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Company Flotation Definition

When a company decides to list its shares on a stock market it has to go through an elaborate process before its shares become quoted. The final act of listing is known as a flotation.

• The company publishes a prospectus describing its business, who its directors are, what its financial position is, and what profits it thinks it is going to make. The information it includes has to conform to strict guidelines so that potential investors are not misled.
• The prospectus announces the issue of new shares, sets an offer price for the shares, and invites subscriptions. In some cases, a company won't actually set a price for its shares, but will have an 'offer by tender' - effectively an auction in which investors bid for shares.

In a flotation a company raises money by issuing new shares in what is known as the 'primary market'. Once the shares are listed, further trading in them occurs in the 'secondary market' - secondary in the sense that it is a second stage market between investors that doesn't involve the company itself.

What to consider when floating company on stock market

The flotation process

• Choose the right advisers to guide you through the process.
  Make sure your accounts and legal structure comply with the rules and regulations of the market you're joining.
  Nominate someone in the company - typically the finance director - to take responsibility for the process.
  Decide what type of flotation you want. An introduction is the easiest and cheapest option, and is used if enough of a company is already in public hands - perhaps for a move from AIM to the Main Market, for example. In a private placement your shares are offered to selected institutional investors. This allows you to raise capital with lower costs - but the reduced shareholder base could mean a reduced market in your shares further down the line. In an initial public offer (IPO) shares are offered to the public and investing institutions. This can help you raise more capital but is the most expensive route to market.
• Prepare a prospectus which will contain the key information about the company and the share offering. Remember that you're legally responsible for the accuracy of any information within this document.