Transferring a company’s listing from AIM to the Equity Shares (Commercial Companies) (ESCC) category on the Main Market of the London Stock Exchange (LSE) is often said to offer numerous benefits, including increased access to capital, enhanced liquidity and greater investor confidence. This briefing outlines the process and requirements for an AIM company to transfer its listing to the ESCC category under the new UK Listing Rules (UKLR) which became effective on July 29, 2024. (See also our article: What you need to know about changes to the UK Listing Rules.)

Key reasons for transferring

There are several compelling reasons why an AIM company may want to transfer its listing to the ESCC category, including:

• Increased profile and media coverage: Admission to the Main Market can significantly boost a company’s profile through additional research analyst coverage and enhanced media coverage. This can help attract a wider pool of potential investors.
   
• Inclusion in FTSE indices: An ESCC listing on the Main Market is required for inclusion in the FTSE UK Index series, which can attract passive investment from FTSE index-tracking funds.
   
• Increased liquidity: The wider investor pool and potential inclusion on the FTSE indices can lead to increased liquidity in the company’s shares.
   
• Increased investor confidence: The stricter regulatory requirements and corporate governance standards of the Main Market can enhance investor confidence.
   
• Market capitalization: The Main Market is generally more suitable for companies with larger market capitalizations.
   
• Equalization of continuing obligations: Before the new UKLR became effective, some companies were attracted to AIM because its rules on significant transactions and related party transactions were more flexible than under the UKLR, as shareholder approval was not required. However, the new UKLR has changed the rules on significant transactions and related party transactions to a disclosure-based regime, which has made the regime under the UKLR considerably less onerous.
   
• Diminishing tax reliefs on AIM: One of the advantages of an AIM listing is that AIM shares currently qualify for 100% business property relief if they are held for more than two years. However, from April 2026, this relief will reduce to 50%, resulting in an effective inheritance tax rate of 20% for AIM shares, which is a less attractive proposition for founder-owned AIM companies.

Eligibility criteria

To transfer to the ESCC category, an AIM company must meet specific eligibility criteria set out in the UKLR, including:

• Market capitalization: The company must have an expected minimum market capitalization of £30m ($39m).
   
• Controlling shareholders: If the company has a shareholder who holds (together with any person with whom they are acting in concert) 30% or more of its voting rights, it must demonstrate that it is able to carry on its main business activity independently from such controlling shareholder at all times.
   
• Free float: A minimum of 10% of its shares must be held in public hands.
   
• Shareholder pre-emption rights: Shareholders must have pre-emption rights.

Process for transferring

The process for transferring an AIM listing to the ESCC category involves several key steps:

• Appointment of a sponsor: The company must appoint a sponsor to provide a formal declaration to the FCA, confirming that:
  • the company has satisfied all relevant requirements of the Listing Rules and the Prospectus Regulation Rules;
  • the directors have a reasonable basis on which to make the working capital statement in the prospectus;
  • the directors have established procedures to enable it to comply with the Listing Rules, the UK Market Abuse Regulation (UK MAR), disclosure requirements and transparency rules on an ongoing basis; and
  • the directors have established procedures which provide a reasonable basis for them to make proper judgments on an ongoing basis as to the financial position and prospects procedures (FPPP) of the group.
• Appointment of other advisers: The company will need to appoint lawyers as well as reporting accountants. The sponsor will also need to appoint its own lawyers.
   
• Preparation of a prospectus:
  • A prospectus is required for admission to the Main Market which must be prepared in accordance with the content requirements set out in the Prospectus Regulation Rules. It must be approved by the FCA before it can be published.
  • If the company has published a recent AIM admission document, this may help streamline the process, as the content requirements of an AIM admission document are based on the requirements for a prospectus. However, certain information is not required in an AIM admission document, such as the operating and financial review and pro forma financial information, so there may be significant additional work required.
• Due diligence: The extent of legal and financial due diligence on the company will depend on the particular circumstances. Factors that will determine the level of diligence include the sponsor’s familiarity with the business (for example full due diligence is less likely to be required if the sponsor has been the company’s nomad for several years), whether the company has carried out any recent significant acquisitions and how recently it completed its AIM IPO.
   
• Corporate governance review: Assuming the company currently adopts the QCA Corporate Governance Code (QCA Code), it will need to switch to the UK Corporate Governance Code (UKCGC) on its admission to the ESCC category. The company will need to review its current corporate governance arrangements and implement any necessary changes. For example, the UKCGC requires at least half the board, excluding the chair, to be independent non-executive directors. Whereas the QCA Code requires at least half the board to be independent non-executive directors (and the chair may be included in this calculation, if independent upon appointment and still considered to be independent).
   
• Comfort package: To enable the sponsor to give its declaration to the FCA, it will typically require comfort letters from the company, its lawyers and the reporting accountants, as well as private reports from the reporting accountants on working capital and FPPP. The sponsor will also require the company to enter into a sponsor’s agreement pursuant to which the company will give customary business warranties and an indemnity in favour of the sponsor.
   
• Cancellation of AIM Admission: The company must announce the intended cancellation of its AIM admission and notify the LSE of its preferred cancellation date at least 20 clear business days before such date. The cancellation is conditional on the consent of not less than 75% of votes cast by its shareholders, unless the LSE agrees that shareholder consent is not required. Where the company is transferring its shares to the Main Market, we would typically expect the LSE to waive the requirement for shareholder approval.
   
• Application for admission to the ESCC category: The company must submit an application for admission to the ESCC category, including the prospectus and other required documents. The application must demonstrate that the company meets all relevant eligibility criteria.
   
• FCA approval and admission to trading: The FCA will review the application and, if satisfied, approve the prospectus and the admission of the company’s shares to the ESCC category. The shares will then be admitted to trading on the Main Market by the LSE.

Commentary

The run up to the UK government’s October 2024 budget saw lots of speculation that business property relief would be removed in full for AIM shares, leading to several boards of AIM companies considering whether to move to the Main Market in response, with reports that the removal of the relief in full would lead to as much as a 20% to 30% decline in the value of the AIM market.

Whilst the change in business property relief has not been as severe as some in the market feared, it remains to be seen what impact the change will have on the market as a whole, and whether we will see more AIM companies seek to transfer their listing to the Main Market.

Jack Shepherd is a partner in the Corporate Team; Kate Badr is a partner in the Corporate Transactions team; Alasdair Steele is a partner in the Corporate Team and and head of Equity Capital Markets; and James Parkes is a partner in the Corporate Transactions group.