Summary Streamlined, Exam-ready PC1 Notes - Regulation and Eligibility Requirements
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Course
Public Companies Law
Institution
University Of Law (ULaw)
These are condensed, exam-ready and streamlined notes made from Classes, the Resource Pack and the Legacy Notes.
Public Companies is inherently content-heavy therefore these notes will help in streamlining the information you really need in readiness for exams.
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Public Companies
s.4(2) CA06 – ‘A C limited by shares / guarantee which have a share capital and have complied with
requirements of CA06 to enable it to be registered or reregistered as such ’
o They can raise capital – issuing equity / debt securities – to the public
o Types of Public Companies:
o Listed – requires:
Satisfied listing reqs. of Stock Exchange; and
whose shares (or some of which) are officially listed; and
admitted to trading on MM of LSE
o Quoted – C falls within CA06 definition / its shares are traded on AIM
o Unquoted – No public market in C’s shares (neither MM or AIM)
Shares listed on MM – listed by not quoted
Shares listed on AIM – quoted by unlisted
Publicly traded – means both
Pros and Cons
Public Companies and Listing
Advantages of being a Public C Disadvantages of being a Public C
Ability to offer shares to the public (private Far greater regulatory requirements (See chart
companies cannot do so under s755 CA06) below for regulatory differences)
Prestige
Advantages of Listing Disadvantages of Listing
Enables C to raise finance from both IPO and secondary More regulation
issues (shares on public market = more attractive – as o Prospectus Rules (PR)
can be readily transferred) o Listing Rules (LR)
o s.755 CA06 = prohibited for Private C to offer o Disclosure Rules
shares to the public o Transparency Rules (DTR)
o s.758 CA06 = if breached, Court can re-register o Corporate Governance Rules
offending Private C as a Public C – If C doesn't meet o Statutory Provisions
reqs. to become Public then Court can order C to be all add to costs of running a Public Company
wound up More CA 2006 requirements (e.g. D’s remuneration
Further prestige (shows that C has regulatory approval – report, FSMA MA provisions, CJA 1993)
may raise C’s standing with suppliers/ customers/etc) Loss of executive control for management (have to
Provides an exit opportunity for investors cede some power to new SHs) – dilution
Provides a profit-making opportunity for investors Greater publicity burden – publication of info can be
Provides the C with ability to use its shares as ‘bid time consuming, costly & potentially
consideration’ embarrassing/reputational damage
Assist in recruiting, retaining & incentivizing key C will become subject to more external market
management and employees forces (market conditions and rumours etc)
Allows C constant access to equity finance (very useful) Costly
– esp. when debts markets are expensive Time-consuming
Increase efficiency (arises from compliance with
regulatory requirements etc)
, Regulatory Differences between Public and Private Companies
Public company Private company
Accounts Must file with CH within 6 months after end of accounting Must file within 9 months after end of accounting reference
reference period (CA 2006, s.442(2)(b)) period (CA 2006, s 442(2)(a))
Must file full accounts with CH (CA 2006, ss. 446 and 447 Requirements to file full accounts can be relaxed for small
and ss.384 and 467) and medium-sized companies (CA 2006, ss.444 and 445)
Accounts must be laid before a GM no later than 6 No requirement to do so
months after end of accounting reference period (CA
2006, s.437)
Administration Must hold an AGM (CA 2006, s. 336) No requirement to hold AGM unless articles require (SI
2007/ 2194, Sch 3, para 32(11))
The requisite percentage for holding a GM on short notice The requisite percentage for holding a GM on short notice is
is 95% (CA 2006, s.307(6)(b)) 90% (CA 2006, s.307(6)(a))
Cannot use the WR procedure (s.288 CA 2006) Can use the WR procedure (s.288 CA 2006)
Directors Minimum of 2 (CA 2006, s.154(2)) Minimum of 1 (CA 2006, s.154(1))
Restrictions apply on voting for appointment of more No equivalent restriction applies
than 1 D in just 1 resolution (CA 2006, s.160)
Public C can only make quasi-loan / credit transaction with SH approval for quasi-loans / credit transactions with a D will
1 of its Ds provided prior SH approval is obtained (CA 2006, be required only if the Private C is ‘associated with a public
ss.198 and 201) company’, as defined in CA 2006, s.256 (CA 2006, ss.198(1)
and 201(1))
Financial Prohibited (CA 2006, s.678), subject to CA 2006, ss.681 Generally permitted. Restrictions apply to Private Cs which
assistance and 682 are Subs of Public Cs
Secretary C Sec is required (CA 2006, s.271). S.273 sets out C Sec is not compulsory (CA 2006, s.270(1)). If C chooses to
qualifications required have one, there are no qualification requirements
Share capital C must have allotted share capital at least up to the value No restriction on allotted share capital
of the authorised minimum (currently £50,000 – CA 2006,
s.763 permits euro equivalent = €57,100 (SI 2009/ 2425))
to register (CA 2006, s.761) or re-register (CA 2006,
s.91(1))
C must maintain this minimum share capital (CA 2006,
ss.650 and 662)
Each share allotted must be paid up to at least one- No equivalent restriction applies.
