscal year-end.
• Reporting FPIs do not need to file Form 10-Q quarterly reports, proxy statements³ or Form 8-K periodic reports at all, unlike domestic reporting companies.
• FPIs have substantial leeway in how to present their financial statements in SEC filings. They may do so by using (1) International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board, (2) accounting principles generally accepted in the United States (“US GAAP”) or (3) a comprehensive set of accounting principles in effect in their home country other than US GAAP with a reconciliation to US GAAP. Domestic issuers, in contrast, always must use US GAAP.
• Interim financial statements included in a registration statement are not required to be updated as soon for FPIs as they are for domestic issuers.
• Shareholders of FPIs are exempt from Exchange Act Section 16 reporting obligations and short swing profit liability provisions.⁴
• FPIs are exempted from SEC say-on-pay rules and most executive compensation disclosure requirements applicable to domestic companies.
• Certifications required by the Sarbanes-Oxley Act of 2002 are only required by reporting FPIs for their annual reports.
• FPIs are not subject to Regulation FD.
• An FPI’s disclosure of Non-GAAP financial measures is exempt from compliance with Regulation G if certain conditions are met, and in some cases FPIs may disclose Non-GAAP financial measures that would be prohibited for domestic companies.
• FPIs are exempt from compliance with Regulation Blackout Trading Restriction if certain conditions are met.
• FPIs are eligible for exemptions from the obligation to register a class of securities under Exchange Act Section 12(g). Pursuant to Rule 12g3-2(a), an FPI is exempt from Exchange Act registration if it has less than 300 recordholders that are resident in the United States as of its most recent fiscal year-end. Pursuant to Rule 12g3-2(b), an FPI that satisfies listing and electronic publication conditions in its home country is exempt if it claims this exemption before the number of its US shareholders exceeds the stipulated threshold.
• An FPI can terminate its Exchange Act Section 12(g) registration if its US trading volume falls below a certain level, or if the FPI has less than 300 recordholders resident in the United States. A domestic issuer typically may only terminate its Exchange Act Section 12(g) registration if it has less than 300 recordholders of such class of securities globally.
• FPIs benefit from SEC exemptions pertaining to offshore press conferences and press releases issued outside the United States in connection with their offerings.
• An FPI can permanently terminate its Securities Act Section 15(d) reporting obligations, whereas domestic issuers may only suspend such duty.

These accommodations are based on the premise that FPIs are, in theory, subject to meaningful disclosure requirements in their home country since their securities presumably are traded in their home market and not just in the United States. The differences in the regulatory requirements are meant to prevent FPIs from having to comply with multiple regulatory systems that might conflict so as not to make it overly burdensome to offer their securities in the United States. The SEC has historically had an interest in not dissuading FPIs from seeking US investors due to the expense or complication of reconciling competing regulatory frameworks, and at the same the SEC has recognized the advantages of making available to US investors investment opportunities outside the United States.

Nevertheless, it appears that the SEC believes that it may be time to reassess the scope of the exemption and the dispensations provided. In its Release, the SEC asserts “the FPI definition may need to be adjusted to ensure that (1) US investors receive appropriate disclosure and remain adequately protected when investing in FPI’s securities and (2) that the discrepancy in regulatory requirements does not have unintended competitive implications.”⁵

In his opening Statement on the Release, SEC Chairman, Paul Atkins, highlighted that it has been several decades since the SEC last examined the characteristics of the FPI community. Comparing data from 2003 and 2023, the Release points to a change in the most common jurisdictions for FPIs for both incorporation and headquarters. In 2003, the most common jurisdictions for both incorporation and headquarters for FPIs were Canada and the United Kingdom.⁶ In 2023, the most common jurisdiction for incorporation was the Cayman Islands, and the most common jurisdiction for headquarters was China.⁷ Although the overall number of FPIs has not shifted significantly since 2003, there has been noticeable movement in where FPIs are incorporated and headquartered. In addition, the fraction of FPIs with differing jurisdictions of incorporation and of headquarters has also shifted from seven percent in 2003 to 48% in 2023. The Release pointed to the rise in China-based issuers⁸ as the cause of this shift. The SEC identified a significant overlap between being a China-based issuer and being incorporated in the Cayman Islands or the British Virgin Islands. In 2023, 97% of China-based issuers were incorporated in one of these two jurisdictions. In the Release the SEC outlines a detailed study of the shifts and composition of the FPI population over the past 20 years and highlighted the following findings among others.

The Release noted that while the SEC seeks to facilitate FPIs’ ability to reach US investors, it must strike a balance to ensure that domestic companies are not at a disadvantage with respect to regulatory requirements. The Release also studied how the percentage of FPIs’ global equity trading volume that occurred in US capital markets had changed over time. From 2014 to 2023 the portion of FPIs that exclusively trade their equity securities in the US capital markets rose from 11% to a majority of 55%.¹⁰ This change likely means that, contrary to one of the key premises of the SEC FPI dispensations, these FPIs are not being regulated by any system other than that of the United States.

In the release, the SEC suggested – and requested public comments on – the following possible modifications to the current regulatory regime in order to address the shifts identified in the FPI population such as the following:

• lowering the US ownership threshold from its current level of 50%,
• implementing a foreign trading volume test,
• requiring FPIs to be listed on a major foreign exchange,
• requiring FPIs to be (1) incorporated or headquartered in an SEC-approved jurisdiction and (2) be subject to such jurisdiction’s regulations and oversight without modification or exemption,
• developing a system of mutual recognition for issuers from selected foreign jurisdictions¹¹ or
• requiring FPIs to certify that they are either incorporated or headquartered in, and subject to the oversight of the signatory authority of, a jurisdiction in which the foreign securities authority is a signatory to MOUs with IOSCO.

Notably, the SEC’s focus is entirely on potential changes to the FPI definition; it did not specifically request comment on any potential changes to the disclosure required of an FPI or the regulations to which an FPI is subject.

The consequences of a major change in the definition could be substantial. Some possible consequences are likely apparent, such as the ensuing requirements causing a number of companies to need to use more detailed and comprehensive domestic registration forms and to cease to be eligible for beneficial exemptions, such as the exemption from Section 16 liability and compliance and from compliance with Regulation FD. These changes could dissuade a significant number of these companies from entering or remaining in the US capital markets.

Other potential consequences are less immediately apparent. For instance, the loss of the exemption from Section 12(g) registration now available under either Rule 12g3-2(a) and 12g3-2(b), could have severe effects. The loss of these exemptions would require many FPIs to register under the Exchange Act. Along similar lines, if an FPI can no longer meet the exemption criteria found in Rule 12g3-2(b) it may lose its eligibility to register and issue American Depository Receipts (“ADRs”) on Form F-6, for which the Rule 12g3-2(b) exemption satisfies one of the principal eligibility requirements.¹² ADRs allow US investors to invest in a range of non-US companies by purchasing securities that represent shares of foreign companies that are held by a US depositary bank outside the United States, and a significant limitation of the eligibility to qualify to issue ADRs who in turn reduce the available of that investment option to the US public.

The SEC is seeking public comments on whether the current FPI definition should continue to apply or be amended as well as comments on any costs, burdens, or benefits caused by the potential regulatory modifications suggested. The public comment period will remain open until September 8, 2025. The SEC takes public comment seriously in considering its actions. If you have any questions or need assistance in submitting comments on the Release, please contact one of the partners or counsel listed below or your primary attorney at Seward & Kissel LLP.