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In the UK, there are two important categories of companies. There are public companies and private companies. Public companies have shares (in most cases) which can be bought, or ’subscribed for’ by the public. Private companies also have shares (in most cases), but they are not up for sale to the general public. There is a further distinction between public companies with shares that are traded on the stock exchange and those that aren’t. We will take a look at these different types of companies in turn.
A private company is defined under the Companies Act 2006 (the 'CA 06') as a company that is not a public company. A private company cannot offer its shares to the public.
A public company is a company whose memorandum of association states that it is a public company and it has been registered or re-registered as such. The company is usually limited by shares or by guarantee and having share capital. Any other company is a private company.
It is possible that a public company will not be listed on the stock exchange, although all companies that are listed on the stock exchange have to be public companies. A public company can offer its shares to the public, although there is no ready market for such shares.
A listed company is a company whose shares are quoted or listed on the stock exchange and the price of which is shown daily in the financial press. Such a listing ensures that there is a readily accessible market on which the public can buy and sell the listed shares. For a listed company, at least 25% of its shares have to be in the hands of the public.
There are two ways in which public company status can be achieved. Either a company will be incorporated as a public company or an existing company will be re-registered as public. The latter method is more common in practice.
A private company may be re-registered as a public company by passing a special resolution to that effect. A special resolution is one passed by not less than 75% of the company's shareholders at a general meeting. Apart from approving the re-registration, the resolution will also make alterations to the articles of association of the company so as to conform to the requirements of the CA 06. This will include changing the name of the company by adding the words 'public limited company' or 'plc'.
At the time when the special resolution is passed, the nominal value of the company's allotted share capital must not be less than the authorised minimum, currently, £50,000. Allotted share capital is a sum representing the nominal value of shares issued by the company. In addition, each of the allotted shares must be paid up at least as to one quarter of the nominal value of that share and the whole of any premium on it.
The Listing Rules set out the minimum requirements that are essential to obtain a listing on the stock exchange and also contains continuing obligations for those companies. A company that seeks a listing on the stock exchange has to comply with these rules. The Listing Rules are drawn up by the Financial Services Authority in accordance with the Financial Services Act 1986 and the Financial Services and Markets Act 2000 (FSMA).
The London stock exchange is primarily a market place for trading in shares and securities and is regulated by the Financial services Authority (FSA). The FSA is the regulator for the financial services industry and was established in terms of the Financial Services and Markets Act 2000 (FSMA).
The stock exchange is obliged to:
There are a number of ways to bring shares listed on the stock exchange onto the market such as by way of rights issues, offers for subscription and others. No matter which method is adopted, the company has to issue shares if it’s successful in getting its shares sold. This process is called allotment of shares. Accordingly, before dealing with the listing of shares on the stock exchange, the following issues relating to allotment of shares need to be considered:
