Summary Cheat sheet for Equity Finance (Accelerated LPC)

Equity Finance Cheat Sheet
Issue 1: FLOATATIONS – PREPARATION FOR LISTING
LR apply to main market companies only – NOT AIM
For AIM – only AIM and DTR rules apply

If company that wants to list is PRIVATE COMPANY… requirements to BE PUBLIC COMPANY  (don’t get
confused with requirements to be listed!!!!!)
 Cannot offer shares to the public (s755 CA) and must re-register as public limited company under s90 CA
 Re-registration:
o Special resolution must be passed (s90(1) CA)
o Must make changes to name and articles as are necessary in connection with public company (s90(3))
o Minimum allotted share capital of 50,000 (s91(1)(a); s763(1) CA)
 Which must be paid up to at least ¼ of nominal value and whole of any premium (s91(1)(b); s586 CA)
 Documentation: application for re-registration in the prescribed form (s90(1) CA)
o [1] Statement of proposed name on re-registration (s94(1)(a) CA)
o [2] Special resolution to re-register (s94(2)(a) CA)
o [3] Copy of amended articles (s94(2)(b))
o [4] Copy of the balance sheet and other docs in s92(1) (s94(2)(c)). See docs in s92(1):
(a) a balance sheet prepared as at a date not more than seven months before the date on which
the application is delivered to the registrar,
(b) an unqualified report by the company's auditor on that balance sheet, and
(c) a written statement by the company's auditor that in his opinion at the balance sheet date the
amount of the company's net assets was not less than the aggregate of its called-up share capital
and undistributable reserves
o [5] Statement of the aggregate amount paid up on the shares of the company on account of their nominal
value (s94(2)(e) CA)
o [6] Statement of compliance (s90(1)(c)(ii) CA
 If comply, company will be re-registered (s96(1)) and a certificate of incorporation will be issued, by virtue of
which the company becomes a public company (s96(4)(a))
OTHER LISTING REQUIREMENTS

[1] Audited accounts
 New applicant must have published/ filed audited accounts that cover at least 3 years (LR 6.2.1R(1); and
 are the latest accounts for a period ended not more than 6 months before date of prospectus and no more
than nine months before date of admission (LR 6.2.1R(3))
 Accounts must be consolidated for company and subsidiary (LR 6.2.1R(4))
 Historical financial info must have been audited/ reported on in accordance with standards acceptable under
item 20.1 Annex 1 PD Regulation and not be subject to a modified report (LR 6.2.4R)

[2] Sufficient working capital
 Must satisfy FCA that the group has sufficient working capital available for group’s future spending needs for
at least the next 12 months from date of publication of prospectus (LR 6.7.1R)

[3] Articles of association
 Table A/ Model Articles unlikely to be appropriate for listed plc – may amend them by SR (s21 CA)

, Pre-emption rights: to be listed, shares must be fully transferable (LR 2.2.4R) so AoA need to not include pre-
emption rights on the transfer of shares
o and may need any shareholder agreement on this issue to be terminated
 Eligible of CREST: the constitution of the company and terms of equity shares must be compatible with
electronic settlement (ie. through CREST)
o So must amend AoA to reflect that some of shares will be held in electronic form – must be nothing
inherent within AoA to prevent electronic settlement (see CSD Regulation requirements!)

