IN170 - Opportunties Presented by the Alternative Investment Market - A UK Stock Exchange Quotation

The Alternative Investment Market (AIM) was established in 1995 by the London Stock Exchange. It is targeted towards expanding international companies wishing to gain access to UK capital markets.

The Isle of Man and AIM

The Isle of Man has become the leading offshore jurisdiction for company incorporations on AIM, according to recently published research (London Stock Exchange and Hemscott).

Key attractions of the Isle of Man for international businesses include the commercial flexibility offered by the Isle of Man Companies Act 2006 and the Island’s fiscal regime, which includes a zero rate corporate tax.

Why Obtain an AIM Listing?

• Raising of profile within the City of London
• Gaining access to institutional investors
• Increasing credibility
• Facilitating long term growth
• Access to capital
• Creating a market for a company’s shares
• Obtaining an objective market value
• Enhancing status with customers and suppliers
• Encouraging employee commitment
• Increasing a company’s ability to make acquisitions

How Long Does a Listing Take?

The whole process from the appointment of advisers through to admission would normally take a minimum of twelve weeks. Most companies start planning an AIM flotation several months in advance.

How Much Does a Listing Cost?

The fee for AIM admission depends on the nature of the company, as this affects the type and level of due diligence required. Minimum costs are approximately £250,000 to £300,000.

The company will also need to pay a broker’s fee for raising funds which will generally be between 4% and 6% of the funds raised.

The NOMAD

Every company must appoint a nominated adviser (NOMAD) whose powers are delegated from the London Stock Exchange, and whose purpose is to advise and guide. The NOMAD is the key adviser, and they are carefully chosen by the London Stock Exchange. At the moment there are ninety NOMADs, all of whom are highly reputable brokerage or corporate finance houses.

The NOMAD will undertake a commercial due diligence review in which the company’s lawyers will be involved. A reporting accountant will also be engaged to prepare a number of reports for the NOMAD and the company.

AIM Listing and Beyond

There is no requirement for a company to have a trading record prior to an AIM listing. Once listed on AIM a company must publish annual audited accounts prepared in accordance with the appropriate regulatory authorities.

Prospectus and Verification

A prospectus is required by law when a company is offering shares to the public and raising money from them. Certain information must be disclosed about the company to comply with the Public Offer of Securities Regulations and the AIM rules.

The prospectus should be exact and concise and is normally divided into:

• Company history
• Risk factors
• Expert/competent person report
• Accountant report
• Statutory information

The prospectus then has to be verified by an appropriate approval body. For a company which has its registered office in the UK, this is the UK Listing Authority (UKLA). Dealing with the UKLA and the information requirements for a prospectus are likely to add to costs and effect the timetable for a listing.

How to Avoid the Requirement for a Prospectus

Where possible companies will restrict their offer to:

• Professional or qualified investors
• Less than 100 persons (other than qualified investors) per European Economic Area state

Admission Document

A company seeking to be admitted to AIM will also need to produce a prospectus style document called an admission document. The contents of an admission document include most of the matters which would need to be disclosed in a prospectus. A company may either include its last three years’ audited accounts or an auditor’s report on the company’s status and profit and loss for the last three years.

In the case of a start up no audited accounts or accountant report will be required. In the situation of a recently formed company, only those accounts which have been prepared need to be included or reported on. There is no minimum three year trading requirement for an AIM listing.

A working capital report will need to be prepared by the company and confirmation is required that satisfactory reporting procedures are in place to enable the directors to make judgements as to the financial position of the company.

Continuing Obligations

The continuing obligations for AIM companies are generally less stringent than those for companies listed on the main London Stock Exchange. For acquisitive companies, AIM has the advantage of not requiring a circular to be produced and shareholder approval obtained except where the transaction to be undertaken is a reverse takeover.

An AIM company must report any developments concerning a change in its financial condition, sphere of activity, performance of its business or expectation about the performance of its business.

AIM companies must send their annual accounts to shareholders within six months of the financial year end and also announce half yearly results within three months of the relevant six month period.

Investor Incentives

A listing on AIM provides a number of potential benefits for both individual and corporate investors subject to the UK tax regime:

• Subscription for new shares in qualifying AIM companies may attract relief under the Enterprise Investment Scheme.
• In the appropriate circumstances investors may obtain 100% relief from inheritance tax for investments in certain AIM companies.
• Investments in venture capital trusts that invest in AIM companies attract income tax and capital gains tax relief.
• Corporate investors may benefit from relief under the Corporate Venturing Scheme (CVS). This may include a lower rate of corporation tax, deferral of tax on CVS gains and relief against income for capital losses.

Fast Track Listing

If a company’s shares have been traded on one of the stock exchanges listed below for at least eighteen months, the company may apply to have its shares listed on AIM, using a quick and simple application process This application process is known as the AIM Designated Markets Route. The relevant stock exchanges are detailed below:

• Australian Stock Exchange
• Euronext
• Deutsche Börse
• Johannesburg Stock Exchange
• Nasdaq
• NYSE
• Stockholmbörsen
• Swiss Exchange
• Toronto Stock Exchange
• UKLA Official List

Companies whose shares are listed on one of the ‘designated markets’ referred to above may obtain a listing on AIM relatively cheaply.

Applicants have to provide information to the Exchange at least twenty business days before the expected date of admission of their shares. The admission process is likely to take five to eight weeks from initial instruction of advisers to admission. There is no requirement for new applicants to produce a prospectus type of document unless they are making an offer to the public. If an offer to the public is being made the application will be treated in the same way as any other.

Summary

An AIM listing can be of benefit to expanding international companies. The Isle of Man offers a number of attractive tax advantages for companies based on the Island.

Additional Information

If you would like additional information regarding the establishment of a company in the Isle of Man and further details regarding an AIM listing please contact Simon Kelly or Bruce Watterson in the Isle of Man office, or contact us.