AIM still on target despite Budget
While the abolition of business asset taper relief may be seen as a blow to AIM companies and may lead to a sell off of AIM shares by investors to pay CGT at 10% on gains before this rises to 18% in April 2008 this will be a short term blip. The AIM market has been a great success story since its launch 12 years ago and has many household names listed on it – Majestic Wines, Dominos Pizza, Coffee Republic to name just a few. Since its launch 2,800 companies have listed on AIM many of which have moved onto the main market as they have grown. This success cannot be said to be due in a major way to the CGT tax benefits. In any event AIM listed shares still continue to enjoy the benefits of Business Property Relief taking shares out of a shareholder’s estate on death for Inheritance Tax purposes. However, the main advantage of AIM is its lighter regulatory touch compared to the main market. Despite this it is regarded as well regulated and internationally respected. The regulatory body for AIM is the London Stock Exchange rather than the Financial Services Authority. Although many AIM companies follow and comply with the Combined Code for corporate governance this is not mandatory. AIM companies do not have to publish the Annual Information Update containing or referring to all information which the company has made available over the year which main market companies have to do. Whilst shareholder approval is required for many transactions on the main market this is only required for AIM companies involved in a reverse takeover.
AIM attracts on the whole smaller growing companies and offers investors the ability to invest in companies of a different size, with a different risk profile and at an earlier stage of their growth cycle compared to the main market. In particular investors like AIM because of the growth story these companies have to offer and the consequent rise in their share price. Many of these companies would not satisfy the entry requirements to list on the main market and as a result investors would not be able to invest in them.
For companies considering an IPO (initial public offering) the entry requirements on AIM are less onerous than the main market. There is no minimum market capitalisation, an admission document is required rather than a full blown prospectus requiring approval by the UK Listing authority, there is no minimum trading requirement (3 years on the main market) and whereas 25% of shares must be in public hands on the main market there is no such requirement on AIM. It should not be forgotten that the AIM market has 1,673 companies listed on it with a market capitalisation of £108.1bn of which £43bn is in the hands of institutional investors who would not benefit from taper relief. All these advantages should mean investors will continue to invest in AIM-listed companies. In six months time rumours of the death of the AIM market will be seen as much exaggerated. Chris Langridge is a partner in the Corporates Group of Cripps Harries Hall LLP.