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Would a US company issuing private stock outside of the USA have to comply with SEC regulations?

  • Does that mean "only issues private shares", or do you mean "is also publicly traded in the US"? The concept of "private shares" needs to be clarified: shares in X can be publicly traded, but that does not preclude X from giving me, personally and privately, shares in X. – user6726 Apr 12 '17 at 21:36
  • To clarify, the private company takes investment from a foreign source with an agreement to share profits in the future – Anon Apr 13 '17 at 0:23
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There are several ways that a company can be subject to regulation by the Securities and Exchange Commission. The basic threshold is involvement in interstate commerce in the United States, which is a very low one and is probably satisfied simply by incorporating in the United States and having U.S. shareholders.

In general there are also practical reasons to avoid having a large number of investors in a start up company, even when exemptions for securities laws permit you to do so.

A U.S. company that is privately held and does not make a public offering is not required to have its securities registered with the SEC, but is still subject to SEC regulation through Regulation D and Regulation 10b-5.

A foreign company which does not offer to sell shares in the U.S. and does not list its shares for sale in the U.S. will generally not be subject to U.S. regulation by the Securities and Exchange Commission, although it might be deemed to be offering shares for sale in the U.S. if it has any significant number of U.S. shareholders. Obviously, however, foreign companies are subject to the securities laws of the places where they are organized and do business.

  1. It can make a public offering of securities (not necessarily stock) in the United States. This happens due to Section 5 of the 1933 Securities Act. A public offering is pretty much any offer to sell a security made via a general circulation publication, a mass mailing list, the Internet, or by telephone cold calls, that is not pre-screened to include only "accredited investors".

  2. It can be listed on a U.S. stock exchange (e.g. the NASDAQ or the OTC market). This is due to Section 12(a) of the 1934 Securities Exchange Act. This says:

SEC. 12. (a) It shall be unlawful for any member, broker, or dealer to effect any transaction in any security (other than an exempted security) on a national securities exchange unless a registration is effective as to such security for such exchange in accordance with the provisions of this title and the rules and regulations thereunder. The provisions of this subsection shall not apply in respect of a security futures product traded on a national securities exchange.

  1. It can be a U.S. company with more than a certain number of shareholders and more than a certain asset value, even if it has never made a public offering. This is due to Section 12(g) of the 1934 Securities Exchange Act. This says:

(g)(1) Every issuer which is engaged in interstate commerce, or in a business affecting interstate commerce, or whose securities are traded by use of the mails or any means or instrumentality of interstate commerce shall—

(A) within 120 days after the last day of its first fiscal year ended on which the issuer has total assets exceeding $10,000,000 and a class of equity security (other than an exempted security) held of record by either—

(i) 2,000 persons, or

(ii) 500 persons who are not accredited investors (as such term is defined by the Commission), and

(B) in the case of an issuer that is a bank or a bank holding company, as such term is defined in section 2 of the Bank Holding Company Act of 1956 (12 U.S.C. 1841), not later than 120 days after the last day of its first fiscal year ended after the effective date of this subsection, on which the issuer has total assets exceeding $10,000,000 and a class of equity security (other than an exempted security) held of record by 2,000 or more persons,

register such security by filing with the Commission a registration statement (and such copies thereof as the Commission may require) with respect to such security containing such information and documents as the Commission may specify comparable to that which is required in an application to register a security pursuant to subsection (b) of this section.

There are numerous exemptions set forth in Section 12(g)(2). Once you are subject to registration, you can only avoid it by falling below 300 investors, pursuant to Section 12(g)(4).

The Securities and Exchange Commission has considerable authority to tweak these thresholds by regulation.

  1. Private offerings of securities by U.S. companies must comply with Regulation D which creates safe harbors for companies that are not required to register as a publicly held company but are required to make certain private disclosures. Regulation D is a coordinated regulation issued under the 1933 Securities Act and Section 12(e) of the 1934 Securities Exchange Act.

  2. Every sale of securities by a U.S. company or to a U.S. person is subject to the requirements of Regulations 10b-5 under the 1934 Securities Exchange Act. This is a basic anti-fraud requirement.

  3. Some securities exempt under federal law are still subject to state securities regulations which are called "Blue Sky Laws".

  4. Tax law also limits your entity form if you have many owners. An S-corporation is not permitted to have more than 75 owners (with special rules for counting owners). Special rules apply to publicly traded partnerships. And, there are securities, tax and non-tax rules that apply to certain kinds of business trusts such as REITs and mutual funds, to state regulated banks, and to mutual insurance companies.

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If the company is a public US domiciled company the SEC regulates it. In addition, any foreign company that publicly traded its securities in the US is subject to SEC regulation.

  • A company doesn't even have to be domiciled in the U.S., if for example, it is listed on a U.S. stock exchange or makes public offers to invest to U.S. persons. – ohwilleke Apr 12 '17 at 23:15

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