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LEGAL ENGLISH

a Cura di Maria Gigliola Di Renzo Villata

UNIT 10: M&A -MERGERS AND ACQUISITION.

Mergers and acquisition – definition and general overview.

M&A deals are large transactions used not only to change the control of a company, but also to alter the strategic

direction of the business.

Basically, an Acquisition is a purchase by a person (the Buyer) from another person (the Seller) of a stake in a given

company (called the Target Company).

In contrast, a Merger is a combination of two or more companies into a single entity (the Combined Entity).

There are three different kinds of Merger:

1.the Merger “per se” -that is the combination of two or more independent companies into the Combined Entity;

2. the Forward Merger -that is the incorporation by the controlling company of one or more of its subsidiaries;

3.the Reverse Merger -that is the incorporation by a subsidiary of the controlling company;

The choice between an Acquisition and a Merger depends on the strategic plans of the parties and on the situation of the

companies involved.

However, the parties usually consider the following factors:

1-the consolidation and integration of the two (or more) businesses and the creation of a synergies through that

integration;

2-financial goals. For example, a Buyer may make a purchase to improve and revitalise the acquired business and

eventually sell it at a substantial gain;

3-the intent to (or the need) exit from the business, allowing the Seller to sell a part or all of his stake in the Target

Company, to get cash and/or to solidify the relationship with the Buyer.

However, there is a common thread between Mergers and Acquisitions: the parties want to learn as much as they can

about the business, understand it deeply and try to maximise its value; both types of transactions involve many people

(or companies) related to the parties, like their managers, employees, customers.

In addition, the key steps in both kinds of transaction are very similar.

The process of an M&A transaction.

It is important to understand the roles of the various players.

A first broad category of people in every M&A deal is the investors, who may play the role of the Buyer and/or of the

Seller:

-Founders/angels: people who started the business from scratch and helped it take its first steps. Founders are always on

the selling side of an M&A transaction.

-Venture capital firms: entities that help promising, early-stage businesses develop and grow and eventually sell their

stake at a financial gain;

-Private equity firms: entities that provide the company with the human and financial resources to grow further and

eventually sell their stake at a financial gain.

-Institutional investors: entities like mutual fund, pension funds etc., that invest with a medium- or long term goal of

maximising the value of their portfolio, rather than trying to influence the management of the business.

The following people are hired as advisors to the deal to provide their specific knowledge and to help the parties in the

decision-making process with regard to all facets of the transaction (strategic opportunities, valuation, legal issues,

financing etc.):

-Strategic consultants: provide advice on the strategic opportunities of the transaction.

-Lawyers: every transaction is a contract or transfer of legal ownership, so parties only buy, sell or own what the legal

documentation says they do. The lawyers draw up the legal documentation and provide the relevant advice concerning

the legal issues involved in the transaction (risks, regulatory issues, etc. ).

-Investment Banks: provide advice on the financial structure of the transaction and may also broker the transaction

itself.

-Auditors: certify the Seller's accounting documents and provide advice on how to structure a company financially, as

well as offer tax and accounting strategies.

-Other consultants: advise on specific single business-related issue that may arise.

And carrying out an M&A transaction requires the parties to consider the role of the following entities, which can have

a significant influence on whether the transaction even occurs:

-Regulators: M&A transactions may be subject to many regulatory requirements, including those related to general

regulations, such as antitrust regulations, al well as industry and company specific regulations, such as those about air

transport. The parties must comply with all the regulatory requirements.

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LEGAL ENGLISH

a Cura di Maria Gigliola Di Renzo Villata UNIT 10: M&A -MERGERS AND ACQUISITION. Mergers and acquisition – definition and general overview. M&A deals are large transactions used not only to change the control of a company, but also to alter the strategic direction of the business. Basically, an Acquisition is a purchase by a person (the Buyer) from another person (the Seller) of a stake in a given company (called the Target Company). In contrast, a Merger is a combination of two or more companies into a single entity (the Combined Entity). There are three different kinds of Merger: 1.the Merger “per se” -that is the combination of two or more independent companies into the Combined Entity;

