1 – IPOs 1: Regulation and eligibility requirements (1, 2, 3, 4, 24)
Public Companies
A company limited by shares or by guarantee which have a share capital and have
complied with requirements of CA 2006 to enable it to be registered or re-registered as such (s4(2) CA)
→ They can raise capital by issuing EQUITY/DEBT securities to the public
→ There are different TYPES of public companies:
✓ LISTED = A public company that has
(1) Satisfied the LISTING REQUIREMENTS of the Stock Exchange and
(2) Whose shares (or some of which) are OFFICIALLY LISTED and
(3) Admitted to TRADING ON THE MAIN MARKET of the LSE – Broadly, a public company any of
the shares in which are officially listed and trade on a stock market
▪ Only 20% of public companies are listed BUT a company MUST BE PUBLIC IN ORDER TO BE
LISTED
✓ QUOTED = Companies listed on ‘REGULATED MARKETS’ (s385 CA 2006) OR its shares are listed
on AIM
(AIM is broken into 3 markets – Aquis Stock Exchange, Cboe Europe Equities and IPSX)
✓ UNQUOTED = No public market in the company’s shares (neither LSE nor AIM), just a plc
✓ Only about 20% of public companies are listed. Distinction is important as a company’s status
will determine how the company is regulated.
LSE defines shares listed on the Main Market as being listed but not quoted
LSE defines shares listed on AIM as being quoted but unlisted
Publicly traded – means both
Pros and Cons of Listing as a Public Company
Public Companies and Listing
Advantages of being a public company Disadvantages of being a public company
✓ Ability to offer shares to the public (private companies Far greater regulatory requirements. See chart below
cannot do so under s755 CA 06). Provides the company for regulatory differences. This will add to cost of
with a new source of finance. running the company and may restrict what it wishes to
✓ Prestige of ‘plc’/respectability do and how it seeks to operate
Advantages of listing Disadvantages of listing
✓ Enables co to raise finance from both IPO and More regulation
secondary issues (shares on public market are more o The Prospectus Regulation Rules
attractive as can be readily transferred) o The Listing Rules
o s755 CA 2006 = prohibited for a private company o The Disclosure Rules
to offer its shares to the public o The Transparency Rules
o s758 CA 2006 = if breached then the court has the o UK Corporate Governance Rules
power to re-register the offending private company o UK Market Abuse Regulations
as a public one. If company doesn't meet the o UK Prospectus Regulations
requirements to become public then court can o Statutory provisions
order that the company is wound up or it may ▪ All these add to the costs of running a public
make a remedial order under section 759 CA 2006 company, is a greater admin burden and places
(putting the person affected by breach of s755 back restrictions on what directors/the company can
in position he was in before breach) and can’t do
✓ Further prestige (shows that co. has regulatory approval, More requirements e.g. D’s remuneration report CA
may raises co.’s standing with suppliers, customers etc, 2006, FSMA, MAR, CJA 1993)
press focuses of listed companies)
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,✓ Profile – The press typically covers the listing/listed Loss of executive control for management (have to cede
companies, and they are the subject of analysts’ reports some power because of increased SH power)
which can increase the profile of the company and in Greater publicity burden and loss of privacy –
turn create demand for company’s shares. publication of info can be time consuming, costly and
✓ Provides an exit opportunity for investors potentially embarrassing/reputational damage
✓ Provides a profit making opportunity for investors Company will become more subject to external forces
✓ Acquisition opportunities - = company can use its shares (market conditions and rumours etc) – Can be both
as bid consideration or can more easily raise cash. This positive and negative (e.g. covid)
means it is easier to expand through the acquisition of Cost and Time: The cost and time spent on listing
other companies or businesses. Unlisted companies do process, raising equity finance, complying with the
not have a similar access to such capital and are a less continuing obligations of a listed company and
attractive form of consideration from a sellers maintaining good relations with investors --.> onerous.
perspective. Should this time be spent on running business?
