Foreign Private Issuer Exemptions: NASDAQ Rule 5615(a)(3) and Canada

This post represents the first of a three part series that examines NASDAQ's rules for foreign private issuer exemptions.

Canadian private issuers listed on the NASDAQ most widely utilize home country practices for quorum requirements. The quorum requirement, found in NASDAQ Rule 5620(c), provides: “Each Company . . . shall provide for a quorum as specified in its by-laws for any meeting of the holders of common stock; provided, however, that in no case shall such quorum be less than 33 1/3% of the outstanding shares of the Company’s common voting stock.” 

Canada’s corporate governance standards allow for the company’s by-laws to set the quorum requirements.  For dually listed companies (VSGN, PAAS), the Toronto Stock Exchange does not list any specific quorum requirements.  As Canadian corporate governance standards do not set a specific percentage for quorum requirements, the companies that take advantage of Rule 5615(a)(3) have a lower quorum requirement than NASDAQ’s 33 1/3%.  Companies such as Descartes Systems Group (NASDAQ:  DSGX) and Research in Motion (RIMM) have set the quorum requirement to 20% while others such as FMTI, BLDP, and ONCY have all set the quorum requirement as low as 5%. 

By electing to follow home country practices, Canadian companies are benefitting by creating a more efficient meeting environment. Less required shareholder presence offers a higher level of discussion and a more liberal initiative approval process for the board.  Lower quorum requirements can be unfavorable to private foreign issuers.  Fewer required to be in attendance could result in a minority proposing and passing initiatives that affect the majority.  Lower quorum requirements could also result in less shareholder involvement impairing equality among the shareholders.