EXAM READY Distinction level Corporate Finance elective notes. These cover all the SGSs and everything you need to know to get a distinction in the exam.
I got Distinctions in all my modules across the LPC/LLM taken in 2020 at BPP.
Index page included.
Statutory references are highlighted in ...
, 1.FLOTATIONS
Flotations: Listing to the Main Market
Listed companies:
o Those with shares listed on the Official List (includes Main Market but not AIM)
o Main Market is more liquid because there are more buyers, so more likely to achieve
higher share price
o Must be public company before it can apply to have its shares listed
Advantages of Listing
Access to capital/potential growth
Market for shares
o Might be difficult to find an independent buyer
o Easier to raise subsequent finance through further share issues
High price for shares
o Due to demand
o Liquidity on Main Market
Increases public profile
o Good for business
o Company must keep investors informed of performance and progress, enabling it to
gain their confidence
Incentivise employees
o Can involve them in the float and introduce employee share schemes
o Boosts morale and productivity
Disadvantages of Listing
Costs
o Advisors and underwriting costs have to be paid before the listing
Management time
o Complex and time-consuming process
Changes to the board
o Principles of Corporate Governance may require different board structure
o E.g. directors should have appropriate expertise
Loss of control
o Directors will be subject to additional influences and pressures
o Investors will be more interested in how the company is run
Potential for hostile takeover
Burden of disclosure and reporting requirements
Re-registration: Private à Public
S755 CA: Private companies commit an offence if it offers shares to the public
S90(1) CA: Private company can re-register as a public limited company if a special
resolution is passed. It must deliver an application for re-registration in the prescribed form
to the registrar and a statement of compliance.
S90(3) CA: Company must make such changes to its name and articles as are necessary in
connection with becoming a public limited company
, S94(2) CA: Application must include the following documents:
o Copy of special resolution
o Copy of proposed amended articles
o Copy of balance sheet required under S92
Process for Main Market Listing
Eligibility and Accounts
LR 8.4.2R: Sponsor may only complete declaration if the conditions have been met
Must have filed historical financial information covering 3 years (LR 6.2.1(1))
Historical financial information must represent at least 75% of the applicant’s business and
put investors in a position to make an informed assessment (LR 6.2.1R(2))
Latest balance sheet no more than 6 months before date of prospectus and no more than
9 months before date of admission (LR 6.2.1(3))
Info includes consolidated accounts for all subsidiaries (LR 6.2.1(4))
Main activity must be carrying on an independent business (LR 6.4.1)
Sufficient working capital for the next 12 months from date of prospectus (LR 6.7.1)
Valuation and Share Capital
LR 2.2.7(1a): Market capitalisation must be at least £700,000 for shares, £200,00 for debt
securities (No. of shares issued x market price per share)
S91(1a) and S763(1a) CA: Must have minimum allotted share capital of £50,000
S91(1b) and S586(1) CA: Allotted share capital must be paid up to a quarter of their nominal
value and the whole of any premium
Capital Reorganisation
Sub division of share capital
o S618(1a), (3) CA: Need to pass an OR to sub-divide its nominal share capital
Issue of new shares
o Ensure all necessary resolutions to carry out a share issue have been passed
o (no cap, directors authority to allot (S551(1) CA), disapplying pre-emption rights via
SR (S570(1) CA))
Articles of Association
LR 2.2.4R: Must be freely transferable (no pre-emption rights and no shareholders
agreement) – so they are suitable for electronic settlement through CREST
Shareholders
LR 6.14.1: Sufficient number of shares must be in public hands in one or more EEA states
LR 6.14.2 (2): 25% is a sufficient number
o Shares held by a director are not in public hands (LP 6.14.3(1a))
o Connected persons of directors(LP 6.14.3(1b))
o Family trust (LP 6.14.3(1c))
o Person with an interest in 5% or more of the shares – not in public hands (LR
6.14.3R(1e))
LR 6.14.5: FCA may accept a percentage lower than 25%
LR 6.5.4R: Must be a relationship agreement with controlling shareholder which contains
independence provisions
o Controlling shareholder has 30% (LR App 1 Definition)
, CSD Reg Art 3.1: Rights attached to shares must be compatible with electronic settlement
(CREST)
Premium Listing
LR 8.2.1R: FCA requires an applicant for a premium listing to appoint a sponsor to assist with
the application
Management
Disclosure Guidance and Transparency Rules (DTR)
o Compliance is compulsory.
o DTR 7.2.1: Issuers are required to produce a corporate governance statement in the
directors’ report
o DTR 7.2.2: Corporate governance statement must contain reference to the code
o DTR 7.2.3: Company must explain which parts of the code it departs from and
reasons for doing so
o DTR 7.2.9: Statement can be in a separate report published together with the
Annual Report or in a document widely available on the company’s website (either
way a reference must be made to the directors report)
o DTR 7.2.4G: Compliance with LR 9.8.6R(3) will satisfy requirements of DTR 7.2.2R
and DTR 7.2.3R
Listing Rules
o Compliance is compulsory. (but not for Code, so….)
o LR 9.8.6R(5): Company must state how the company has applied the Code’s
principles
o LR 9.8.6R(6): Company must state whether it has complied with the code, and
reasons for non-compliance
UK Corporate Governance Code
o Principle G: Board should have a combination of executive and non-executive
directors, and no one should have unfettered powers of decision. There should be a
clear division of responsibilities at the head of the company
o Provision 9: Chair should be independent. Roles of chair and chief executive should
be separated. Chief exec cannot resign and become chair.
o Provision 10: Circumstances impairing a director’s independence: employed by the
company within the last 5 years / material business relationship with the company in
the last 3 years / close family ties
o Provision 11: At least half the board of companies, excluding the chair, should be
independent non-executive directors
o Provision 17: Nomination committee to lead the process for board appointments
and makes recommendations to the board.
o Provision 24/ DTR 7.1.1R / DTR 7.1.3R: Audit committee must be established.
Responsible for monitoring the audit procedures and the group’s systems of internal
financial controls.
o Provision 32: Remuneration committee should consist of at least three, or in the
case of smaller companies two, members who should all be independent
nonexecutive directors
o Provision 39: Notice periods should be one year or less
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