Canadian Multijurisdictional Disclosures In Going Public Transactions
The Multijurisdictional Disclosure System (“MJDS”) was adopted in July 1991 by the U.S. Securities and Exchange Commission (“SEC”) and the Canadian Securities Administrators to facilitate cross-border public offerings of securities between the U.S. and Canada. The Multijurisdictional Disclosure System provides Canadian issuers with attractive options for accessing the U.S. capital markets in their going public transactions.
In many going public transactions, Canadian issuers can register their securities offerings in the U.S. using a Canadian prospectus, in accordance with Canadian disclosure requirements. Further, unlike registration statements on Form S-1, the registration statement will be declared by the SEC upon receipt of notification of clearance from the principal Canadian securities regulator.
Upon completion of a going public transaction, the MJDS allows eligible issuers to comply with U.S. continuous reporting requirements by filing their Canadian disclosure documents with the SEC.
The registration statement disclosure requirements for Canadian issuers in going public transactions vary depending upon the Canadian issuer’s reporting history, the size of the issuer, the nature of the securities offering and the type of security being offered.
The MJDS registration statement process avoids duplicative regulatory review of Canadian issuer’s registration statements and disclosures which reduces costs, time and other burdens of complying with two disclosure systems, allowing eligible Canadian issuers to more easily access the U.S. capital markets and obtain their stock ticker symbol.
A “foreign private issuer” is defined in Rule 405 under the Securities Act to mean all “foreign issuers”, except those that meet both of the following conditions:
(1) More than 50% of the outstanding voting securities of the issuer are directly or indirectly owned of record by residents of the United States; and
(2) Any one of the following:
(i) the majority of the executive officers or directors are United States citizens or residents;
(ii) more than 50% of the assets of the issuer are located in the United States; or
(iii) the business of the issuer is administered principally in the United States.
Companies going public must determine if they qualify as a foreign private issuer as of a date within 30 days prior to the its filing of an initial registration statement with the SEC. For companies that have completed their going pubic transaction, the determination of foreign issuer status is made annually on the last business day of company’s most recently completed second fiscal quarter. Once an issuer qualifies as a foreign private issuer, it is able to use the forms and rules designated for foreign private issuers until the company no longer qualifies as a foreign private issuer at the end of its most recently completed second fiscal quarter. Once an issuer fails to qualify for foreign private issuer status, it will remain unqualified unless it meets the requirements as of the last business day of its second fiscal quarter. However, an issuer’s determination that it fails to qualify as a foreign private issuer will only govern its eligibility to use the forms and rules designed for foreign private issuers beginning on the first day of the fiscal year following the determination date.
MJDS provides alternative rules for registration statements covering securities offerings under the Securities Act of 1933, as amended (the “Securities Act”), registration of a class of securities under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and tender offers under the Exchange Act.
U.S. companies generally use Forms S-1 and S-3 registration statements to register securities offerings under the Securities Act, while foreign issuers use corresponding MJDS Forms F-1 and F-3. Registration statements on Forms S-1 and F-1 generally require the prospectus to contain specific disclosures while Forms S-3 and F-3 permit the issuer to incorporate substantial information by reference to Exchange Act filings. The MJDS registration statement will be declared effective by the SEC after it receives the notification of clearance from the principal Canadian securities regulator.
For continuous reporting under the Exchange Act, U.S. issuers file annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. The annual report on Form 20-F available to reporting foreign companies corresponds to Form 10-K. Foreign issuers supplement the disclosure contained in their 20F annual reports by providing certain disclosures on Form 6-K. The disclosure required by the registration statements and forms available to foreign issuers are less demanding than those required of U.S. domestic issuers.
MJDS forms allow Canadian issuers to use a Canadian prospectus in the U.S. without SEC review. The MJDS forms allow certain issuers to meet continuous reporting obligations by filing Canadian annual information forms and other public information with the SEC. Generally, the MJDS acknowledges Canadian disclosure standards as sufficient for the protection of U.S. investors in both the prospectus disclosure and ongoing disclosure contexts, Some Canadian procedural rules satisfy U.S. requirements for offerings under MJDS, including the Canadian “shelf” offering rules.