the Forward Merger -that is the incorporation by the controlling company of one or more of its subsidiaries; 3.the Reverse Merger -that is the incorporation by a subsidiary of the controlling company; The choice between an Acquisition and a Merger depends on the strategic plans of the parties and on the situation of the companies involved. However, the parties usually consider the following factors: 1-the consolidation and integration of the two (or more) businesses and the creation of a synergies through that integration; 2-financial goals. For example, a Buyer may make a purchase to improve and revitalise the acquired business and eventually sell it at a substantial gain; 3-the intent to (or the need) exit from the business, allowing the Seller to sell a part or all of his stake in the Target Company, to get cash and/or to solidify the relationship with the Buyer. However, there is a common thread between Mergers and Acquisitions: the parties want to learn as much as they can about the business, understand it deeply and try to maximise its value; both types of transactions involve many people (or companies) related to the parties, like their managers, employees, customers. In addition, the key steps in both kinds of transaction are very similar. The process of an M&A transaction. It is important to understand the roles of the various players. A first broad category of people in every M&A deal is the investors, who may play the role of the Buyer and/or of the Seller:

Founders/angels : people who started the business from scratch and helped it take its first steps. Founders are always on the selling side of an M&A transaction.
Venture capital firms : entities that help promising, early-stage businesses develop and grow and eventually sell their stake at a financial gain;
Private equity firms : entities that provide the company with the human and financial resources to grow further and eventually sell their stake at a financial gain.
Institutional investors : entities like mutual fund, pension funds etc., that invest with a medium- or long term goal of maximising the value of their portfolio, rather than trying to influence the management of the business. The following people are hired as advisors to the deal to provide their specific knowledge and to help the parties in the decision-making process with regard to all facets of the transaction (strategic opportunities, valuation, legal issues, financing etc.):
Strategic consultants : provide advice on the strategic opportunities of the transaction.
Lawyers : every transaction is a contract or transfer of legal ownership, so parties only buy, sell or own what the legal documentation says they do. The lawyers draw up the legal documentation and provide the relevant advice concerning the legal issues involved in the transaction (risks, regulatory issues, etc. ).
Investment Banks : provide advice on the financial structure of the transaction and may also broker the transaction itself.
Auditors : certify the Seller's accounting documents and provide advice on how to structure a company financially, as well as offer tax and accounting strategies.
Other consultants : advise on specific single business-related issue that may arise. And carrying out an M&A transaction requires the parties to consider the role of the following entities, which can have a significant influence on whether the transaction even occurs: -Regulators : M&A transactions may be subject to many regulatory requirements, including those related to general regulations, such as antitrust regulations, al well as industry and company specific regulations, such as those about air transport. The parties must comply with all the regulatory requirements.

Costumers, public and press : it is important to consider how the costumers, the public and the press will view the transaction after its completion. Hiring a PR firm may be helpful to help influence the opinion that the public and the press will have on the transaction. Setting up the deal. The decision to enter into a strategic transaction is one of the most serious the management of a company ever faces. Therefore, every decision must be made with extreme caution and each step must be planned very carefully. Before entering into any M&A transaction, a company organises its corporate structure to prepare for it by taking the following steps: -Building a corporate strategy with the help of consultants, that includes M&A transactions as tools to carry out the strategy. -Focusing on the companies to acquire and/or to merge with. -Setting up a capital structure that is flexible and quickly adaptable to the market and to the structure of the transaction. -Building an in-house corporate development team to carry out the corporate strategy, with expertise members. -Hiring external advisors at the right time. Once the company's corporate development team has found a viable opportunity to enter into a M&A transaction, the approval process starts. While the various steps in the approval process may differ, every transaction must be approved by: -The corporate development team. -The in-house legal department. -The top management. -The board of directors and/or the CEO. -The shareholders' meeting. The approval chain ensures that the transaction complies non only with the law and with the company by-laws, but also with the broad corporate strategy. This process is even more critical when selling a business, because the sale is a one-and-done event and the Seller must be sure to sell at the highest price and under the best conditions to maximise shareholder value. Among other things, the Seller has to: -Start thinking about the sale well in advance. The business must be attractive to potential buyers, not only for its profitability, but also for how it is organised. -Identify potential Buyers: analysing potential Buyers means considering their needs and trying to organise the business accordingly, focusing on employees, technology, products, customers, financials, public image, market reputation etc. -Change the corporate attitude: the management and employees must start thinking as a subsidiary and no longer as an independent company. -Hire external advisors to help find a Buyer. An M&A deal may have a strong effect both inside and outside the companies involved. It may affect the employees' morale, the impression customers have of the relevant companies and even their stock prices. Planning the message of the deal is therefore very important to minimise any negative influence on the relevant companies and to the deal itself as well. This issue must be dealt with carefully, keeping a good balance between publicity and secrecy, and complying with the applicable market disclosure rules. On one hand, any information leakage about a transaction may affect the negotiations and the preparation for the deal as well as the position of the relevant companies in the market and with respect to their customers, their competitors and their employees. On the other hand, giving public details about a transaction may have an important role in the relevant companies' PR strategy and can turn a negative perception of the deal into a positive one. Carrying out the deal. Once the preparation for the deal is complete, and the potential counterparty has been identified directly or through an advisor, the time has come for proposing the transaction. The approach may be direct or through a proxy. The proposal may disclose the main topics of the transaction but not its details and terms. When making the approach, it is very important to “think ahead” of the other side, anticipating some of its needs and concerns that may arise during the negotiations. The following are the basic types of transaction: -A one-on-one negotiation is simple, fast and direct: one side meets his counterparties one at a time. The negotiating process is usually fast and both sides are afraid of putting the transaction at risk: if the negotiations fail, they have to start from scratch with another counterparty. -A competitive auction is longer and more expensive: it allows one side to narrow the field of its potential counterparties by comparing their proposals and selecting the best one, eventually entering into a one-on-one negotiating with the winner. In the one-on-one negotiation process, one side establishes contact with the other and tries to find out how much it is interested, proposing very general and rough terms of the transaction by providing the other side a specific document called a “teaser”. Once both sides have expressed serious intent in the transaction, they sign a non-disclosure agreement (“NDA”) which provides that neither will share more information about the business by an “information memorandum”, followed by a “management presentation” providing more details of the business. Finally, they start talking about the specific details of the transaction, including the price, by signing a legally non-binding “letter of intent” (“LOI”).

