Canadian companies wishing to access the US capital markets from time to time, and that have historically qualified as a “foreign private issuer” under US federal securities laws, need to annually assess whether they continue to meet the tests to qualify as a “foreign private issuer”.  Under US federal securities laws, “foreign private issuers” are exempt from US registration and continuous disclosure requirements. If a foreign company does not continue to qualify as a foreign private issuer, it becomes subject to the same registration and disclosure requirements applicable to domestic US entities.  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 (i.e. by June 29, 2018 for a company with a December 31 year-end).

A “foreign private issuer” is any foreign issuer (other than a foreign government) unless:

  • more than 50% of the issuer’s outstanding voting securities are held directly or indirectly of record by residents of the United States; and
  • any of the following applies:
    • the majority of the issuer’s executive officers or directors are US citizens or residents;
    • more than 50% of the issuer’s assets are located in the United States; or
    • the issuer’s business is administered principally in the United States.

For purposes of the shareholder test, foreign companies must “look through” the record ownership of brokers, dealers, banks, or nominees holding securities for the accounts of their customers, and also consider any beneficial ownership reports or other information available to the issuer. It is important that such analysis be run as of the last business day of the second fiscal quarter because the company that conducts the geographic surveys in Canada and the United States (Broadridge) cannot run its analysis retroactively.

Invitation for Discussion:

If you would like to discuss this article 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 Linmac 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.