Alternative Investment Market (AIM). Are there any rules governing the composition of the board of directors of the AIM company?

Are there any rules governing the composition of the board of directors of the AIM company?

Whilst the provisions of the Combined Code (“Code”) do not apply to companies trading on AIM, it is considered best practice to adhere to its provisions which include the following:

· there should be a clear division of responsibilities at the head of a company between the running of the board and the executive responsibility for the running of the company’s business. The roles of the chairman and chief executive should not be exercised by the same individual;

· there should be a balance on the board between executives and non-executives (at least two of whom should be independent), the intention being that no small group of individuals or one individual can dominate the board’s decision taking;

· the board should not be so large as to be unwieldy;

· the board should be of sufficient size that the balance of skills and experience is appropriate for the business of the company;

· salaries should be sufficient to attract, retain and motivate directors of the quality necessary to run the company. The Code recommends that director’s salaries should be structured in a way that rewards are linked to corporate and individual performance; and

· directors’ service contracts should be terminable on no longer than 12 months notice. They should also provide for the director to leave the board of the company if that director materially breaches or causes the company materially to breach the AIM rules. Directors should not be rewarded with a huge payoff if they leave due to failure to deliver.

Whilst not a requirement, it is considered best practice for an AIM company to include a director’s remuneration report in its annual report and accounts (containing details of each individual director’s benefits and salary) and to have prior discussions with its institutional shareholders before any significant changes to directors’ remuneration are made.

In 2005 the Quoted Companies Alliance published Corporate Governance Guidelines for AIM Companies. Although these guidelines have no formal regulatory status they do represent a consensus view of the AIM advisory community and in large part reflect the key provisions of the Code highlighted above.

What ongoing reporting requirements and continuing obligations will be required of both the AIM company and its directors?

In addition to always having a NOMAD and a nominated broker, the company must keep the market informed of the progress of its business and other relevant matters by announcing without delay:

· any new developments not in the public arena which relate to a change in its financial condition, sphere of activity or business performance which if made public would be likely to lead to a substantial movement in the company’s share price;

· any dealings by directors in its shares;

· any changes to its significant shareholders;

· the resignation, dismissal or appointment of any director;

· any decision to declare a dividend;

· any material change between actual performance and any publicly announced forecasts;

· changes to its accounting reference date and registered office;

· reasons for the dismissal or appointment of its NOMAD or nominated broker;

· reasons for the application for admission or cancellation of the trading of its securities on AIM;

· substantial transactions, i.e. where class tests exceed 10 per cent related party transactions, i.e. where class tests exceed five per cent and reserve takeovers or fundamental disposals where shareholder approval is also required.

In addition, an AIM company must:

· prepare and publish a half yearly report within three months after the relevant half year period;

· prepare and publish audited annual accounts within six months of the financial period to which they relate; and

· ensure that directors and employers who hold 0.5 per cent of the company’s shares do not deal in the company’s shares within close periods (i.e. the two months preceding (i) the publication of the company’s annual results or (ii) the announcement of its half yearly results).

The company is subject to a general disclosure obligation, which means that the Exchange may require a company to provide it with such information, in such a form and within such limits, as the Exchange considers appropriate and also to publish such information.

What are the advantages of seeking admission to AIM?

Admission to AIM or the Main Market provides a public market for the company’s shares. This confers a number of benefits to the company and its shareholders including facilitating capital raising through new issues, providing holders of share-based incentives with a market on which to trade their shares and providing greater flexibility in making acquisitions, since shares which have liquidity can be offered as consideration instead of, or in addition to, cash. Features of AIM include:

· fewer barriers to entry and ongoing compliance requirements are less burdensome;

· no minimum market capitalisation needed;

· attractiveness for companies seeking growth and new capital which have little or no trading record;

· prior shareholder approval for transactions is only required if the ratios exceed 100 per cent in any of the class tests (i.e. a reverse takeover or a fundamental disposal), as compared to the 25 per cent threshold for an official list company;

· AIM shares are treated as “unquoted” for tax purposes and, accordingly, certain tax incentives are offered to investors in companies which meet the relevant qualifying conditions including, in the case of individuals, enterprise investment relief and reinvestment relief. These reliefs, which are not available to Main Market companies may result in the deferral and even elimination of tax on investments made. Individuals investing through venture capital trusts may also enjoy similar reliefs; and absence of requirements to have a minimum number of shares in public hands. It should be noted, however, that a small “free float” is one factor which can give rise to reduced liquidity in a company’s shares.

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

a market of the London Stock Exchange”.

Published in association with the London Stock Exchange