Photo of Joe BrennanBy Joe BrennanJanuary 31 2017
Business Law

My Canadian Public Company Has US Shareholders - Do I Need To Be Concerned with SEC Registration and Reporting?

Under U.S. federal securities laws, a Canadian public company with U.S. shareholders may be required to register in the U.S. if certain asset and U.S. shareholder thresholds are exceeded.  Consequently, that Canadian public company needs to make an annual determination on whether it qualifies as a “foreign private issuer” under U.S. federal securities laws and, if so, whether it fits within the an exemption from the requirement to register and report under such laws.

The US Securities Act and the US Exchange Act.

Canadian public companies with U.S. shareholders need to be aware of the Securities Act of 1933 (the “Securities Act”) and the Securities Exchange Act of 1934 (the “Exchange Act”).

The Securities Act requires companies wishing to sell securities in the United States to:

  • register the transaction with the Securities and Exchange Commission (the “SEC”), or
  • follow the requirements of an exemption from the registration requirements.

The Exchange Act requires companies to register classes of equity securities:

  • in order to list those securities on a national securities exchange in the United States, or
  • if certain asset and U.S. shareholder thresholds are exceeded.

The Exchange Act also requires companies that are required to register to make periodic filings with the SEC to disclose information about their business operations, financial condition, and management.

Foreign Private Issuers

A foreign company with U.S. shareholders must determine whether it qualifies as a foreign private issuer as defined in Rule 405 of Regulation C under the Securities Act and Rule 3b-4 under the Exchange Act.

A company incorporated or organized outside the United States is a foreign private issuer for SEC reporting purposes unless:

  • more than 50% of its outstanding voting securities are owned by U.S. residents, and
  • one or more of the following is true:


    • a majority of the company’s executive officers or directors are U.S. citizens or residents;
    • 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.

If a company does not qualify as a foreign private issuer, it is subject to the same registration and disclosure requirements applicable to domestic U.S. entities.  However, if it is a foreign private issuer, and if it is required to register with the SEC, the SEC has adopted specific rules applicable to foreign private issuers that are designed to recognize international and home jurisdiction standards. In general the rules provide that:

Generally speaking, a foreign company must determine its status as a foreign private issuer on an annual basis, as of the end of its second fiscal quarter.

If a foreign company determines that it no longer meets the definition of a foreign private issuer, it must transition to domestic reporting status and it becomes subject to the reporting requirements for a domestic company beginning on the first day of the next fiscal year.

Activities and Circumstances Requiring Registration

Under U.S. federal securities laws, a foreign private issuer must register an offering of its securities under the Securities Act or a class of securities under the Exchange Act, or both, in the following circumstances:

  • The foreign private issuer wishes to conduct a public offering of its securities in the United States;
  • The foreign private issuer wishes to have a class of its securities listed on a national securities exchange or quoted on the Over the Counter Bulletin Board (“OTCBB”); or
  • The foreign private issuer’s worldwide assets and worldwide/U.S. shareholder bases reach certain levels:


    • the issuer has over $10 million in assets as of the end of its fiscal year;
    • the number of its record holders is either 2,000 or greater worldwide, or 500 persons who are not accredited investors or greater worldwide; and
    • the number of its U.S. resident holders is 300 or more.

After registration under either the Securities Act or the Exchange Act, a company becomes subject to periodic reporting requirements, and is required to report information to the SEC in annual and other reports. 

However, under Rule 12g3-2(b), a foreign private issuer is provided an automatic exemption from registration if it meets the following three conditions:

  • The foreign private issuer is not required to file reports under Exchange Act Sections 13(a) or 15(d) (such obligations arising generally as a result of a public offering of securities, a listing on a national securities exchange, or voluntary registration under the Exchange Act);
  • The foreign private issuer maintains a listing of the subject class of securities on one or two exchanges in a non-U.S. jurisdiction(s) that comprise more than 55% of its worldwide trading volume (its “Primary Trading Market”); and
  • The foreign private issuer publishes in English on its website (or through an electronic information delivery system generally available to the public in its Primary Trading Market) material items of information that:


    • It has made public or been required to make public pursuant to the laws of the country of its incorporation, organization or domicile;
    • It has filed or been required to file with the principal stock exchange in its Primary Trading Market on which its securities are traded and which has been made public by that exchange; or
    • It has distributed or been required to distribute to its security holders.

The exemption provided by Rule 12g3-2(b) is self-executing; it does not require foreign private issuers to make a formal application to the SEC for the exemption or submit materials to the SEC to maintain the exemption.

Invitation for Discussion:

If you would like to discuss this blog in greater detail, or any other business law matter, please do not hesitate to contact one of the lawyers in the Business Law group at Nerland Lindsey LLP.

Disclaimer:

Note that the foregoing is for general discussion purposes only and should not be construed as legal advice to any one person or company. If the issues discussed herein affect you or your company, you are encouraged to seek proper legal advice.

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