Introduction to listed companies
Although listed public companies are less numerous than unlisted public companies and private companies, they tend to be valuable, important and/or well-known and they require additional regulation which goes far beyond that contained in the Companies Act 2006 (CA 2006).
Often listed companies operate their various businesses through subsidiaries which are private companies. Although such private companies are not listed themselves, they will be affected by the rules which govern their listed holding companies.
Seeking a listing is the third stage of development for many companies after converting to public company status. Most commercial investors want to be able to deal freely in their investments and a stock exchange listing allows the shareholders of a company that freedom, making the company more attractive as an investment.
A company must be a public company before it applies to have its shares listed on a stock exchange. However, as already mentioned, most public companies do not apply to have their shares listed.
The London Stock Exchange (‘LSE’)
The LSE is solely responsible for admission of shares to trading on its own exchanges.
The LSE operates the various markets including:
- Main Market (for debt and equity securities); and
- AIM (for equity securities only).
The Main Market
The Main Market is the largest market. In order to have its shares admitted to listing on the Official List and traded on the Main Market, an applicant will need to comply with the Listing, Prospectus, Disclosure and Transparency Rules (‘LPDT Rules’) and the LSE’s Admission and Disclosure Standards. In April 2019 there were 936 UK companies and 221 international companies traded on the Main Market.
The process of obtaining a listing is known as a flotation. Larger companies apply to have their shares listed and traded on the Main Market of the LSE. To have its shares listed and traded on the Main Market, a company must apply to have its shares admitted to listing on the Official List and to have its shares admitted to trading on the Main Market of the LSE.
When companies float, they often take the opportunity to raise equity finance at the same time by making a primary issue of shares. A primary issue is the first time a company offers its shares into the market and is more commonly known as an IPO or an Initial Public Offering. The term IPO is often used interchangeably with the term flotation although, in fact, not all flotations involve a public offering. Obtaining a listing gives companies access to institutional investors such as pension funds and banks.
AIM
The LSE also operates a secondary market for smaller, growing companies, called AIM. AIM is the most successful growth market in the world. AIM originally stood for ‘Alternative Investment Market’.
AIM was developed and launched in 1995 to meet the needs of smaller, growing companies which could not meet the full criteria for a listing on the Main Market (for example, a three year trading record) or those that preferred to be subject to a more flexible regulatory regime.
Over the years, AIM has been popular for new issues. In May 2020, there were 721 UK companies and 119 international companies on AIM. The majority of AIM companies are small in comparison to the Official List, with many valued at between £20 million – £50 million. Most are unknown to the general population. However, there are some household names, such as the Mulberry Group and a handful of other AIM companies that have values that exceed £1 billion.
The Takeover Panel
The Takeover Panel (the ‘Panel’) is a committee that regulates the takeover of public companies in the UK (and also in the Channel Islands and Isle of Man). (Only exceptionally will takeovers of private companies be so regulated.) The Panel is made up of representatives from financial institutions and other professional bodies, including some solicitors seconded from law firms in the City. The Panel has drawn up a series of principles and rules in relation to the conduct of public company takeovers. These rules are contained in the City Code on Takeovers and Mergers (the ‘City Code’).
Until May 2006, the City Code did not have the force of law but worked very effectively as a system of self-regulation. In May 2006, as a result of the Takeovers Directive, the City Code was revised. The Code is now legally binding under Part 28 CA 2006. The Panel is still able to rely on the enforcement powers which it had before the City Code became statutory. It may, if it finds that there has been a breach of the City Code, privately or publicly censure the individual or organisation or report the offender’s conduct to another regulatory authority. In addition, the Panel now has formal statutory powers to order compensation to be paid and may apply to the courts to enforce its rulings. It also has statutory powers to require parties to provide information in some circumstances.
Other regulatory bodies
Depending on the market in which the listed company operates, the listed company may be subject to the rules of an industry regulator. By way of example, easyJet plc is regulated by the Civil Aviation Authority, Severn Trent plc is regulated by Ofwat and BT plc is regulated by Ofcom.