Making the List
On the heels of the Jamaica Stock Exchange’s (“JSE”) 15th Regional Investments & Capital Markets Conference, “the region’s premier investors conference”, it is quite evident that the securities market in Jamaica is ripe for further expansion. Not only has the JSE been voted as the #1 stock market in the world for the year 2018, but the JSE was hailed by the New York Stock Exchange for its magnanimous performance over the years. With all this talk about investment, companies should realise that there is no time like the present to embark on the journey to listing.
The JSE has 2 main exchanges or lists which new companies can aim to be a part of: The Main Market and The Junior Market. Each is governed/regulated by rules issued by the JSE and in order to be listed on either exchange, the company must meet certain requirements as stipulated by the respective rules.
Different classes of shares with different rights can be listed on the exchange, however one must take note of the minimum capital requirements stipulated by the rules of the respective markets. To list ordinary shares on the Main Market, no less than 20% of the issued ordinary capital should be held by at least 100 shareholders. To list ordinary shares on the Junior Market, no less than 20% of the fully paid subscribed participating voting share capital should be held by less than 100 new shareholders. Furthermore, a potential Junior Market Company must raise a minimum of J$50 million in new funds prior to applying to be listed, and its stated capital must not exceed J$500 million following the raise and during its life on the Junior Market.
Why Make the List?
The main reason most companies pursue becoming listed is to further the growth of their company as a means of generating capital. This additional capital can be used to fund research and development, capital expenditure, and even pay off existing debt. Additionally, listing offers the benefit of raising public awareness of the company and assists with the promotion of its products/services.
There are also certain tax benefits for companies who list on the Junior Market. Namely, they will receive an exemption from payment of corporate income tax in the first five years after admission to the Junior Market; thereafter they will receive an exemption from payment of 50 per cent of such tax for the next five years.
How Do You Prepare to Make the List?
Listing does not happen overnight. A company that wishes to become listed will need to put a number of things in place long before the actual application to list is made. This may include, amending the Articles of Incorporation (for example ensuring there are no restrictions on the transfer of shares), re-registering the Company, preparing the Prospectus, obtaining a valuation of the shares of the company, ensuring the company’s financials are up to date, creating or fine tuning a brand for the company that is marketable, ensuring there are proper corporate governance practices in place, maintaining or creating diverse board compositions, establishing board committees and holding the necessary board and shareholder meetings to pass the appropriate resolutions.
One of the primary areas of focus would be the preparation of the Prospectus. The Prospectus is the invitation to the public to subscribe for or purchase shares of the company. It contains information such as the terms and details of the offer, the history of the company, bios on the directors and senior management staff, the use of the proceeds of the offer, forward-looking statements and the necessary disclaimers, the auditor’s report, management’s discussion and analysis of the company, financial forecasts, financial statements and risk factors to be considered by potential investors. The Prospectus will also need to disclose present or pending litigation and material contracts. Great care and time must be put into drafting the Prospectus as statements included in the Prospectus which are deemed untrue or misleading may result in liability on the part of the directors.
One should also keep in mind that the JSE Main Market and Junior Market Rules both speak to board level requirements that must exist in order for the application for listing to be considered. Neither speak to a minimum or maximum number of directors or what specific qualifications the directors should have. The Rules, however, do stipulate that the board should have an appropriate level of skill and expertise as a collective in order to carry on the commercial business of the company and to ensure that the company complies with the Rules.
The JSE Junior Market Rules state that the board must have at least 2 independent non-executive directors, i.e. a director that has no beneficial shareholding in the company and does not form a part of the management of the company. It is also a requirement under the JSE Junior Market Rules that there be an audit committee and a remuneration committee, whose composition must be majority independent non-executive directors. The JSE Main Market Rules state that the company should establish an Audit Committee comprised of at least 3 members who should be non-executive directors, majority of who should be independent. If is it a Junior Market listing, another item to be considered is the appointment of a Mentor, which is mandatory. The Mentor is the person appointed to the board who shall act as a compliance adviser to the Board and must be approved by the JSE.
The Application for Listing
Once securities have been offered to the public, upon the offer being closed, an application would then be made by the company to the JSE for the public company to be listed on the Main Market or Junior Market. Various documents in support of the application for listing will need to be submitted to the JSE including the Prospectus, Listing Agreements, board and shareholders’ resolutions and audited financials.
Given the matters outlined above, it is understandable why a company looking to list will need the support of a broker, auditor and attorney-at-law. In practice the fees of these professionals are usually deducted from the proceeds of the offer and are usually fixed prior to the offer being made.
If you think listing may be right for your company, embark on the journey today. Reach out to one of these professionals to find out more about how your company can make the list!
Shaniel May is an Associate at Myers, Fletcher & Gordon, and is a member of the firm’s Commercial Department. Shaniel may be contacted via firstname.lastname@example.org or www.myersfletcher.com. This article is for general information purposes only and does not constitute legal advice.