[4] Corporate procedures
 Company must comply with the spirit of Listing Principles (LP) and Premium Listing Principles (PLP) in
Chapter 7 LR – ensure that listed companies play due regard to the fundamental role they play in maintaining
market confidence and ensuring fair and orderly markets (LR 7.1.2G)
 LP 1: must take reasonable steps to establish and maintain adequate procedures, systems and controls to
enable it to comply with obligations
o LR 7.2.2G and LR 7.2.3G – should do the above to comply with LRs and DTRs and ensure that can:
 (i) ensure it can properly identify info which requires disclosure in a timely manner and
 (ii) ensure any info identified is properly considered by the Ds and such a consideration encompasses
whether the info should be disclosed
o So any system of informal reporting will need to be formalised with procedures put in place to identify
potential price sensitive info for board consideration asap
 PLP 6: must communicate info to holders in such a way to avoid the creation/ continuation of false markets
 PLP 5: all holders of same class of shares are to be treated equally
 So board must ensure procedures to make sure price sensitive info is communicated to market by way of
announcement before it is disseminated informally to shareholders, suppliers, journalists etc.
 DTR 7.1.1R and 7.1.3R/ CGC Provision 24: company should have audit committee responsible for monitoring
the audit procedures and group’s systems of internal financial controls
 See Corporate Governance Code below

[5] Company Secretary
 S273(1) CA: Ds of public company must take all reasonable steps to ensure that company secretary has
requisite knowledge and experience and is qualified to act (under a qualification in s273(2))

SEE FURTHER REQUIREMENTS (specific to shares etc. below!!):
Comply or explain – Corporate Governance Code
 Compliance not compulsory – but affects investor confidence AND:
 LR 9.8.6R(5) requires listed company to state how listed company applied Principles of CGC and
 LR 9.8.6R(6) requires listed company to state how it has complied/ not complied throughout accounting
period with CGC, giving reasons for non-compliance
Interaction with:
 DTR 7.2.1R: requires company to produce corporate governance statement (in director’s report)
o DTR 7.2.2R: requires corporate governance statement to contain reference to the corporate governance
code to which company is subject (eg. UK Corporate Governance Code)
o DTR 7.2.3R: Issuer must state in D report where CGC is available and explain why it departed (if it did)
o Note: Compliance with DTR 7 is compulsory
o DTR 7.2.4G: listed company which complies with LR 9.8.6R(6) above (statements for compliance/ not) will
satisfy the requirements DTR 7.2.2R and DTR 7.2.3R

,Principles and provisions:
Constitution of board
 Principle G: board should include balance of exec and non-exec Ds (particularly independent non-exec Ds) so
no individual/ small group of individuals can dominate board’s decision making
 Provision 11: at least half the board of companies, excluding the chair, should be independent non-exec Ds
 Provision 10: independence requirements criteria!

Role of chairman/ chief exec
 Principle G: clear division of responsibilities at the head of the company and no one has unfettered powers
 Provision 9: roles of chairman/ chief exec should not be exercised by the same individual – chairman should,
on appointment, meet independence criteria in provision 9 and chief exec should not be chairman

Process for board appointment
 Provision 17: should have Nomination Committee which leads process for board appointment and makes
recommendations to board

Remuneration/ contracts
 Provision 32: should establish Remuneration Committee
 Provision 33: Remuneration Committee should have responsibility for setting remuneration for all exec Ds and
the MP chairman and should also recommend and monitor the level and structure of remuneration for senior
MP management
 Provision 39: notice periods to be set at one year or less
Sub-division and Issue of New Share Capital
 To be listed, shares must be admitted to trading on an recognised investment exchange (RIE) – LR 2.2.3R
 Aggregate market value of all securities (excluding treasury shares) to be listed must be at least 700,000
pounds for shares (LR 2.2.7R)
o Market capitalisation = no. of shares issued (total number of shares) x market price per share
 Shares must be freely transferable (LR 2.2.4R – see above on PER on transfers!)