-Operations -Supply chain -Employees -Technology -Products -Customers DD play a key role throughout the whole process, since it allows the parties to: -identify all the assets, liabilities, rights and obligations, event those which are potential and uncertain, related to the business. -have a guide to the critical issues of the business during negotiations. -find out the content of the legal documentation. -better assess how much the business is worth. -gain useful information for drawing up the integration planning documents. Financing the costs of a transaction. An M&A transaction carries multiple costs. The most important is the purchase price, but there are also fees that must be paid to the other entities involved in the transaction (the Investment Banks, Lawyers, Consultants, etc.). While a Merger does not involve an out-of-pocket payment to the shareholders of the incorporated entities, the Buyer in an acquisition transaction must pay the purchase price to the Seller. This payment may be made in cash, in share in other assets or through a combination of payment methods. The payment methods is an important issue to the parties. The Buyer needs to consider it to be able to draw up the financial structure of the deal. The Seller may prefer to receive consideration in cash instead of a stock position in the Buyer's capital, the value of which may vary. Usually, when the consideration is to be paid in cash, the Buyer borrows money from other investors (by issuing bonds or through private loan) or from banks, thus entering into an acquisition financing agreement. Closing the deal. Until that documentation is signed, it is still possible for either party to walk away and let the agreement fall through. The completion of an acquisition transaction is usually a two-steps process. First comes the signing of the deal, in which the parties execute a binding agreement to complete the sale subject to certain conditions. After fulfilling those conditions, the parties complete the sale by signing the documents related to the transfer of ownership of assets and securities and by paying the purchase price. The gap between the signing and the closing gives the parties the time to get all the regulatory authorisations, to complete the financing or to adjust the consideration and/or other terms of the deal. To complete a Merger you need the approval of the relevant corporate bodies (board of directs and shareholders' meeting), the signing of the documents for the transfer of ownership of assets, as well as the share exchange. Hot Words. Board of directors : the corporate body representing the managers of the company. Bond : a debt security in which the issuers owes the holders a debt and has to reply the principal and interest. Business : either a commercial or industrial enterprise or activity or a single matter, affair or activity. CEO : the Chief Executive Officer, the head manager of a company. Control : the power, by virtue of a shareholding, to influence and direct the management of a company. Controlling company : a company that holds enough shares to control another company. Corporate bodies : the parties involved in the governance of the company (CEO, board of directors, management, shareholders' meeting). Independent company : with reference to two (or more) given companies, a company that is not controlled by any of the others. Issue [to]: to formally offer securities to third parties. Security : a transferable interest representing financial value. Shareholder : a person who owns a share interest in the capital of a company. Shareholders' meeting : the corporate body representing the shareholders of a company. Shareholding/Stake : a share interest in a given company. Subsidiary : a company that is subject to the control of another company.

