A company seeking to list and trade its securities on ASX must meet the ASX admission criteria on structure, size, financial performance or position and shareholder numbers. As part of the IPO process, the legal advisor to the issue will assist the company in preparing the application for the initial ASX in-principle determination (to determine whether the applicant company is a suitable candidate), and later in the preparation of the ASX application for admission. Where ASX clarification or relaxation of any listing criteria is required, it is recommended that this be sought in the initial ASX in-principle determination.
Pre-planning should include a compliance audit of the ASX listing criteria against the company’s size, operations, and general circumstances to ascertain whether the company will be in a position to meet the ASX listing criteria once the IPO is completed.
The pre-requisites for admission to the ASX require a company to:
- have an appropriate structure and business model;
- have a constitution consistent with the ASX Listing Rules;
- be a minimum size or meet minimum financial requirements;
- raise money – generally under a prospectus;
- have at least 300 security holders, who:
a. are not a related party of the company in question; and
b. hold a parcel of shares in the company with a value of at least $2,000;
- comply with certain standards with respect to its corporate governance and policies;
- meet the minimum financial requirements imposed by ASX which requires a company to satisfy:
a. a Profits test (track record of profitability based on audited accounts); or
b. an Assets test (net tangible assets of at least $4 million or market capitalisation of at least $15 million).
ASX will give some initial guidance on whether a company is likely to meet this criterion on receipt of an in-principle determination application that is prepared and lodged as part of the initial IPO preparation. ASX will then assess whether this criterion has been satisfied once the IPO funds have been raised.
In this alert we will discuss some of these listing requirements.
Appropriate structure and business model
Your company’s structure and operations must be appropriate for a listed entity. This is a general "catch all" requirement imposed by ASX and is usually discharged if ASX is satisfied the principles on which the Listing Rules are based, are able to be complied with and where your company has met the other listing requirements. These principles upon which the ASX Listing Rules are based, are broadly designed to reflect the interests and expectations of listed companies, to protect investors and maintain market transparency and integrity.
ASX provides a comprehensive list of examples where an application may not have a structure or operations appropriate for a listed entity. ASX is typically concerned where the entity’s business model is vague, the entity may be insolvent, or its board composition and structure is questionable. ASX will also pay close attention to the applicant’s operations and particularly, whether those operations are legal and able to be substantiated.
Most start-up or smaller companies that have not previously raised capital from the public are proprietary companies. A company must be a public company to raise money from the public. If the company is a private (proprietary) company, it will be necessary to convert it to public status prior to listing, in order to allow the company to raise capital from the public.
Constitution consistent with the ASX Listing Rules
Your company must have a constitution which is consistent with the ASX Listing Rules. As part of the IPO process, an entity will need to update or replace its constitution to ensure that it:
- conforms with the ASX Listing Rules;
- is appropriate for an ASX listed company.
If your company has (or is likely to have) any restricted securities on issue, your constitution must contain certain provisions relating to the escrow and disposal of those securities.
Minimum financial requirements
The ASX Listing Rules provide certain minimum financial thresholds that need to be met in order to be admitted to the Official List of ASX.
To be admitted to ASX, your company must satisfy either the:
- Profits test; or
- Assets test.
To satisfy the Profits test your company must satisfy each of the following:
- “going concern”;
- consistent commercial activities;
- financial accounts;
- aggregate profit;
- previous year's profit; and
- a directors' statement.
To meet the Assets test, your company (provided it is not an investment entity) must satisfy each of the following:
- net tangible assets;
- conversion of cash raised;
- working capital requirements; and
- financial accounts.
Corporate Governance and policies
On applying for admission to ASX, your company must provide to ASX a statement disclosing the extent to which it will follow, as at the date of its admission to ASX, the corporate governance recommendations set out by the ASX Corporate Governance Council.
If your company does not intend to follow the Corporate Governance Council’s recommendations, it must produce to ASX an “if not, why not” statement. An “if not, why not” statement must identify each separate recommendation that your company has elected not to follow, state its reasons for not following the recommendation and if there are any alternative practices it intends to adopt instead.