Janet Morrison, Legal Writer
When a company is described as 'listed', the true meaning of that description is that some or all of the company's shares are listed on the stock exchange.
Those shares may be the company's ordinary or preference shares which form part of the securities issued by the company.
Other than the high market profile given to a listed company, there are other advantages to listing and, by far, the most significant is the ability of the directors to raise capital from the public.
First foray
The first such foray into the market is made by an Initial Public Offering or IPO.
This is the method by which a public company makes its first offer to the public to subscribe for certain shares issued by it and immediately that the offer to the public closes those shares taken up by the public are 'listed' on the stock exchange.
The rules of the Jamaica Stock Exchange (JSE) require that a company must enter into a listing agreement with it under the terms of which it agrees to abide by the rules of the exchange.
In order to be listed, the company must have share capital of at least $100,000, have arrangements with the stock exchange to have in place on the day of the listing no less than 100 stockholders who must control no less than 20 per cent of the company which percentage must represent no less than $50,000 in nominal value of the capital of the company.
Those are fairly low thresholds to achieve and all the companies listed on our stock exchange would have far exceeded the minimum capitalisation requirements on the day of listing.
After listing, a company may invite its stockholders to take up additional stocks or shares by way of a 'rights issue'.
A rights issue may entitle the stockholder to renounce the right to take up the shares and offer them to another person who is not a stockholder. In that case, the rights issue is said to be 'renounceable' and the renouncing of the rights by a stockholder makes the shares available to the wider public.
When the rights issue may only be accepted by the stockholders to whom they are made, the offer is said to be 'non-renounceable' and the marketing of the shares is restricted to the class of stockholders to whom the offer is made.
IPOs and rights issues are methods used in our market to improve the ability of companies to finance their operational and structural growth without the companies taking on additional loan capital or debt. It also gives the public a share of the corporate enterprise and stimulates the economy through increased investment and employment.
Investors or stockholders of a listed company have the ability to trade the securities or stocks across the floor of the stock exchange and this feature offers flexibility - that is the ability in a few days to acquire and dispose of the shares through a broker - and liquidity, which comes from the ability to trade the shares and recover cash.
Dividends
These advantages make investing in a listed company attractive to both small and large investors. No transfer tax or stamp duty are payable on the sale or purchase of shares listed on the exchange. Also, for investors who do not dispose of their shares, the dividends paid by the company are not subject to tax.
Accordingly, the investor base of a listed company is diversified in that they come from every sphere of life motivated by different reasons to invest. For the listed company, the risk that a single investor or small group of investors can determine the financial well being or future of the company is reduced, and, for the individual investor it means that the risk of the failure of the company is spread over hundreds of investors.
However, a listed company must make full and timely disclosures to members of the public about the financial position of the company through the JSE and the Financial Services Commission (FSC). When making an IPO the law requires the company to issue a prospectus that must contain certain statutory disclosures set out under the Companies Act. Misstatements in a prospectus are punishable under the Act.
The prospectus is designed to give the public important information before they are asked to make a financial commitment in the company.
Our law requires that both the Registrar of Companies and the FSC approve the prospectus before it is issued. That requirement is not only expensive but time consuming.
It is recommended that a prospectus should be approved only by the FSC to achieve greater harmonisation in the regulatory regime.
On January 16, Marlene Street-Forrest, general manager of the JSE, said there may be three public listings this year and a re-listing of a company that was de-listed. Given the rally of the stock market before the end of last year, it is hoped that in fact even more companies will decide to list.
There are some basic steps to listing. The board makes the decision to 'go public' based on the expert advice of accountants, auditors, financial and marketing analysts on the position of the company.
Subcommittee
The board appoints a subcommittee comprising the above experts and other competent persons dedicated to listing within a particular time frame - because timing the entry into the market is critical.
If the company is a private company, it converts to a public company.
At a general meeting of members, amend the articles to include provisions set out in the JSE rules and increase the share capital (if necessary).
Throughout the process liaise closely with the FSC and the JSE. If your company is a financial institution, keep the Bank of Jamaica informed.
Janet Morrison is an attorney-at-law at DunnCox in Kingston. Email: janet.morrison@dunncox.com.
Taken from the Financial Gleaner, Friday January 19, 2007.
