Legal Framework for an IPO
In many ways, understanding the legal framework of an IPO is one of the most daunting aspects of the whole process. However, like any other aspect of the IPO process, the reasons for this complexity are vital to the transparent and trustworthy nature of a public listing.
Breaking the legal framework down, there are 5 major components to consider:
- Market Regulations and Rulebooks
- Eligibility criteria for the different markets
- The Prospectus and its contents
- Considerations for companies outside the UK
- Continuing obligations following an IPO
Market Regulations and Rulebooks
Underpinning the markets of the London Stock Exchange is a system of governance comprising EU law, UK Acts of Parliament, regulations drawn up by the Financial Conduct Authority (FCA) and the Exchanges’ own rules, with the UK Listing Authority (UKLA) as the relevant “competent authority” for the UK.
An IPO listing on the London Stock Exchange will fall into two markets – Main Market and Alternative Investment Market (AIM), with the former comprising 3 segments – Premium, Standard and High Growth Segment (HGS). Each of these markets and segments maintain differing eligibility criteria, with Premium holding the most stringent, and HGS and AIM, comparatively more flexible.
The Prospectus is both a legal and a marketing document. It is the primary source of detailed management and financial information about a company preparing to list and is published in advance of an IPO. Because of its nature as a legal document, the Prospectus must accord with the detailed rules set out in the FCA’s Prospectus Rules and relevant EU regulations.
Considerations for Companies Outside the UK
The LSE is the most global of the exchanges and welcomes companies incorporated outside the UK. However it should be noted there are additional factors these companies must consider. These considerations touch on areas such as differing eligibility requirements, obligations to the company’s home member state and any ongoing obligations for trading on the LSE.
To ensure the practises of disclosure inherent in the IPO are maintained, companies on the Official List and admitted to trade on the various markets must maintain prescribed standards of disclosure. Such disclosures cover topics such as significant transactions entered into by the listed company, the role of sponsors, the Model Code for managers, timely supply of audited accounts, adherence to the UK Corporate Governance Code and rules on disclosures. Failing to adhere to its continuing obligations can result in the suspension of trading or ultimately delisting from the markets.
If you would like to know more about the Legal Framework of an IPO, download the full 'Guide to Listing' guidelines above.