In 1990 the Securities Exchange Commission (SEC) created Regulation S which was substantially amended in1997 facilitating investment in US public companies by non-US investors as prescribed under SEC rule 904 www.sec.gov/rules/final/33-7505.html.  This provided a way for American companies to access the capital markets outside of the United States. A publicly traded company can issue any number of shares of restricted stock to non-US citizens residing outside the USA under Regulation S. The only requirement is that the company includes information on the issuing of this stock in its next quarterly filing with the SEC.

Regulation S stock carries a legend for one year restricting the stock from being able to be publicly traded in that period. Because of this restriction on the stock Regulation S shares may be sold at a discount to the publicly traded price.

At the end of the one year “distribution compliance period” a stock holder can have the legend removed and a new share certificate issued in its place. The new shares are freely tradable in the US marketplace with US buyers. This procedure is simple it only requires the certificate to be surrendered to the stock transfer agent appointed by the public company who issued the shares, along with a declaration requesting that the legend be removed in accordance with the one year “Distribution Compliance Period”.

Why Non-U.S. Investors buy Regulation S stock
 

• Tax advantages. Capital Gains rates in non-U.S. countries typically encourage a holding period of a minimum of one year by taxing short term (less than one year) gains at prohibitively high rates.  Therefore the “one year distribution compliance period” requiring the stock to be kept out of the U.S. market place is no concern for the non-U.S. investor.

• U.S. Investment.  The availability of Regulation-S stock issues gives the non-U.S. investor greater choices in their purchase of stock issues in public corporations.

Why do Companies issue stock via  Regulation  S  filings

Accessing new capital

The ability to access new Foreign Capital Markets and investors is the main attraction to U.S. stock issues under Regulation S

Advertising of  offering

Issuers are allowed to advertise a Regulation S stock offering, unlike private 505 and 506 private placements done with U.S. Investors.

Low cost and ease of issuance

No specific information requirements for filing (unlike registered offerings or private placements such as 505 and 506) means ease of filing, low cost to the issuer. This compared to $500,000 to $1,000,000 cost for an SEC registered offering, involving very strict, complex and time consuming regulations.

In fact no special notification of any kind is required by the SEC or any other governing body.  The only requirement for Regulation S stock issues is the mandatory quarterly reported “10Q” filing required by the SEC.

Why should non-U.S. Investors use RFP Escrow services

• Customer account flexibility, including the choice of taking physical delivery of their share certificates at any time upon request
  
  
• RFP Escrow has a complete understanding of all the requirements for the filing and issuance of Regulation S shares, including the procedures of publicly traded companies and the processes and requirements of the stock transfer agents responsible for issuance of share certificates.