UNIT 11: TAKEOVER BIDS

Takeover bids -definition and general overview. A takeover Bid (also called a “tender offer”) is a public offer made by the offeror (or bidder) to the holders of the securities of a company (the offeree or target company) to acquire all or some of those securities, whether mandatory or voluntary, which has as its objective taking control of the target company. A takeover Bib may be an integral part of an M&A transaction where the target company is a listed company, as it allows the offeror to acquire control of the target company by buying its securities simultaneously from all of its shareholders. In other cases a person has to make a Takeover Bid on all the outstanding offeree's securities. This is to ensure equal protection of the offeree company's minority shareholders, giving them the opportunity to realise their investment at the same price obtained by the controlling shareholders. Whether a Takeover Bid is voluntary or mandatory, the rules governing the Takeover Bid procedure are basically the same, since they have the purpose of ensuring fair and equal treatment to all the offeree company's shareholders. This allows the shareholders to make an informed decision on whether to accept the Takeover Bid within the same time frame. For these reasons: -a Takeover Bid is always addressed to all the offeree company's shareholders; -a Takeover Bid's terms and conditions are the same for all the offeree company's shareholders; -from the beginning of every Takeover Bid procedure, the offeror must obey strict transparency and disclosure rules; -the offeree company's directors must respect the passivity rules; -the relevant regulatory Authority monitors the whole Takeover Bid process. Mandatory Takeover Bids raises several issues, including: -how the obligation to make a Takeover Bid arises; -whether there are any exemptions from that obligation; -hoe the mandatory Takeover Bid price and other shareholders' protection issues are dealt with. The legal framework for Takeover Bids. Takeover Bids are regulated differently from one country to another (in UK City Code on Takeover and Mergers and US Securities Exchange Act of 1934). On April 21, 2004 the EC Directive 2004/25 was passed, with the goal of: -harmonising all the different Takeover Bid regulations of the EU countries; -creating EU-wide clarity and transparency about legal issues to be settled in the event of Takeover Bids; -protecting the holders of securities, in particular minority holdings, when control of their companies has been acquired. Such protection is ensured by obliging to make an offer to all the holders of that company's securities for all of their holdings at an equitable price. Regarding mandatory Takeover Bids, the basic rule is that whoever, as a result of one or more purchases, has acquired more than a given threshold of the voting securities of a listed company, is obliged to make a mandatory bid on all the remaining voting securities of that company. The relevant threshold differs from one country to another. Whatever the applicable threshold, only voting shares (that is securities that allow their holders to vote in the general shareholders' meeting) are relevant for purpose of the mandatory Takeover Bid rule. The general rule also applies to: -purchases made through one or more holding companies (“indirect purchase”); -purchases made by persons who, seek to get or consolidate the control of the company through the acquisition of securities in that company (purchases made by “persons acting in concert”). This rule does not apply where the relevant shareholding has been acquired following a voluntary bid to all the offeree's shareholders for all their holdings. Besides, a mandatory Takeover Bid must be made at an equitable price, that is at the highest price paid for the same securities by the offeror, or by persons acting in concert with him/her, over not less than six months and not more than twelve months before the bid. If, after the bid has been made public and before the offer closes for acceptance, the offeror buys securities at a price higher than the offer price, the offeror has to increase the offer to match that price. Under the EC directive, infringement of the mandatory Takeover Bid rules carries two kinds of sanctions: a fine and the suspension of the voting rights attached to the securities already owned by the would-be-offeror. The offeror may acquire securities by paying in cash, with other securities, or combination of both. To ensure that the offeree's shareholders make an informed assessment of the Takeover Bid, the offeror has to draw up and make public an offer document containing all the information necessary for the offeree's shareholders to make a proper assessment. The offer document must include information such as: -the identity of the offeror and of any person acting in concert with him/her; -the terms of the bid; -the consideration offered;

UNIT 13: LISTING ON THE STOCK EXCHANGE – INITIAL PUBLIC OFFERINGS (IPO)