Capital re-organisation – sub-division of share capital
 Shares usually recommended to be priced between 2 – 5 each (take net asset value of company/ no. of shares
to get price)
 So can subdivide – eg. 1 mi 1 pound shares (worth 200 pounds each) to 100 mi 1 pence shares (worth 2
pounds each)
o By passing an ordinary resolution under s618(1)(a) and (3) CA (read with s281(3) CA)

Issue of new share capital (if don’t already have authority/ PER disapplied)
 Need ordinary resolution for director’s authority to allot under s551(1) CA (cannot use s550 as public
company)
 Also need special resolution to disapply PER in relation to such new shares under s570(1) CA
 Then board will pass BR to allot new shares which are sold to investors as part of the float
Requirements as to Shareholders
 Sufficient number of shares of that class must, no later than the time of admission, be distributed to the
public (LR 6.14.1R)
o “sufficient” distributed to public when 25% shares are in public hands (LR 6.14.2R(2))
o Not in public hands when… (LR 6.14.3R)
 Shares are held by D of applicant/ subs (LR 6.14.3R(1)(a))/ person connected (LR 6.14.3R(1)(b))

,  Shares are held by person who has an interest in 5% or more of the shares of the relevant class/
persons acting in concert with such people (LR 6.14.3R(1)(e))
 They are subject to a lock up period of more than 180 calendar days (LR 6.14.3R(2))
o Even if the 25% requirement had been an issue under LR 6.14.5G the FCA may accept if it considers that
the market will operate properly in view of the large number of shares of the same class and the extent of
their distribution to the public.
 Must have sufficient number of company’s shares in public hands on one/ more EEA states (LR 6.14.1R)
 Applicant must be carrying as its main activity an independent business (LR 6.4.1R)
o When there is a controlling shareholder, the applicant must have a relationship agreement with them
that contains specific independence provisions (LR 6.5.4R) that:
 (1) transactions/ agreements will be conducted at arm’s length on normal commercial terms
 (2) controlling S/ associates will not take action to prevent Applicant from complying with LR
 (3) controlling S/ associates will NOT procure S resolution to circumvent proper application of LR
 Controlling shareholder = S (including anyone with whom they are acting in concert) hold 30% of
votes which may be cast at GM (LR App 1 Definition)
Sponsor
 Need sponsor for premium listing (LR 8.2R) in situations including
o Submitting prospectus to FCA (LR 8.2.1R(1)(a)); class 1 transaction (to obtain guidance) (LR 8.2.2R)
 Sponsors must be approved by the FCA (LR 8.6.2R)
 Sponsor will (see LRs 8.3 & 8.4):
o Co-operate closely with law firms to ensure that you meet the timetable
o Help the company put its application for listing together and submitting it to the FCA – but must not submit
application unless it has come to reasonable opinion after due and careful enquiry that (inter alia) A has
satisfied all requirements of LRs relevant for application for admission to listing (LR 8.4.2R)
o Satisfy itself that the company meets all the relevant requirements and conditions for listing (LR 8.3.1R)
and make declaration to FCA that it has performed its responsibilities under the LRs
PROSPECTUS
DO YOU NEED A PROSPECTUS?
TEST 1
 Offer of transferable securities to the public in the UK (s85(1) FSMA)
o Offer of transferable securities to the public: Communication to any person which presents sufficient
information on the transferable securities and their terms to enable investor to decide to buy/ subscribe
for them (s102B(1) FSMA)
o Communication can be in any form by any means (s102B(3) FSMA)
o To the extent that an offer is made to a person in the UK, it is an offer to public in UK (s102B(2) FSMA)
o This includes the placing of securities through a financial intermediary (s102B(4) FSMA)
EXEMPTIONS
 See exemptions under s86(1) FSMA (relating to offers)
o (a) qualified investors only
o (b) less than 150 investors other than qualified investors per EEA state
o (c) and (d): minimum consideration payable/ minimum denomination at least €100,000
o (e) total consideration for transferable securities being offered cannot exceed €100,000
 Also see exemptions under Sch 11A FSMA (s85(5)(a)) and PR 1.2.2R (s85(5)(b)) (relating to securities)
o Sch 11A: main exemptions relate to securities issued by governments/ guaranteed by governments/
charities/ housing association/ registered societies
o PR 1.2.2R: mainly offers of substituted shares/ securities offered in relation with takeovers/ mergers/