Company Law Essay Help : Public offers, procedures and listings
All references to statute on this page are to the Companies Act 1985 unless otherwise stated.
Public companies may offer shares to the public, either through an investment exchange like the Stock Exchange, or directly on an ad hoc basis. Shares may only be offered through an investment exchange if they have been admitted to the market, and complied with the relevant procedures and conditions which are designed to protect the market and ensure investors are supplied with accurate information. Section 81 provides that private companies may not offer their shares for sale to the public, but they can deal with new members through private contracts.
The Stock Exchange has a main market and the Alternative Investment Market (AIM). There is also OFEX and the OTC (Over the Counter) Market.
Main Market - There are strict admission regulations and 99.8% of companies are not listed on this exchange for that reason. Compliance with Part VI Financial Services and Markets Act 2000 is required - this deals with rules and regulations for disclosure and accuracy of information. Complaince with the Listing Rules (also called the Purple Book) published by the Financial Services Authority is also required - these provide for example that at least 25% of shares must be in public hands after listing. Finally, compliance with the London Stock Exchange Admission and Disclosure Standards are required.
Alternative Investment Market (AIM) - This market is for smaller businesses that have perhaps not been trading so long and are therefore considered more risky. There are less regulations for companies limited on AIM - the main ones are:-
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The Company must be a public company
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The Company accounts must conform to UK or international accounting standards
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If the Company has been trading for less than two years the directors of the company and employees must undertake not to sell their shares for at least one year after admission
OFEX - The OFEX market is operated by J P Perkins Limited and allows trading in unquoted companies between member firms of the Stock Exchange, who are market makers and brokers. It is a private exchange and its shares are highly speculative.
OTC - This is not an investment exchange but an informal market in which brokers and dealers offer to match buyers with sellers. Shares which are not admitted to any of the other investment exchanges above are traded on OTC.
The issue of shares initially is called a primary issue - any subsequent offerings are secondary issues, although both are made on the primary market.
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