Stocks and shares

 

Issuing shares on the stock exchange, also known as ‘floatation’, has significant implications for a company. Whilst all companies are subject to regulations and a degree of public scrutiny, listing a company publicly subjects the company to a whole additional range of regulatory obligations.

Before floating a company it is essential to obtain comprehensive legal advice from a commercial lawyer on the implications of doing so.

Advantages

Different advantages can be obtained by joining different markets. In the UK, there are three stock markets:

  • The London Stock Exchange
  • The Alternative Investment Market (AIM)
  • PLUS

Both AIM and PLUS Stock Exchange are favoured by smaller businesses. The reporting and regulatory requirements for membership of the latter two markets may be less stringent than those applying to the London Stock Exchange.

Not only does floating a company provide the company with improved access to capital and liquidity, but it also increases the company’s profile both within the UK and globally. Having a higher public profile can have a considerable impact on the business’s marketing and advertising success.

The move can also provide added reassurance to customers and suppliers that can work in the company’s favour. Employees may also prefer working for listed companies, and they can obtain the advantages of share options, where offered.

This is more relevant now that employers can offer shareholder contracts to employees.

Floating the business can also make it easier for you and other investors - including venture capitalists - to realise their investment. It also means that there is greater potential to enter into other investments, such as business purchases, through offering shares.

Disadvantages

Issuing shares on the stock exchange also has its disadvantages. Public companies have to adhere to an extensive amount of rules and regulations, depending on the market the company joins and its requirements. For example, the London Stock Exchange has more stringent requirements than the Alternative Investment Market and PLUS.

Listing on the stock exchange also requires a significantly higher level of publicity management. The company will have a higher public profile and as such will be subject to greater media scrutiny.

The company will also have to inform its stakeholders of various issues, including those not previously of central importance to the company, such as:

  • Corporate social responsibility
  • Environmental sustainability

Significantly, selling shares in the company necessarily means giving up some degree of management control of the business. There is the possible risk of the company being taken over.

In economic and financial terms, whilst floating the business will allow it to access greater capital and liquidity, it will also leave the business more vulnerable to market fluctuations.

The initial costs of flotation also need to be considered. These can be substantial, both in terms of initial fees and the costs of preparing the business for listing. Ask your commercial lawyer to clearly set out these and ongoing costs.

Are you thinking about issuing shares on the stock exchange? Contact Law can put you in touch with a recommended commercial solicitor, specialising in financial advice. Please call us on 0800 1777 162 or complete the web-form above.

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