Definition. “Listing” means admitting a company's shares to the official list of a given stock exchange and their admission to trading. As a result of the listing, the shares float and can be continuously and easily bought and sold by public investors. Although most listing occur as a result of a public offering, a listing may also occur in many other circumstances. “IPO” means “Initial Public Offering”, that is the offer of a company's shares for the listing on a public stock exchange. Purposes. Before delving into the most interesting IPO/Listing issues, let us examine how the capital structure of a company is made up. This will allow us to better understand many of the reasons why a company goes public instead of staying private. An IPO may consist in: 1-a share capital increase by the company by the issuance of new shares to be subscribed by public investors; and/or 2-a sale of existing shares by one or more of the company's shareholders. By going public, the company may:

Raise money : to finance the company's expansion plans -or to stay competitive in its current business -without incurring any debt; and/or
Allow its shareholders to realise their investment : by selling (all or part of) their shares to the public investors; and/or
Optimise its capital structure by paying off all (or part of) its debt : a correct balance between equity and debt is vital for the financial well-being of the company, but at some point during the life of a company, an imbalance may occur; therefore, by going public (and issuing new equity, the earnings of which are used to pay off debt), the company may re- align its capital structure. The choice between IPO structures depends on the situation of the company and on its shareholders' nature and needs. Therefore: -if the relevant company has Venture Capital/Private Equity Firms among its shareholders, its IPO will offer the existing shares for sale to allow those investors to sell their stake. The same applies if the company has family founders looking for an exit: instead of selling their stake to another private investor, they may sell part of all of it to investors on a public stock exchange; -in the relevant company is a promising, early-stage business backed by young entrepreneurs who need money to finance its growth and expansion, the IPO will provide for a new issue of shares by a capital increase. In this situation the entrepreneurs have access to a large pool of investment capital and do not have to incur any debt to finance their business' growth. The same holds true for larger companies in need of money to stay competitive. Further elements may lead to listing:
Reputation development : the process of going public and life as a public company require high-standard governance and management by the company. By going public a company gives a signal of high quality, showing its willingness to take the challenge of adopting and keeping these high standards.
Core market visibility : going public enhances the value of an already good market repetition because of the increased coverage by the market and the media a public company receives.
Labor market visibility : being a public company increases opportunities to attract (or keep) experienced managers and employees. Setting up the process. Like the strategic transactions requires an even longer and more complex set-up process by the company. The set-up process can take a year, or even two, from the decision to “go public” to the first trading day. This process aims at verifying if the company: -Needs an IPO (rather than another form of capital increase) to address its capital requirements. -Has a business plan and a competitive position attractive to potential investors and, if not, can develop a plan for how to make them more attractive to maximise both the IPO results and the company's trading performances as a results. -Has a business goal better achievable by a listed company than by a privately-held one. -Is properly organised to tackle all the above issues related to be a listed company and, if not, will learn how to get ready to do it. -Has a management team capable of withstanding the heavy scrutiny it will receive once the company is listed. -Has a management team capable of doing all the activities usually required of a listed company's management, and willing to commit the time and resources to perform these tasks. -And satisfies the regulatory requirements set forth by the relevant stock-exchange listing rules (UKLA, NYSE, NASDAQ) and, if not, has a plan for how to meet those requirements. The requirements vary from stock exchange to stock exchange, but usually, they concern the company's structure (incorporation), its business plan, its accounts record, market capitalisation (that is the value the shares will presumably have once the company listed), its compliance with corporate governance standards, and transparency of ownership. The company needs to seek specific professional advice and, therefore, normally hires the following people:
Business consultants: provide advice on how to organise the company before the IPO to make it more attractive to the market.
Lawyers : provide all the relevant advice regarding the legal issues of the IPO (governance, regulatory issues, etc.).

