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Relaxed rules ease small firm funding. By Dan Martin

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16th May 2006
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Small businesses have welcomed the relaxation of rules making it easier for them to raise money on the UK stock market.

Yesterday, the Pre-emption Group, which represents listed firms, investors and intermediaries, announced the relaxation of pre-emption rules which give existing shareholders first refusal when a company issues new shares.

Under the previous regulations, companies looking to raise over 5% of share capital had to refer to existing shareholders who would often disapprove the action.

According to the new guidelines, the pre-emption rights remain but investors will have to discuss the issue with companies and make decisions on a case-by-case basis.

The new guidance is likely to particularly benefit cash-hungry companies in sectors like biotechnology and technology.

John Aston, from the BioIndustry Association which has been campaigning for three years for the rules to be relaxed, said: "The Statement of Principles provides the framework for a positive and constructive interaction between companies, their shareholders and voting advisory services on this important topic. What is now critical is how this is applied in practice."

Under the new Statement of Principles the following applies:

  • Shareholders have a responsibility to engage with companies to help them understand the specific factors that might inform their view on a non-pre-emptive issue by the company. They should review the case made by companies on its merits and decide on each case individually using the usual investment criteria
  • A degree of flexibility is appropriate in circumstances where new equity issuance on a non pre-emptive basis would be in the interests of companies and their owners
  • Companies have a responsibility to signal an intention to seek a non-pre-emptive issue at the earliest opportunity and to establish a dialogue with the company's shareholders
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