How to float on AIM

Jul/Aug 06 issue

Floating your company on a public stock exchange must be one of the key goals of any ambitious entrepreneur. It’s a way of raising money or collateral for future growth and of crystallising your own reward for building up the business. A stock market quote can provide a starting price for eventual trade sale negotiations. It can also enable you to provide your key employees with worthwhile incentives.

AIM, the junior partner of the London Stock Exchange (LSE), has established itself as the preferred route for younger companies wanting to go public. In its 11 years of existence, it has raised some £32 billion for 2,438 companies of all shapes and sizes. Overall, 779 companies, ranging from Islamic Bank of Britain to alternative energy group Clipper Windpower, joined the market between October 2000 and September 2005. In that time, 471 companies, 60.5 per cent of the total, raised less than £5 million, while at the other end of the scale, 25 companies raised £50 million or more. Companies raising upwards of £10 million accounted for 24.4 per cent of the companies that listed during that period. So far in 2006, 236 companies have joined the market, raising £5 billion between them.

Taking AIM
For a young company anxious to grow, AIM offers several particular attractions. To list on AIM, as opposed to the Official List, you do not have to show a two-year profits record and there is no minimum percentage of your company which you must cede to outside investors.

A company seeking to float on the Official List must provide a prospectus, replete with every imaginable detail about your business, its history, finances and prospects, and the reasons and detailed terms of the share offer. This document will be expensive and arduous to produce and must be in line with the European Union‘s Prospectus Directive.

By contrast, provided you are seeking to tap fewer than 100 shareholders with an AIM float — say, several institutional investors and some known rich individuals — you need only produce a simpler and much less costly ‘AIM Admission Document’. Instead of vetting, checking and monitoring your business all the time, as the LSE does, AIM places the responsibility for these functions on ‘nominated advisers’, known as Nomads, chosen by the listing companies themselves.

An AIM float by a UK company can also tempt individual investors with useful tax reliefs. These include capital gains tax taper relief, which can cut investors’ tax rate from 40 per cent to ten if they sell out at a profit after four years. If your company qualifies for relief under the Enterprise Investment Scheme — is not a finance or property company, a foreign-based concern or chiefly involved in natural resources or commodities — UK investors can obtain 20 per cent income tax relief on their initial investment. If they hold on for at least three years, they pay no capital gains tax if they sell.
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