DISTINCTION level notes- I have consolidated each relevant SGS into concise tables which helped me navigate my way through the content in the exam. These notes will help you understand the content given in SGS' and should act as a helpful revision tool. I have included as much detail as I thought w...
, SGS 1- Floatation’s I
Learning outcomes 1. identify the key legislation and regulations affecting equity securities in the
UK
2. advise your client and its board on the advantages and disadvantages of
seeking a flotation;
3. undertake part of a legal due diligence exercise to ensure that your client
is an appropriate applicant for listing on the Official List under the Listing
Rules; and
4. analyse the management of an applicant company with reference to the
UK Corporate Governance Code.
Preparation for 1. Re-registration
listing o Private companies cannot offer their shares to the public s755 CA
o Must re-register as a public company s90 CA
o S90(1) CA a private company can re-register as a public company –
must pass SR
o S90(3) CA company should change name and articles if necessary to
become public company
2. Minimum share capital
o Minimum allotted share capital of £50,000 (s91(1)(a) and s763 CA)
o Allotted shares must be paid up to at least ¼ of their nominal value
and the whole of any premium (s91(1)(b) and s586 CA)
3. Documentation
o S90(1) CA – company must submit application for re-registration in
prescribed form ie: name and proposed company secretary &
statement of compliance that pt 7 CA has been complied with
o S94(2) CA other documents:
Copy of SR
Copy of articles proposed to be amended
Balance sheet (s92 CA)
4. Audited accounts
o LR 6.2.1R(1) and (3)- applicant must have published or filed audited
accounts that cover at least 3 years and are latest accounts for a period
ended not more than 6 months before date of prospectus
o If company has subsidiary – accounts must be consolidated LR 6.2.1R(4)
5. Sufficient working capital
o Must have sufficient working capital for at least next 12 months from
date of publication of prospectus (LR 6.7.1R)
6. Articles
o Pre-emption rights need to be disapplied as shares must be freely
transferable LR 2.2.4R
o Eligible for CREST – constitution and terms of shares must be
compatible with electronic settlement (CREST)
7. Comply with Listing Principles (LP) and Premium Listing Principles
(PLP)
o Listed companies must pay due regard to fundamental role they play
in maintaining market confidence and ensuring fair and orderly
markets (LR 7.1.2G)
o LP 1
Listed company must take reasonable steps to establish
adequate procedures, systems and controls to enable it to
comply with its obligations
o LR 7.2.2G and LR 7.2.3G
, o Company should ensure that is has systems and controls to be able
to:
Ensure it can identify information which requires disclosure in
timely manner
Ensure information is considered by the directors as to whether it
should be disclosed
o Do procedures need to be put in place to formalise reporting to the
board?
o PLP 5 and 6
o PLP 6 requires disclosure in such a way as to avoid a false market
o PLP 5 all holders of same class of shares must be treated equally
o Do procedures need to be put in place to ensure that all price
sensitive information is communicated to the market by an
announcement before it is disseminated informally to shareholders,
suppliers, journalists etc?
Management Look at solution to activity 2 for more detail
LR 9.8.6R(5) & (6) CGC is not compulsory but company
must state how they have/ haven’t
complied with the code + give reasons
for non-compliance
DTR 7.2.1R, 7.2.2R, 7.2.3R AND Companies must produce corporate
7.2.4G governance statement and refer to
CGC to which the company is subject
CGC Principle G and provisions 10 & Principle G- balance of exec and non
11 exec directors – no individual/small
group domination of board decision
making
P 11 – half board should be non-exec
directors
P10-idependance requirements for
non-exec director
CGC Principles F and G and provision Principle G – decision of
9 responsibilities/ no unfettered powers
P 9- chairman/ chief exec should not
be same person
DTR 7.1.1R and 7.1.3R Obliged to have audit committee –
responsible for monitoring audit
CGC provision 24 procedures/ internal financial controls
CGC provision 17 Company should establish nomination
committee – responsible for board
appointments and makes
recommendations
CGC provision 32 Remuneration committee –
responsible for setting remuneration for
exec directors/ chairman – should
recommend and monitor level and
structure od remuneration for senior
management
CGC provision 39 Notice periods should be set at one
year or less – service contracts should
be entered with exec directors to
ensure continuity of successful
management – there may be
exceptions for existing employees
, whose consent is needed to change
notice periods
S273 CA Steps should be taken to ensure
company secretary has requisite
knowledge and experience and is
qualified to act
Sub division and LR 2.2.3R To be listed shares must be admitted
issue of new share to trading on RIE (recognised
capital investment exchange)
S618(1)(a) and s618(3) CA Financial advisers recommended that a
new applicants shares are priced at £2-
£5 each. Company may need to carry
out capital reorganisation which will
involve subdivision of shares prior to
floatation
- Makes trading price more
acceptable
Eg: sub divide 1 million £1 ordinary
shares into 100 million 1p shares by
passing OR
S551 and s570(1) CA Issue of new ordinary shares requires
shareholder approval to grant directors
authority to allot new shares if being
issued to outside investors
Pass OR and BR to allot new shares
Disapply pre-emption rights (if
necessary) by passing SR
Plc cannot rely on s550 CA
LR 2.2.7R Aggregate market value of shares
(excluding treasury shares) must be
*Amended to £30 million on Dec 2021 listed at least £700,000*
Market cap = no. shares issued x
market price per share
Shareholders LR 6.14.1R Sufficient no of shares of that class
must, no later than time of admission,
be distributed to pubic
LR 6.14.2R(2) ‘Sufficient number’ means 25%* of the
company’s shares are in public hands
*Amended to 10% on 3 Dec 2021
LR 6.14.3R People excluded from ‘public hands’
definition:
LR 6.14.5G deleted on 3 Dec 2021 - Director
- Person who has interest in 5%
or more of shares of the
relevant class/persons acting
in concert with such people
Shares equal to at least 25% should be
sold to outside investors.
FCA can modify LR 6.14.1 to accept a
lower percentage
LR 6.5.4R Where there is a ‘controlling
shareholder’ – (includes anyone with
whom they are acting in concert) who
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