Admission to Stock Exchange

Public limited company must satisfy the admission requirements before they are allowed to trade their shares publicly.

Your public limited company must provide information which satisfies the listing requirements governed by the rules laid down by the Financial Services Authority.

The Financial Services Authority is acting as the United Kingdom Listing Authority or UKLA.

There are two Stock Exchange market in the United Kingdom – the Senior Equity Market and the Alternative Investment Market (AIM).

Senior Equity Market

The Senior Equity Market in London also known as the Official List for large public limited companies.

Alternative Investment Market

There is a secondary stock market, open to smaller companies.

To be admitted to Stock Exchange, your public limited company must meet the following criteria:

3 years preceding company accounts

To be admitted to listing, your company must be registered as a public limited company and it must intend to place on the market shares which are expected to have a market value of £700,000 or more.

Your company will not be admitted if it has not published or filed accounts covering three years preceding to your application for listing in the Stock Exchange, and your company must have arranged for a report prepared by independent accountants covering the three preceding years to be produced.

Approved Sponsors

Your directors must consider that your company is financially viable. A further condition for admission is that your public limited company’s working capital is sufficient. This admission requirement is satisfied by your Approved Sponsor to the issue, usually a merchant bank or stockbroker with overall responsibility for arranging the issue, sending a letter to the United Kingdom Listing Authority stating that your directors have made careful enquiries to satisfy themselves and the Approved Sponsor that the working capital is indeed adequate.

The final principal admission requirement is that it must be intended that at least 25% of any class of shares will be in the hands of the public is required by The Listing Rules.

Prospectus

If your public limited company can satisfy the admission requirements, it must then also satisfy the listing particulars requirements.

This obligation involves your public limited company publishing listing particulars or a prospectus which complies with Chapter 5 and 6 of The Listing Rules.

The range of information which must be published by your public limited company includes:

  • Information on the shares which are to be listed,
  • Your share or loan capital,
  • Principal activities,
  • Place of business and employees,
  • Company’s finances (in the form of balance sheet and profit and loss accounts for the last three years) and management and on trends in the company’s business.

The prospectus needs to include a statement that your company accounts have been audited for the last three financial years. The people responsible for the prospectus need to make a declaration to the effect that to the best of their knowledge, the information given in that part of the prospectus for which they are responsible is in accordance with the facts and contains no admissions likely to affect the import of the prospect us.

There are additional disclosure rules for changes in your auditors in the previous three years, details of options, tax clearances, and the terms of the directors’ service contracts.

Information contained in the prospectus should not be misleading, false or deceptive, your public limited company will incur both civil and criminal liability under the Financial Services and Markets Act 2000 if evidence supporting materials errors on the prospectus is established.

Special rules for public limited company

It is very common for companies to upgrade trading status from a limited company to a public limited company. There are special rules a public limited company (PLC) must be aware of and there are as follows:

Payment for share capital

  1. The original subscribers to a public limited company’s memorandum are required to pay cash for their shares.
  2. At least 25% of the nominal value and the whole of any premium on shares in a public limited company must be paid on allotment.
  3. A public limited company cannot accept an undertaking to do work or perform services as consideration for the allotment of shares.
  4. A public limited company can accept the transfer of assets to the company as full or part (subject to the 25% limit) payment for the allotment of shares but any undertaking to transfer those assets to the company must be performed within five years of the allotment. In addition, the company must take steps to satisfy itself that the value of the assets transferred to the company is accurate by obtaining an expert’s valuation and report.

Pre-emption rights on the allotment of shares

A public limited company must include the statutory pre-emption rights by a provision in its memorandum or articles. However, a public limited company (like a private company) can prevent the pre-emption rights applying by giving the directors the authority to allot shares in accordance with the Companies Act 2006.

Maintenance of capital

The directors of a public limited company are obliged to convene an extraordinary general meeting if the company ‘s net assets are 50% or less of its called up share capital. The meeting must be convened within 28 days of one of the directors becoming aware of this fact and it must be held within 56 days. Obviously, the purpose of the meeting is for the problem to be considered but the Companies Act does not require the directors to take any definite steps to remedy the position.

Purchase own shares

Public limited company, like private limited company, can buy back their own shares and issue redeemable shares. However, public limited company cannot (unlike private companies) use capital to purchase or redeem shares; a public company can only use its profits for these purposes, in addition, the tax rules which, if the various conditions are complied with, allow the shareholder whose shares have been bought by the company to treat the purchase as a disposal for capital gains tax purposes, rather than the receipt of a distribution attracting income tax liability, only apply to the shares in unquoted companies. It should, however, be remembered that a public limited company will not necessarily have a listing on the Stock Exchange.

Financial assistance for the acquisition of shares and loans to directors

The rules prohibiting companies from providing financial assistance for the purchase of their own shares are more stringent in the case of public limited company than in the case of private limited company. Similarly, the rules dealing with loans to directors are more stringent in the case of loans to directors of public limited company as laid down by the Companies Act.

Distribution of profits

In addition to the general rules restricting the funds from which companies can make distributions, public limited company is only permitted to make a distribution if their net assets are not, as a result of the distribution, reduced below the combined total of their called up share capital and ‘undistributed reserves.

Accounting requirements

The provisions which permit ‘small’ and ‘medium sized’ companies to file less detailed accounts with the Registrar of Companies do not apply to public limited company. They also cannot qualify as dormant company (which would lead them to be able to dispense with auditors). A public limited company must deliver audited company accounts to Companies House.

Age of directors

A public limited company may not appoint a person aged 70 and above to be a director unless the appointment is approved by the company in general meeting, following special notice (giving the age of the director) of such resolution. When a director of a public limited company reaches the age of 70, he must retire unless the company in general meeting votes to retain him. Again, special notice must be given of any such resolution.

Written resolutions

The Companies Act which read the members of private limited company can take decisions by written resolutions rather than passing resolutions at general meetings, does not apply to public limited company.

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