Initial public offer (IPO) criteria for getting a stock market listing.

Initial public offer (IPO) criteria for getting a stock market listing.

The rules vary from market to market but these are the conditions that are likely to apply to get a company listed on an exchange:

Getting listed on a major stock exchange calls for a track record of making substantial profits with decent seven-figure sums being made in the year you plan to float, as this process is known.

A listing also calls for a large proportion, usually at least 25 percent, of the company’s shares to be put up for sale at the outset. In addition, you would be expected to have 100 shareholders now and be able to demonstrate that 100 more will come on board as a result of the listing.

As you draw up your flotation plan and timetable you should have the following matters in mind:

Advisers:

You will need to be supported by a team that will include a sponsor, stockbroker, reporting accountant, and solicitor. These should be respected firms, active in flotation work, and familiar with the company’s type of business. You and your company may be judged by the company you keep, so choose advisers of good repute and make sure that the personalities work effectively together. It is very unlikely that a small local firm of accountants, however satisfactory, will be up to this task.

Stock market

Sponsor:

You will need to appoint a financial institution, usually a merchant banker, to fill this important role. If you do not already have a merchant bank in mind, your accountant will offer guidance. The job of the sponsor is to coordinate and drive the project forward.

Timetable:

It is essential to have a timetable for the final months during the run-up to afloat — and to adhere to it. The company’s directors and senior staff will be fully occupied in providing information and attending meetings. They will have to delegate and there must be sufficient backup support to ensure that the business does not suffer.

Management team:

A potential investor will want to be satisfied that your company is well managed, at board level and below. It is important to ensure succession, perhaps by offering key directors and managers service agreements and share options. It is wise to draw on the experience of well-qualified non-executive directors.

Accounts:

The objective is to have a profit record that is rising, but in achieving this, you will need to take into account directors’ remuneration, pension contributions, and the elimination of any expenditure which might be acceptable in a privately owned company but would not be acceptable in a public company, namely excessive perks such as yachts, luxury cars, lavish expense accounts, and holiday homes.

Stock market

Accounts must be consolidated and audited to appropriate accounting standards and the audit reports must not contain any major qualifications. The auditors will need to be satisfied that there are proper stock records and a consistent basis of valuing stock during the years prior to flotation. Accounts for the last three years will need to be disclosed and the date of the last accounts must be within six months of the issue. 

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