AIM, sometimes referred to as the Alternative Investment Market, is one of the equity markets of the London Stock Exchange. It is a market for smaller, growing companies, and is an alternative to the London Stock Exchange Main Market.
AIM can assist companies to raise capital through selling shares of their business to investors. The market attracts a different type of investor to the London Stock Exchange Main Market and its regulatory structure, entry criteria and ongoing requirements make it better suited to smaller, growing companies and start-ups
The decision to join a public market like AIM depends on the size of your business, stage of development and financial requirements. It is not necessarily suitable for all companies and you should fully consider all of the options available to your business with your advisers.
This guide explains the main considerations involved in floating on AIM. It describes the key features of the market, how to decide whether it is right for your business, and the main admission requirements.
Table of Contents
What is AIM
AIM is one of the equity markets of the London Stock Exchange. It is intended to help smaller, growing businesses – to raise capital for growth and can help raise the profile and visibility of companies with investors, suppliers and customers.
Some businesses consider AIM as a stepping stone to a listing on the London Stock Exchange Main Market, which they may join as the business develops. However, you have no obligation to move from AIM to the Main Market, and it can remain an efficient source of investment and equity finance for your business.
How AIM works
Floating a business on a public market such as AIM allows a company to raise capital in exchange for a stake in its business. These shares are tradeable on a public platform and companies are required to comply with ongoing regulatory obligations to keep investors informed and to attract new investors.
For more information, see the pages in this guide on considerations when joining AIM and the requirements for joining AIM.
There are a number of benefits of raising equity finance on AIM, including more flexible regulatory requirements, which may make it a more attractive option for smaller, growing companies. However, your business will become answerable to its shareholders and will lose some control over business decisions. For more information, see the page in this guide on considerations when joining AIM.
The AIM Rules
The AIM Rules set out the requirements for joining the market as well as the ongoing requirements once on market.
The most fundamental rule requires that a company must appoint a Nominated Adviser (‘nomad’) before joining AIM and for as long as the company remains listed on the market. For more information see the page in this guide on the role of the Nominated Adviser and other advisers.
Nomads are typically corporate finance firms approved by the London Stock Exchange. You can find a full list of nomads on the London Stock Exchange website – Opens in a new window.
You can also download the AIM Rules from the London Stock Exchange website (PDF, 922K) – Opens in a new window.
PLUS Markets
The London Stock Exchange is one of two Recognised Investment Exchanges (RIEs) in London authorised by the Financial Services Authority.
The other RIE is the PLUS Markets – a London-based stock exchange which operates a small companies market similar to AIM. This market also requires members to appoint a permanent adviser (a PLUS Corporate Adviser) but offers lighter regulatory obligations, and often attracts individual investors rather than institutions.
Find information on PLUS services on the PLUS website – Opens in a new window.
Considerations when joining AIM
Before joining AIM, your company should carefully consider the issues involved in joining a public market and seek appropriate legal and financial advice.
Joining a public market such as AIM will involve major changes in the way that you run your business, and certain requirements will be imposed on senior management. You should think carefully about whether your business is ready to join a public market such as AIM, considering the following points:
- Cost – the initial costs of flotation can be substantial, and there will usually be ongoing costs of maintaining a public market listing, including the company’s fees due to the company’s nominated adviser and professional adviser.
- Market fluctuations – your share price can be affected by a number of factors beyond your control, including market sentiment (the general attitude of investors towards price development in a market), economic conditions or developments in the sector, such as increased competition or new competitors.
- Responsibility to shareholders – in return for the capital they provide, shareholders in your company will expect the business to deliver value.
- The need for transparency – being in the public domain will lead to increased scrutiny of the company, its performance and its directors. Prompt announcements about new developments will need to be made, whether positive or negative.
- Investor relations – to maximise the benefits of being on a public market such as AIM and attract further investor interest in your company’s shares, it will be crucial to keep investors informed.
