Recent weeks and months have seen regular coverage on the growing trend of large UK based companies exploring listings on US stock exchanges such as New York Stock Exchange (NYSE) and Nasdaq at the expense of the London Stock Exchange (LSE). ARM have recently announced their intention to seek a listing in New York after prolonged lobbying by the UK government and other key industry players to pursue a UK listing or a dual US-UK listing. YouGov and CRH are among other UK firms reported in the business press to have been wavering between London and New York with high profile listings on LSE being at a premium since the heady days of 2021.
The respective merits of the stock exchanges in London and New York to one side Jersey companies have long been a popular vehicle for listings on LSE, NYSE and NASDAQ as well as other stock exchanges in Europe, North America and Africa. Jersey companies have been a mainstay on the LSE for many years (and make up the biggest group of companies on the FTSE 100 outside of English companies) and in recent years there have been a number of examples of Jersey companies obtaining a listing in New York (particularly on NASDAQ).
This note looks at the key features of Jersey company law and the wider regulatory regime in Jersey which make a Jersey company a popular vehicle to list on LSE, NYSE and NASDAQ bring to market in London and New York.
Following extremely high levels of activities on public markets during the pandemic years 2022 was a year to forget for the global IPO market. According to EY1, the number of global IPO deals slumped 45% in 2022 to 1,333, with firms raising just $179.5 billion, a 61% decrease on the year before.
Whilst now, more than ever, it is difficult to predict where financial markets are headed there are reasons to be optimistic that the volatile market conditions that led to the drop off in IPO activity in 2022 are stabilising and as a result IPO activity could begin to gather some momentum in that second half of 2023 and into 2024.
Jersey companies on international exchanges
According to Jersey Finance2 as of 30th June 2023 there are at least 75 Jersey incorporated companies listed on worldwide stock exchanges from London to New York with a combined market capitalisation of approx. £174 billion.
Those figures include 64 companies listed on the LSE (42 on the UK Main Market and 22 on AIM), as well as companies listed on the NYSE, NASDAQ, Toronto Stock Exchange, Euronext and HK Stock Exchange.
In addition, Jersey companies are approved for listing in additional markets including the Chicago Stock Exchange, the Johannesburg Stock Exchange, and NYSE Euronext Paris.
Advantages of Jersey companies for international listings – flexible corporate law regime
One of the main reasons that £174 billion worth of public companies on international exchanges around the world have used a Jersey company as their listing vehicle is the flexibility of the Jersey's companies law (the Companies (Jersey) Law 1991), which is based on the English law – and therefore familiar to onshore counsel in London, with some key benefits, including:
Distributions: there is no concept of 'distributable reserves' under Jersey law and distributions can be funded from any account of the company (other than a nominal capital account or capital redemption reserve account) so long as the directors approving the distribution are satisfied that the company is able to carry on its business and discharge its liabilities as they fall due for 12 months after the distribution. The process is the same for the repurchase of shares i.e. this simply requires a cash-flow solvency test is met. The ability to fund distributions(and repurchase of shares) from such a variety of sources is an advantage when compared with companies incorporated in other jurisdictions which are subject to more stringent capital maintenance requirements and would be attractive to a company seeking to adhere to a consistent dividend payment schedule.
The Takeover Code: the UK City Code on Takeovers and Mergers (Code) applies if any of the securities of a Jersey company are listed on a regulated market or multilateral trading facility in the UK or on any stock exchange in the Channel Islands or the Isle of Man (which includes being listed on the main board of the London Stock Exchange and on AIM). A Jersey company which has shares listed on other exchanges may also be subject to the Code if the UK Takeover Panel considers that the company's management and control is in either the UK, Jersey, Guernsey or the Isle of Man. The Code is a constantly evolving framework designed, amongst other things, to offer investor protection which is a desirable objective as far as many investors are concerned.
Disclosure obligations and mandatory offer provisions: Jersey law does not impose any requirements on Jersey listed companies with regard to disclosure obligations on ownership of shares or in respect of any mandatory offer regime. As a result Jersey companies are free to tailor their constitutional documents to reflect the relevant rules of the stock exchange. For example it would be quite common to see the provisions of s.793 of Companies Act 2006 incorporated into the articles of association of a Jersey company listed on LSE and other European exchanges.
Options for an exit: Jersey law also offers a variety of methods to implement a take private transaction of a Jersey listed company. In addition to takeover bids and members schemes of arrangement (which are also available under English law) it is possible under Jersey law to implement a take private transaction under the merger provisions of Companies (Jersey) Law 1991 which is becoming an increasingly popular method for implementing a take private transaction.
Advantages of Jersey companies for international listings – robust financial services infrastructure
Besides the favourable corporate law regime Jersey also offers other benefits for international listings, including:
Cooperative and experienced regulator: an admission document circulated prior to the listing of shares of a Jersey incorporated company is likely to constitute a prospectus under Jersey law and accordingly the consent of the Registrar of Companies in Jersey (Registrar) must be sought prior to its circulation. Any prospectus must contain certain disclosures and investment warnings which are not particularly onerous and will be familiar to professionals in the equity capital markets space. The Registrar is very experienced in reviewing and approving prospectuses and as a result the application process is efficient and the required consent can be expected within 5 business days.
Ease of trading: shares in a Jersey company listed on LSE can be traded through the CREST system as Euroclear UK & Ireland Limited is a recognised 'overseas operator' for the purposes of the Companies (Uncertificated Securities) (Jersey) Order 1999. At the time of writing we understand there to be 3 service providers in Jersey offering CREST enabled share registrar services. For a Jersey company listed in New York (on NYSE and NASDAQ) shares can be traded in dematerialised form via US direct registration system known as 'DRS'. It is also possible for shares to be held in 'street name' through Depository Trust Corporation known as 'DTC'.
Favourable tax treatment: whilst it would be unusual for a Jersey listed company to be Jersey tax resident if it was it would be subject to a rate of income tax at zero per cent (thought certain businesses may be taxed at 10 per cent or 20 per cent). Jersey companies are not required under Jersey law to make any withholding or deduction on the payment of dividends or interest payments to non-Jersey resident shareholders or lenders.
Similarly no stamp duty is payable in Jersey on the transfer or issue of shares in a Jersey company. Where a Jersey company is listed on LSE we understand that no UK stamp duty would be levied on the transfer of shares provided that the register of members of the company is maintained in Jersey, as mentioned above there are 3 service providers in Jersey offering CREST enabled share registrar services.