Auditors : certify the company's accounting documents and provide advice on tax and accounting strategies.
Other consultants : to advise on specific issues that may arise. Once the company has decided to go public, it may hire the following additional advisors, who have the experience to guide and help the company's management through the whole process. After all, a company goes public only once, but the advisors have been through the whole business many times and can help the company in the process with all its facets and nuances:
Sponsor : an investment bank in charge of assessing (under its responsibility) if the company is suitable for the listing given its corporate and capital structure, as well as providing advice on the best ways to structure the IPO. To do so, the sponsor performs its own analyses of the company.
Corporate broker : a bank which acts as an intermediary between the company and the market, providing a vital analysis of the market and the likely response of potential investors to the IPO; as well as stimulating the business community's interest on the IPO.
PR firm : to help influence the image of the business in the media and in public eye. It is important to pay attention to how the market, the public and the press will view the IPO, before and after its completion. The core of the process. Once the decision to “go public” has been made, and while the relevant actions are being undertaken, a process similar to the “dual-track process” discussed for M&A transactions takes place. During this process: -an extensive review (due diligence) of the company aimed at ensuring that is suitable for the listing and at setting the IPO price takes place. In a Listing/IPO, due diligence is as important as in an M&A transaction, because it allows to identify the information to be represented in the Listing documents under the responsibility of the company's directors and of the Sponsor; -documents to be published for the listing are prepared, the most important of which is the prospectus. The prospectus is a long and complex document which sets out a coherent and complete description of the business, its activities and outlooks, financial information and data to be made public before the Listing/IPO. The purpose of the prospectus is to allow potential investors to have a clear view of the company and to assess whether to invest in it by buying or subscribing its shares. Both tracks are highly interdependent and needs the accurate and up-to-date information about the business provided by the due diligence and valuation teams. During the “dual-track process”, new issues concerning the company's corporate and business structure arise. These issues are addressed by the company's management with the help of the relevant consultants and under the supervision of the Sponsor, which is often in charge of coordinating the advisors' work. The prospectus and the role of the authorities. The prospectus is the most important IPO document. It is the document by which the company introduces itself to investors and is the main source of information for them to assess whether to invest in its shares. In drawing up the prospectus, the company must enable investors to make an informed assessment of the company's assets and liabilities, its financial position, profit and losses, prospects and the rights attaching to the company's shares. These requirements are set forth by EC Directive 2003/71 and EC Regulation 809/2004 and are designed to (a) ensure equal standards for the protection of investors throughout the European Union, (b) improve the efficiency of European markets, and (c) broaden the range of intra-EU investments in listed companies by making these companies more easily comparable. An IPO prospectus consists of three parts:
The share registration document : contains general information about the company's structure, business overview, investments and strategic plans, risks, corporate governance, present and future shareholder structure, financial situation and outlook as well as its share capital structure.
The additional pro-forma financial information document : this document is compulsory only in the event of a significant gross change (that is a variation of more than 25% in one or more indicators of the size of the company's business) in the situation of the company due to a particular transaction that has recently occurred, except for those situations requiring merger accounting.
The share securities note : contains a description of the rights attached to the company's shares and the procedure for the exercise of any of these rights, as well as a description of the IPO price and procedures. The prospectus is prepared by the company with the help of the relevant advisors during meetings aimed at ensuring that all the statements reported are correct. All this caution is for protecting these responsible for the information in the prospectus, but also for ensuring that the prospectus represents the company in an appealing fashion to potential investors. Before its publication, the prospectus must be approved by the relevant stock-exchange authority, and, in some cases, by the market on which the company's shares will be listed. Once a draft of the prospectus is ready, it is filed with the relevant national stock-exchange authorities and with the relevant listing market for an inquiry aimed at ensuring that the prospectus contains all the necessary information and complies with the relevant regulations. During the inquiry, the stock-exchange authorities may ask the company to provide extra information or to clarify specific issues. The national stock-exchange authority and the market may approve or reject the prospectus, thus admitting or refusing to admit the company to listing. In the UE, the stock-exchange authority's approval gives the prospectus a “European Passport”, which means that the IPO may be carried out in every UE country without further approval, provided that the relevant stock-exchange authorities are notified.

take their opinions into account, particularly when it comes to making decisions that require the shareholders' approval. This obliges the management to aim for short-term performance instead of long term goals. Otherwise, managers risk being ousted at the shareholders' meeting.