✓ Assist in recruiting, retaining and incentivizing key
management and employees
✓ Allows company constant access to equity finance, very
useful when debts markets are expensive
✓ Increased efficiency (arises from compliance with
regulatory requirements etc)
Regulatory Differences Between Public and Private Companies
Public Company Private Company
Accounts Must file with Companies House within 6 Must file within 9 months after end of
months after end of accounting reference accounting reference period (CA 2006,
period (CA 2006, s442(2)(b)) s442(2)(a))
Must file full accounts with Companies House Requirements to file full accounts can be
(CA 2006, ss446 and 447 and ss384 and 467) relaxed for small and medium-sized
companies (CA 2006, ss444 and 445)
Accounts must be laid before a General No requirement to do so
Meeting no later than 6 months after end of
accounting reference period (CA 2006, s437)
Administration Must hold an Annual General Meeting (AGM) No requirement to hold an AGM unless
(CA 2006, s336) articles require it (SI 2007/ 2194, Sch 3,
para 32(11))
The requisite percentage for holding a General The requisite percentage for holding a
Meeting on short notice is 95% (s307(6)(b)) General Meeting on short notice is 90% (CA
2006, s307(6)(a))
Cannot use the written resolution procedure Can use the written resolution procedure
(s288 CA 2006) (s288 CA 2006)
Directors Minimum of 2 (CA 2006, s154(2)) Minimum of 1 (CA 2006, s154(1))
Restrictions apply on voting for the No equivalent restriction applies
appointment of more than one director in just
one resolution (CA 2006, s160)
A public company can only make a quasi-loan The need for shareholder approval for
and a credit transaction with one of its quasi-loans and credit transactions with a
directors provided prior shareholder approval director will be required only if the private
has been obtained (CA 2006, ss198 and 201) company is ‘associated with a public
company’, as defined in CA 2006, s256 (CA
2006, ss.198(1) and 201(1))
Financial Prohibited (CA 2006, s678), subject to CA Generally permitted. Restrictions apply to
assistance 2006, ss681 and 682 private companies which are subsidiaries of
public companies
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, Secretary A secretary is required (CA 2006, s271). s273 A secretary is not compulsory (CA 2006,
sets out qualifications required s270(1)). If a company chooses to have one,
there are no qualification requirements
Share capital The company must have allotted share capital No restriction on allotted share capital
at least up to the value of the authorised
minimum (currently £50,000 – CA 2006, s763
permits a euro equivalent to this amount, set
at €57,100 (SI 2009/ 2425)) to register (CA
2006, s761) or re-register (CA 2006, s.91(1))
The company must maintain this as its
minimum share capital (CA 2006, ss650 and
662)
Each share allotted must be paid up to at least No equivalent restriction applies. Can allot
one-quarter of its nominal value together with shares nil-paid, partly-paid or fully-paid
the whole of any premium on it (CA 2006,
s586)
s561 = pre-emption rights on allotment can be s.561 = pre-emption rights on allotment can
disapplied under ss570 or 571 by special be disapplied under s569 (by special
resolution or excluded and replaced by articles resolution or provision in the articles),
conferring a corresponding right under s.568 under ss570 or 571 by special resolution or
excluded under s567 (by provision in the
articles)
Restrictions apply on consideration for These sections do not apply
allotment of shares (ss585, 587 and 598)
Valuer’s report required to value non-cash No equivalent requirement applies
consideration for the allotment of shares
(s593)
GM required in the event of a serious loss of No equivalent requirement applies
capital (s656)
Charges on own shares are void, subject to Subject to certain requirements in s.670(2),
certain exceptions (s670) charges on own shares are permitted
Can redeem and purchase shares out of Can redeem and purchase shares out of
distributable profits or the proceeds of a fresh distributable profits, the proceeds of a
issue, but not out of capital (ss687 and 692) fresh issue, or out of capital (ss.687 and
692)
Shareholders Has disclosure obligations under DTR 5 and CA No equivalent restrictions apply
2006, Pt 22
Takeovers Subject to the City Code on Takeovers and Typically, not subject to the City Code on
Mergers (covered in M&A) Takeovers and Mergers (covered in M&A)
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, Regulatory Bodies
Financial → FSMA 2000 created the FCA as the principal regulator of financial services.
Conduct → s1B-E – Sets out the general duties of the FCA including ‘ensuring that the relevant markets
Authority function well’ (s1B(2) FSMA 2000)
(FCA) → FCA maintains the official list (s74(1) FSMA 2000)
PRA → Prudential Regulation Authority authorises, regulates, and supervises institutions such as
banks, building societies, insurance companies and systemically important investment
companies. Therefore, Barclays Bank plc will be subject to regulation by both the PRA and FCA
whereas Ocado plc will only be regulated by the FCA.
UK Listing → The UKLA (UK Listing Authority) is a subdivision of the FCA which is the ‘competent authority’
Authority for dealing with listing securities (s72(1) FSMA nominates FCA as the ‘competent authority’)
(UKLA) o Under Part VI FSMA the responsibilities of the FCA (in its capacity as the UKLA are)
▪ a) Maintaining the Official List (s74(1))
▪ b) Drafting the Prospectus rules, the Listing Rules, the Disclosure Rules, the
Transparency Rules and the Corporate Governance Rules (s73A)
▪ c) Determining applications for admission to listing, which includes reviewing the
documentation which a company must produce to have its shares listed (s75)
▪ d) Ensuring listed companies comply with their continuing obligations under the
various rules
▪ e) Sanctioning any listed company that does not comply with the rules
The → LSE is a RIE (recognised investment exchange)
London
Stock → LSE is a marketplace for dealing in shares
Exchange o 2 main markets for listing shares:
(LSE) o ‘Main Market’ – A REGULATED MARKET (most regulated market type)
o ‘AIM’ - ALTERNATIVE INVESTMENT MARKET – A global market for smaller and growing
companies both UK and international; multi-lateral trading facility (MTF) (subjected to
lesser EU rules);
o There is also the PSM/ISM – Professional/International Securities Market – specialist
market for e.g. debt securities; also an MTF (covered in BDF)
→ Purpose:
o 1) Enable companies to raise funds by issuing new shares to the public (primary market)
o 2) Enable issued shares to be traded by the public (secondary market)
→ Buying and selling shares
o Focus of lawyer is to bring a client company to market successfully and then ensuring the
company is advised of the regulatory regime it must follow to maintain its listing.
o Trading – process by which seller is matched with buyer (process is fully automated on
electronic systems such as Stock Exchange Traded Service or SETS [the order book] for
large companies)
▪ Electronic system matches buy and sell orders for the same shares and executes the
trade automatically.
▪ For more info see 2.5.2
o MEMBER FIRMS: They are investment firms (banks, stockbrokers and fund managers)
which trade either on behalf of clients, or on behalf of their firms. Examples of current
member firms are Barclays Bank plc, Citigroup Global Markets, Cr dit Suisse Securities,
Deutsche Bank AG, Goldman Sachs International, Merrill Lynch International and UBS.
o Settlement – process of paying the purchase price and transferring the shares (TB p.17-18
for detail on CREST)
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