Introduction

Raising Capital in the United States: A Guide to Using MJDS for U.S. Public Offerings and Periodic Reporting

Canadian issuers frequently turn to the U.S. capital markets for both financing needs and other strategic reasons. A public offering of securities in the United States provides an opportunity to reach a broader and deeper range of institutional and retail investors than is available solely in the Canadian capital markets. Further, a listing on the New York Stock Exchange (the "NYSE"), NYSE American LLC ("NYSE American") or the Nasdaq Stock Market (the "NASDAQ") enhances the potential for coverage of a company by research analysts, which in turn may result in a higher valuation of the company. Finally, many Canadian companies are expanding their businesses through acquisitions in the United States. Securities that are publicly traded in the United States can be valuable as acquisition currency and can facilitate equity-based compensation plans for U.S. employees.

The U.S. securities markets are regulated at both the federal and the state level. Canadian issuers will need to be aware of, and comply with, two principal U.S. federal securities statutes:

  • the U.S. Securities Act of 1933, as amended (the "Securities Act"), which governs the offer and sale of securities by an issuer, an affiliate of the issuer, or an underwriter; and
  • the U.S. Securities Exchange Act of 1934, as amended (the "Exchange Act"), which, among other things, governs the subsequent trading of those securities in the secondary market, imposes periodic and current reporting requirements on public companies, and establishes various requirements for the directors, officers and significant shareholders of those companies.

Canadian issuers subject to the Exchange Act will also need to know about the Sarbanes-Oxley Act, which amended the Exchange Act to impose a wide range of additional corporate governance and related disclosure requirements on U.S. public companies, with very few accommodations for Canadian or other non-U.S. companies. Generally, a Canadian issuer that becomes subject to Exchange Act reporting obligations must comply with Sarbanes-Oxley Act requirements to the same extent as a U.S. domestic issuer does. In addition, while it primarily focused on wide-ranging reforms to the U.S. financial regulatory environment, the Dodd-Frank Act also introduced compliance and disclosure obligations that apply to Canadian issuers subject to the Exchange Act. Finally, the Jumpstart Our Business Startups Act of 2012, as amended (the "JOBS Act"), and the Fixing America's Surface Transportation Act (the "FAST Act") also introduced further changes to the U.S. public offering process, particularly for early stage companies.

Since 1991, MJDS has enabled eligible Canadian issuers to file a registration statement with the SEC that becomes effective immediately at the election of the Canadian issuer upon the completion of review by applicable Canadian securities regulators, generally without SEC review - a benefit that was not available to any other category of U.S. or non-U.S. issuer until December 2005, when "well-known seasoned issuers" (or "WKSIs") having (among other certain eligibility requirements) a public float of at least US$700 million also became able to do so.

Finally, the NYSE, NYSE American and NASDAQ rules all contain varying standards and requirements for eligibility to list on those exchanges. They also prescribe corporate governance requirements that augment those of the U.S. federal securities laws. Although Canadian issuers may be entitled to foreign issuer exemptions under some of the U.S. stock exchange corporate governance requirements and may instead follow applicable Canadian corporate governance requirements, it is necessary for those Canadian issuers to publicly disclose in their periodic filings how their practices differ from U.S. domestic companies and the fact that an exemption is being relied upon.

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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.