Part 2Business organisations
168
where there is only one class of shares, the members must
still approve the disapplication of pre-emption rights.
This assumes that the private company has not opted
out of the pre-emption provisions altogether (see above).
When considering pre-emption rights it should be
noted that companies that have a full listing on the stock
exchange are governed also by the Listing Rules and
can only issue 5 per cent of their securities to persons
other than existing shareholders in any one year. The
main investors in listed companies are institutions
such as insurance companies and pension funds and
they prefer that the shares are offered to them and not
outside.
Procedures for issuing shares to
the publicBefore the introduction of pre-emption rights, public
companies would often issue their shares to the public
by a publicly advertised prospectus. A merchant bank
was employed to provide the necessary stock market
specialism and agreed to buy the shares and offer them
on to the public retaining any not sold. This operated as
an underwriting agreement and meant that the com-
pany sold all the shares. This method was and is for that
matter referred to as an offer for sale.
It has become largely impractical to use this method
in more modern times because listed companies must
offer new securities to existing shareholders though
5 per cent can be offered outside in any one year. There
are now two main methods of issuing new shares as
follows:
A rights issue
This is an issue to existing shareholders in proportion
to their holding, e.g. one new share for every five held.
The document that accompanies the rights issue must
comply with the listing requirements under the aegis of
the Financial Services Authority. These requirements
and the penalties for not complying with them appear
below.
A placing
Shares that are not taken up by shareholders in the
rights issue are placed by the company’s brokers with
their clients and any of these that are not taken up will
be taken by the merchant bank that has underwritten
the issues or any sub-underwriters.
It is now necessary to consider the control on the
contents of the listing particulars and the regime of con-
trol that surrounds the above procedures. These appear
below.Regulation of the securities
market and of admission to itEuropean Union law requires each member state to
nominate and create a Competent Authority to maintain
an Official List (or market) of securities which is to regu-
late the admission of securities to the Official List and
to monitor those who issue shares in terms of adher-
ence to the Listing Rules (FSA Full Handbook – Listing,
Prospectus and Disclosure). This function is carried out
here by the Financial Services Authority (FSA) under the
Financial Services and Markets Act 2000.
The FSA can refuse an application for listing where it
considers that granting it would be detrimental to the
interests of investors. It can also suspend a listing as
where, for example, a company has failed to comply
with reporting requirements in the Listing Rules so that
investors and potential investors do not have suffici-
ent information on which to make informed decisions
about the company’s securities in order to deal in them.General duty of disclosure in Listing Rules
particulars
The Financial Services and Markets Act (FSMA) 2000
in s 80 makes statutory only ‘financial condition’ infor-
mation. This, according to the section, is information
which investors and their professional advisers would
reasonably require in order to make an informed assess-
ment of the company’s financial position, its assets
and liabilities and prospects. Less information may be
given to sophisticated investors, e.g. professional advisers
(s 80(4)(c)).Supplementary listing particulars
Section 81 of the FSMA 2000 provides that where there
is any significant change following the submission of
listing particulars to the Financial Services Authority,
but before dealings in the securities have started, sup-
plementary particulars must be approved and published.