quarter of its nominal value together with whole of any Can allot shares nil-paid, partly-paid or fully-paid
premium (CA 2006, s.586)
S.561 = pre-emption rights on allotment can be s.561 = pre-emption rights on allotment can be disapplied
disapplied under ss.570 or 571 by SR / excluded & under s.569 (by SR / provision in the articles), under ss.570
replaced by articles conferring a corresponding right under or 571 by SR / excluded under s. 567 (by provision in the
s.568 articles)
Restrictions apply on consideration for allotment of These sections do not apply
shares (ss.585, 587 and 598)
Valuer’s report required to value non-cash consideration No equivalent requirement applies
for the allotment of shares (s.593)
GM required in the event of a serious loss of capital No equivalent requirement applies
(s.656)
Charges on own shares are void, subject to certain Subject to certain requirements in s.670(2), charges on own
exceptions (s.670) shares are permitted
Can redeem and purchase shares out of distributable Can redeem and purchase shares out of distributable
profits / the proceeds of a fresh issue, but NOT out of profits; proceeds of a fresh issue; AND out of capital (ss.687
capital (ss.687 and 692) and 692)
Shareholders Has disclosure obligations under DTR 5 and CA 2006, Pt 22 No equivalent restrictions apply
Takeovers Subject to the City Code on Takeovers and Mergers Typically not subject to the City Code on Takeovers and
Mergers
, Regulatory Framework for Public Companies
FCA FSMA 2000 created the FCA as the principal regulator of financial services
UKLA The UKLA (UK Listing Authority) is a subdivision of the FSA which is the ‘competent
authority’ in dealing with listing securities (s72(1) FSMA nominates FSA as the ‘competent
authority’)
o Under FSMA the responsibilities of the FSA (as the UKLA) are:
a) Maintaining the Official List (s74(1))
b) Drafting the PRs, LRs, the Disclosure Rules, Transparency Rules & Corporate
Governance Rules (s73A)
c) Determining applications for admission to listing – inc. reviewing
documentation C must produce to have its shares listed (s75)
d) Ensuring Listed Cs comply with Continuing Obligations under all various rules
e) Sanctioning any Listed C that does not comply with the rules
The LSE LSE = a marketplace for dealing in shares
o 2 main markets for listing shares – the ‘Main Market’ and ‘AIM’
Purpose:
o 1) To enable Cs to raise funds by issuing new shares to the public (primary market)
o 2) To enable issued shares to be traded by the public (secondary market)
Buying and selling shares
o Trading – process by which S is matched with B (fully automated electronically)
o Settlement – process of paying purchase price & transferring shares (e.g. CREST)
Investors in the markets
o Members of the public
Can invest directly in shares listed on MM / AIM by subscribing for new shares
issued by C on floatation / by trading in the 2ndry mkt (already issued shares)
Can also invest indirectly (e.g. by pensions/savings schemes tied to stock market
performance)
o Institutional investors
Large SHs = more influential than members of the public
Regulation of the LSE
o FSMA 2000 prohibits anyone carrying out a regulated activity unless authorised/exempt
(= the ‘general prohibition’)
o s290 FSMA – Stock Exchange = recognised investment exchange (exempt from General
Prohibition under s285 CA
o s286 FSMA – Stock Exchange must satisfy various reqs. to remain in the exemption
FCA and In its capacity as markets regulator under the FSMA 2000, the FCA regulates the Stock
LSE Exchange.
In an IPO, both the FCA & Stock Exchange are involved in the flotation process with
different roles – FCA oversees the admission of shares to listing – Stock Exchange oversees
the admission of shares to trading – Listed C needs both admissions for to list and to trade
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