Alternative Investment Market (AIM). Does the AIM company have to be a certain type of company incorporated in a specific jurisdiction?

Does the AIM company have to be a certain type of company incorporated in a specific jurisdiction?

· If the company seeking admission to AIM is a UK company it must be a public limited company in order to be able to offer its shares to the public.

· Overseas companies can have their shares traded on AIM. There are approximately 280 foreign companies whose shares are presently traded on AIM. The overseas company must be equivalent in its country of incorporation to a UK public company so that it can offer its securities to the public. There may be local legal and regulatory requirements which overseas companies will need to satisfy before they can proceed to an admission to AIM. In certain jurisdictions such requirements can be onerous. Local advice should be taken at an early stage in order to identify their implications for the flotation timetable.

· An expedited admission route is available for companies whose shares are already traded on certain designated markets, which means that such applicants do not have to prepare an admission document. The quoted applicant must, at least 20 days before the expected date of admission to AIM, provide the Exchange with the information specified in schedule 1 to AIM rules. Such quoted applicant must have had its securities traded upon an AIM designated market for at least 18 months prior to applying to have those securities admitted to AIM if it wishes to take advantage of the expedited admission route. However, the expedited admission route does not exempt a company which is offering shares to the public from having to prepare a prospectus.

Must the AIM company have a particular capital structure?

· It is normal for an AIM company to have one class of ordinary shares. It is also possible (but less usual) to have other classes of shares or debt securities.

· The shares must be freely transferable and eligible for electronic settlement e.g. through CREST. However, there is no prohibition on shareholders entering into agreements which restrict their freedom to transfer shares held by them. Shares of overseas companies cannot be settled directly through CREST. However, depository interest programmes exist in order to enable shareholders of such companies to hold securities which can be settled electronically.

· In order to do business, the nominal value of a UK plc’s share capital must not be less than £50,000 and not less than 25 per cent of the nominal value of the shares allotted and the whole of any premium must be paid up. This is a UK company law requirement, so if the company being floated is a non-UK entity, the position will be governed by applicable local law.

· All of the shares of a particular class must be admitted to trading on AIM.

Is there any requirement that the shares of the key management must be subject to restrictions on sale for a period of time after trading commences?

· Yes – where the main activity of a company applying for admission to trading on AIM is a business which has not been independent and earning revenue for at least two years, it must ensure that all “related parties” agree not to dispose of any interest in the company’s shares for one year from the date of admission.

· “Related parties” in this context means (i) any director of the company or any of its subsidiary, sister or parent undertakings, or (ii) any substantial shareholder who holds directly or indirectly 10 per cent or more of any class of shares to be admitted to AIM, or (iii) applicable employees who are employees of the company, its subsidiary or parent undertakings who, together with their family, have a holding or interest directly or indirectly in 0.5 per cent or more of a class of shares to be admitted to AIM.

· Although not a regulatory requirement, the NOMAD will usually wish to impose restrictions on the transfer of shares in the company by directors and major shareholders for a period of time after admission in order to avoid the possibility of a large number of shares being made available for sale soon after admission which could distort the market in the company’s shares. A NOMAD will particularly want such restrictions if it is underwriting the issue of shares and has to take up shares in the issue which it will then want to sell in small numbers into the market as and when it can. Such undertakings are typically for a period of between 12 and 24 months.

What potential liabilities will the directors be exposed to in connection with the proposed admission to trading on AIM?

· When the application for admission to trading on AIM is made in conjunction with an offer of the company’s shares to the public, a prospectus is required. This means that under section 87A of the FSMA the prospectus must contain all information necessary to enable investors to make an informed assessment of the assets and liabilities, financial position, profits and losses and prospects of the company and the rights attaching to the securities. In the event that the prospectus is false or misleading, the directors, the company and any other persons (such as the NOMAD or other professional advisers) responsible for the prospectus are liable to pay compensation to any person who has acquired the shares to which the prospectus relates and who has suffered loss in respect of them as a result of any untrue or misleading statement in, or any omission from, the prospectus.

· Where an admission document is published under AIM rules the company seeking admission must ensure that the admission document contains all information which it reasonably considers necessary to enable investors to form a full understanding of (i) the assets and liabilities, financial position, profits and losses and prospects of the company, (ii) the rights attaching to the securities and (iii) any other matter contained in the admission document.

· Liability may arise under the FSMA for false or misleading statements, under the Theft Act, in tort for fraudulent misrepresentation or for breach of contract if either an admission document or a prospectus is published.

· If a company is issuing shares as part of the flotation, the directors will incur liability under the placing or underwriting agreement as they will be expected to give warranties (subject to customary limitations in terms of time and amount) to the NOMAD relating to the prospectus/admission document and the company’s business generally.

“Joining AIM. A field guide for applicants to AIM,

a market of the London Stock Exchange”.

Published in association with the London Stock Exchange