There are also a number of benefits of joining AIM. The market can be a useful source of finance for business growth and can assist companies in raising their profile. Joining AIM can assist your company through providing:
- access to a diverse range of investors – the opportunity to raise growth capital to enable your business to achieve its growth and innovation potential within a balanced regulatory environment
- increased visibility and profile with key stakeholders, including customers and suppliers – which can aid access to global markets
- access to a knowledgeable advisory community experienced in working with growing businesses
- the ability to encourage employee commitment through offering share schemes to staff members
- placing an objective value on the company’s business
- increasing the company’s ability to make acquisitions, using quoted shares as currency
- creating a market for the company’s shares, helping to broaden the shareholder base
How is AIM a relevant source of finance for small and medium-sized companies?
If you are a smaller, growing business seeking finance for development and growth, AIM could be an appropriate source of finance for you. For example:
- The AIM entry criteria are tailored to smaller, growing companies.
- There is no prescriptive minimum entry size and/or trading history criteria.
- Shareholder approval is only required for the most fundamental transactions – a reverse takeover or disposal resulting in a fundamental change of business.
- Tax benefits – AIM shares have tax benefits for investors. Tax reliefs available can include inheritance tax and qualification for inclusion in Enterprise Investment Schemes and Venture Capital Trusts.
- More appropriate costs – the costs of joining AIM may be more suitable for smaller companies than those that might be incurred by listing on the Main Market or obtaining debt finance such as a bank loan.
You can download the AIM Rules from the London Stock Exchange website (PDF, 922K) – Opens in a new window.
Is AIM right for your business?
Although there are a number of benefits to becoming publicly quoted on AIM it is not necessarily suitable for all companies.
Becoming a public company on a market such as AIM will involve major changes in the way that the business is run. It involves taking in outside shareholders and accepting the responsibilities of increased transparency and reporting obligations, together with the associated time and cost.
Beyond complying with additional regulatory responsibilities, you must also be willing to devote the time and resources necessary to communicate effectively with the market.
Ultimately, the decision to float your company on a public market is yours. You should take into account all the potential benefits and considerations, and decide whether external equity finance will be an appropriate form of finance for the size and stage of your business. For more information, see the page in this guide on considerations when joining AIM.
For more information on considerations around flotation, see our guide on floating on the stock market.
Investment readiness
AIM is designed for smaller, growing companies. In order to assess whether your business will be an attractive prospect for potential investors, and if your business is ready to join AIM, you should first consider whether you have:
- a clear business plan – see our guides on how to prepare a business plan and how to use your business plan to get funding
- the relevant skills and experience in your management team
- a trading record that compares favourably with your peers
- potential to increase the market share
- a realistic market valuation
- a definite idea of how much of the business you are intending to float and how this will affect future development
For more information, see our guide on how to secure equity investment.
Eligibility criteria for AIM
There are no prescriptive eligibility criteria for joining AIM, such as minimum business size or trading history.
However, a company must demonstrate that it is suitable and ready to join AIM, and once listed, that it can meet its ongoing obligations. This means that you will need to show that your company has the potential to deliver real value to your shareholders. You must also appoint a Nominated Adviser (‘nomad’) prior to admission and retain their services for the duration of the company’s listing on the market. Certain other advisers will also be involved in the admission process. For more information, see the page in this guide on the role of the Nominated Adviser and other advisers.
For more information on AIM’s legal requirements, see the page in this guide on the requirements for joining AIM.
London Stock Exchange Main Market
If you are interested in floating your business on a stock market, but feel that AIM is not the correct market for your company, you could consider the London Stock Exchange Main Market. The Main Market is usually reserved for more established businesses and has more stringent admission criteria and more demanding ongoing obligations. See our guide on the London Stock Exchange: Main Market.
Admission criteria differences – AIM and the Main Market
AIM | Main Market |
---|---|
No prescribed level of shares to be in public hands | Minimum 25 per cent shares in public hands |
No trading record requirement | Normally three year trading record required |
No prior shareholder approval for most transactions* | Prior shareholder approval required for substantial acquisitions and disposals (Premium Listing only) |
Admission documents not pre-vetted by the Exchange nor by the UKLA in most circumstances | Pre-vetting of the prospectus by the UKLA |
Nominated adviser required at all times | Sponsors needed for certain transactions (Premium Listing only) |
No minimum market capitalisation | Minimum market capitalisation |
*Unless the transaction is a reverse takeover or disposal resulting in a fundamental change of business |
Alternative sources of finance
If a stock market listing is not suitable for your business, there are alternative ways to increase your business capital including:
- private equity, either through a firm or individual such as a venture capitalist or business angel
- selling the business to a larger business or institutional investor
- debt finance – through obtaining a loan or mortgage
- management or employee buy-out
The requirements for joining AIM
Typically, the process of joining AIM can take between three and six months from the time you make an official decision to join. However, this can vary greatly depending on the complexity of your business and the level of due diligence (analysis of financial records and other vital aspects of a business, to confirm facts) that would be required to comply with the admission requirements.
