Should the company be listed on a stock exchange?

A stock exchange listing basically means that a company's stocks are registered and made tradable on a stock exchange. One of the first tasks for a company that wants to be listed is to decide where it will apply to be listed. Should it be in Denmark or abroad? And should it be on the main market or a growth exchange? And which exchange specifically should it be on?

For the smaller companies, Nasdaq’s growth exchange Nasdaq First North Growth Market (First North) has played an important role since 2006 by offering a marketplace that is subject to fewer requirements and regulations. If a company wants to be listed on the stock exchange through First North, it can restrict itself to preparing a company description rather than an actual prospectus.

NEW OR EXISTING SHARES?

Another question in the initial phase concerns whether the company should list existing shares or issue new shares. Or whether it should be a combination. If the aim of the listing is to raise capital for the company, new shares must be issued. Existing shares have already been issued and are typically owned by founders and third parties who have invested in the company prior to the listing. The stock exchange listing will often involve existing shareholders who are obliged not to sell their shares or a significant part of them for a period (usually 1 year from the stock exchange listing). Such a restriction is called a “Lock-up”.

WHICH ADVISORS DOES THE PROCESS REQUIRE? 

The decision to list a company starts a long and demanding process involving several institutions and external advisers. Most companies collaborate in this process with a financial advisor, a legal advisor and the company’s own or a special auditor hired for the task. If the listing takes place at First North, it is a requirement that the company also make use of a certified adviser.

The financial advisor typically leads the process around the listing and helps the company make decisions about e.g., capital structure, volume and asking price. It is also the financial adviser who handles the work with the prospectus and advises the management on the allocation and pricing of the shares.

The legal adviser helps to ensure that the company’s legal affairs are compliant through its own due diligence, review of selected parts of the prospectus and implementation of the corporate law part of the stock exchange listing.

The auditor’s work is typically concentrated on statements and other documents about the company’s financial affairs. If the company is listed on First North, it is also a requirement that it collaborates with a certified adviser, who must ensure that the smaller companies also meet the entry requirements and the obligations that come with an IPO on First North.

NO REQUIREMENT FOR A PROSPECTUS IN SMALLER TENDERS

One of the major tasks in connection with an IPO is the preparation of the company’s prospectus. The prospectus is a legally binding document with information about the company, so investors can form an impression of its assets and liabilities, financial position, expected development and prospects. The Danish Financial Supervisory Authority and the relevant stock exchange must approve the prospectus before the company can proceed with the process.

In Denmark, we have made the rules regarding prospectuses a little easier for smaller companies, as they are only required to prepare a prospectus if the share offering is over 8 million euros. But even if it is not a requirement, many still choose to follow the regulations in the EU prospectus regulation, because it signals the seriousness of their approach to the stock exchange introduction.

EVERYDAY AS A LISTED COMPANY

The fact that a company has been listed on the stock exchange does not change its basic purpose – creating value for its owners.

But when a company is listed on the stock exchange, it changes several conditions surrounding the company’s management and operation – especially regarding handling information, knowledge, stock trading and insiders. A listed company has a duty to inform the market first and to a sufficient extent about all decisions and circumstances that may have an impact on the price. It requires discipline in all parts of the company and an organization that must deliver on the many requirements and regulations.

The article was published in Ind§igt in June 2022.