Recent Changes to U.S. Securities Laws May Allow More Funding Options for U.S.-Based Subsidiaries

Abstract

On August 26, 2020, the United States Securities and Exchange Commission (SEC) adopted final amendments expanding the definitions of “accredited investor” and “qualified institutional buyer” (QIB) under United States securities laws. securities, which changes came into effect on December 8, 2020. Each definition relates to eligibility to participate in private capital markets without the issuer filing registration statements. The foregoing expansion could have a positive impact on the financing activities of small and medium-sized U.S. subsidiaries of Japanese companies that traditionally financed their operations through intercompany debt or capital contributions without external debt or corporate financing. equity.

The new definition of qualified investor has been broadened to now include people who hold certain professional certifications (including licenses widely held in the securities industry) and “knowledgeable employees” (e.g. officers, directors , general partners, etc.) funds. In addition, due to the expanded definitions of QIB, certain investment advisers and investment firms, limited liability companies with total assets exceeding $ 5 million and any other entity with investments over $ 5 million are now accredited investors.

These changes could provide an opportunity for small and medium-sized Japanese subsidiaries to seek external financing through the issuance of convertible notes or preferred shares, thereby reducing the amount of capital required from their parent companies. However, it is important to properly structure this financing so that parent companies in Japan do not lose ultimate control of the subsidiaries. If properly used, with these modifications, financing through private capital markets can allow Japanese small and medium-sized enterprises to establish and / or operate U.S. subsidiaries with less capital required and some diversification of their businesses. risks.

About Eleanor Blackburn

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