Admission requirements
There are no prescriptive eligibility criteria for joining AIM, however, a company must:
- Appoint a Nominated Adviser (‘nomad’) and retain their services for the duration of the time the company remains on AIM. The nomad provides advice on the application process and on complying with the AIM Rules. For more information on the role of the nomad, see the page in this guide on the role of the Nominated Adviser and other advisers.
- Appoint a corporate broker and retain their services throughout the time the company remains on market – see the page in this guide on the role of the Nominated Adviser and other advisers.
- Ensure shares are freely transferable and eligible for electronic settlement (allowing the trading of shares online without paperwork).
- Prepare an admission document in compliance with the AIM Rules with the help of your advisers and publish it.
Your nomad will be able to guide you through most of the admission process and will be responsible for ensuring that you comply with the specific requirements under the AIM Rules.
You can download the AIM Rules for companies from the London Stock Exchange website (PDF, 922K) – Opens in a new window and download information for joining AIM from the London Stock Exchange website (PDF, 2.36MB) – Opens in a new window.
Preparing to be listed on AIM
Being in the public domain will lead to closer scrutiny of your company, its performance and its directors. In addition to fulfilling the necessary documentation requirements for admission, the company must have sufficient procedures, resources and controls in place to enable it to comply with the AIM Rules. The directors of the company will also need to accept full responsibility for its compliance with the rules.
Other legal requirements
In addition to the AIM rules, an applicant must comply with:
- UK company law, if incorporated in the UK
- UK legal requirements for offers of securities – for more information, see our guide to shares and shareholders
- the Financial Services and Markets Act 2000, which makes it an offence to abuse or mislead the market
- legal requirements in all other countries where its shares are offered
- company and securities laws of the country in which it is incorporated, if this is outside the UK
The role of the Nominated Adviser and other advisers
If your business decides to join AIM, you will be required to appoint and retain advisers who will provide advice during the process of flotation, and throughout the time the business remains on AIM. You will need the following advisers, and in addition, you may look to appoint the services of investor relations and public relations organisations:
- Nominated Adviser (‘nomad’)
- Broker
- Reporting accountant
- Legal adviser
The role of the nomad
The nomad assists a company through the admission process and is responsible to the London Stock Exchange for assessing the appropriateness of a company seeking admission to AIM. Once the company has been admitted to AIM, the nomad will continue to provide advice and guidance on all aspects of the AIM Rules. They will ensure that the Directors are aware of their continuing responsibilities and obligations. You must retain a nomad at all times while listed on AIM.
Nomads are typically corporate finance firms approved by the London Stock Exchange to act in such a capacity. You can search for a nomad on the London Stock Exchange website – Opens in a new window.
The role of the broker
The broker is a securities house which will also be a member of the London Stock Exchange and will be responsible for any initial fundraising at flotation, and for bringing together buyers and sellers to encourage trading in your shares. The broker may be from the same firm as the nomad if a company chooses to appoint a firm which performs both functions.
The role of the reporting accountant
The reporting accountant will independently review your company’s financials and will assist you in preparing all the necessary financial information that must be included in the AIM admission document.
The role of the legal adviser
The legal adviser will conduct due diligence on behalf of the nomad, including verifying the statements given in the AIM admission document. The legal adviser will also provide ongoing advice to the board of your company on your continuing legal obligations.
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Every effort has been made by the author(s) to ensure this article’s accuracy but it does not constitute legal advice tailored to your circumstances. If you act on it, you acknowledge that you do so at your own risk. We cannot assume responsibility and do not accept liability for any damage or loss which may arise as a result of your reliance upon it.
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