Loss of privacy : the way a listed company is run is under heavy scrutiny by the public, the press and market analysts. Because of this, the company's results, good or bad, are worsened by all the attention the company has from being listed and that may have a big impact on the share price.
Disclosure of information : a listed company has an obligation, under EC Directive 2003/6 and the relevant national provisions of law, to notify the market of any information which is likely to affect the share price. This disclosure must be timely and accurate to ensure that all investors trade the company's shares on the basis of the same information.
Directors' behaviour : the listed company's directors must both ensure compliance with the rules placed on a listed company and comply with their own responsibilities. These responsibilities include (a) a broad set of disclosure rules related to their compensation (salaries, stock-options etc.) and the dealings they conduct in the company's shares, (b) bans on dealing in the company's shares during many periods of the year, (c) monitoring their fellow directors' behaviour and (d) a prohibition on exploiting inside information when dealing in the company's shares.
Financial reporting obligations : listed companies must provide the market with periodic financial statements. These reports must accurately reflect the financial position of the company and, in the case of the annual report, must be fully certified by an Auditing Firm to ensure compliance with financial reporting standards. All European listed companies must now prepare their financial reports in compliance with the International Financial Reporting Standards (IFRS), issued by the International Accounting Standards Board. Companies listed on a U.S. Stock-exchange are still subject to U.S. Accounting standards, the U.S GAAP, and to the 2002 Sarbanes-Oxley Act.
Transaction disclosure : because of the duty to disclose price-sensitive information, a listed company must give the market extensive, information about all major strategic transactions it is involved in, whether they require shareholder approval or not.
Compliance with the best practices : to comply with applicable laws and regulations, listed companies must often abide by a wide range of practices and codes of conduct that improve their relations with the public and the business community. This benefits their share price as well as their core business results, as how the company reacts to non- business issues (corporate governance, social responsibility, environmental, labour and consumer protection, etc.) is nowadays very important and deeply influences the public's perception of the company.
Relationship with investors and media : the above issues are dealt with by enforcing proper corporate governance principles and guidelines within the company -as well as proper corporate policies concerning all the relevant issues- but also by planning and effectively communicating these principles and policies to the public, the press and the whole business community. This keeps interest in company high and growing, to the benefit of both the share price and the company's business.
Monitoring shareholders' activity : management must always be well aware of how the shareholder base is structured (the balance between institutional investors and private individuals and the single investor's shareholding), to better assess any issues about relationship among shareholders and spot early any stake-building in preparation for a potential take-over.
Dividend policy : from a financial point of view, an investor buys shares in a listed company hoping for a return given by the increase of the company's share prices and/or by the dividends yielded. On the other hand, a company may opt to pay out dividends (that is usually the case of privately-held companies with few large shareholders) or not to pay out dividends to retain cash for further investments that will pay off in the long term. Thus, the company's management faces the choice between the immediate satisfaction of the shareholder base (an annual dividend payout) and long-term management logic.
Footing the “compliance bill” : addressing the above issues comes at a substantial cost: the cost of the time the company's management devotes to these matters and the fees to be paid to the relevant advisors. The willingness to foot the “compliance bill” is often a primary concern when it comes to making the decision to “go public”. A listed company has broader access to capital than a privately-held company, as the following may occur:
Follow-on offerings : the company may issue more shares (“right issue”) whenever it wants to finance further growth without incurring debt.
Issuance of bonds : a listed company can issue bonds or other debt securities more easily.
Acquisition currency : listed shares may be used to pay for later corporate acquisition deals.
Visibility : being listed improves the visibility of the Company and eases it access to “traditional” forms of financing. Besides, existing shareholders may sell part of their shareholding later if they so choose. Special listing. Not every listing is preceded by an IPO. In reality, an IPO occurs every time the company's shares are not widely distributed among the public investors and there is a need to enlarge the shareholders' base, either to meet regulatory requirements or to raise capital. In addition, a company that is already listed on a stock-exchange may cross-list on another market to increase its liquidity and visibility. Hot words.
Dividends : the portion of the earnings of a company that it distributes to its shareholders.
Entrepreneur : a person who assumes the risk of a business enterprise.
Float [to] : to be admitted to trading on the stock-exchange.

Go public [to] : to acquire admission to an official stock-exchange listing by offering shares to the general public.
Institutional investors : legal entities whose corporate purpose is solely to invest in securities (such as credit institutions, investment firms, insurance companies, collective investment schemes and their management companies, pension funds and their management companies, commodity dealers, etc.).
Listed company : a company whose shares are admitted to trading on a Stock-exchange.
Price-sensitive information : information which, if made public is likely to have a significant effect on the price of a company's shares.
Stay private [to] : not being admitted to an official stock-exchange listing, and therefore not being allowed to offer shares to the general public.
Stock-exchange : an organisation which provides stock brokers and traders with the facilities to trade companies' shares.
Stock-options : a form of non-cash compensation for companies' managers by which the managers are permitted to buy their company's shares at a set price.

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