What does the law say about non-U.S. citizens buying stocks of U.S. companies? Are there any restrictions?

By Investopedia Staff AAA
A:

The law is very fuzzy on the matter of who may own U.S. securities and for what purpose. The U.S. follows the common law system, which is based on precedent. It evolves to reflect changes in precedent-setting and newly passed laws. Recent acts of Congress have changed the laws regarding foreign ownership and holding of U.S.-based assets; as a result, precedents do not necessarily exist for every circumstance that may occur. This lack of precedent means there are too many unknowns to answer this question simply.

First, let's be clear that the Securities and Exchange Commission and the U.S. government encourage foreign investment in the equities and debt markets that fund U.S. capital markets and the U.S. economy - non-U.S./foreign investors simply bring in too much cash to halt this practice! However, there is a lot of room for interpretation regarding who may own what assets and how they may hold them.

Foreign owners and holders of U.S.-based assets are subject to an array of U.S. laws intended to protect U.S. interests. With the passing of the USA Patriot Act of 2001, following the terrorist attacks of Sept 11, 2001, the laws governing foreign ownership of U.S. securities have become even more unclear. The U.S. government has gone to great lengths to ensure that certain organizations that have been linked to terrorist activities, along with their members or suspected members, are not able to finance their operations through American capital markets in any way.

A detailed discussion of this legislation is beyond our scope. However, it's safe to say that if you are not involved in any illegal activities, or any activities that the U.S. government and its organizations may find offensive, you should be well within your rights to own stock in U.S.-based companies.

(To learn more about what it means to own shares in a company, check out our Stock Basics Tutorial.)

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