UK: FAQs By Founders Or Controlling Shareholders Of Companies Considering An IPO On The London Stock Exchange

1. Why do I need separate advice given my company will be engaging advisers for the IPO?

There are a number of areas where your interests as founder/controller and those of the company conflict. Once a company is listed, you will have to answer to the independent non-executive directors on the board and you will have to sign up to a relationship agreement pursuant to which you will have to agree to deal with the company on an arm's length basis. Another issue to bear in mind is that the board of the company will be less motivated than you to achieve the highest possible issue price for the shares on the IPO and, for that reason, we would recommend that a financial adviser independent of the bookrunners is appointed. You should also ensure that your personal position is protected, for instance, as regards any liability you may be asked to take on under the representations and warranties in the underwriting agreement. There may also be non-core assets which you wish to extract from the group prior to IPO or businesses outside the group which the bookrunners insist should be part of the listed group. You will therefore need to negotiate the terms of any such pre-IPO reorganisation and you need independent legal representation to ensure that the reorganisation is implemented on terms favourable to you.

2. What level of confidence can I have in the bookrunners' views on valuation?

For larger IPOs, we would usually recommend that companies seeking a listing ('issuers') take advice from an independent investment bank who can look over the shoulders of the bookrunners and ensure that they are not leaving too much money on the table for investors. The perceived wisdom is that it is sensible to price an IPO so that the share price rises immediately following admission to the market because if a stock starts trading at below its issue price, it is much more difficult to subsequently regain investors' confidence in the stock. Typically an IPO would be priced around 5% below the expected market price at the end of the first day's trading. There is an inherent conflict, however, in banks keeping their key clients who are investing in the IPO happy (through an uplift in value in their investment following the IPO) as opposed to making sure the founders/controlling shareholders receive full value for their stock (which reduces the profits made by the investors).

3. What obligations will I have to take on as part of the IPO process?

3.1 Lock-in

You will be asked to enter into a lock-in arrangement pursuant to which you are not able to sell your shares for a period of time, normally a minimum of 6 months on a premium listing. You would usually want to negotiate in some carve outs to any such lock-in e.g. to allow you to transfer shares into a family trust or foundation or to family members.

3.2 Representations and warranties under the underwriting agreement

The bookrunners will require warranties from the founders/existing controlling shareholders that they believe that the prospectus contains all necessary information to enable investors to make an informed assessment of the assets and liabilities, financial position, profits and losses, and prospects of the company and the rights attaching to its shares. A raft of other warranties relating to the IPO process and the company's business would also customarily be included. If the founders/owners have stepped away from the day to day running of the business and/or they are not on the board, they would want to ensure that any warranties were qualified by their awareness and, in any event, their liability should be made subject to limitations both as regards the length of time in which warranty claims can be brought and their overall limit of liability.

Statutory liability as a director of the company

If you are a director of the company, you will be required to take responsibility for the information in the prospectus and be a party to the underwriting agreement (in your capacity as a director) as the bookrunners will require the directors to give warranties, as they will with the founders/existing controlling shareholders. We can supply you with a detailed memorandum on the liabilities of directors of a company on a premium listing on the main market of the London Stock Exchange upon request.

3.3 Service agreement/letter of appointment/non-competition

Normally a new arm's length service agreement or letter of appointment would be put in place in anticipation of the IPO. You would want to ensure that you had the benefit of a separate contractual indemnity for directors' liabilities from the company and ensure that the company maintains cover for you under a directors' and officers' insurance policy. You would also want to review the provisions of any service agreement or letter of appointment. Typical issues to negotiate in a service agreement include termination provisions, the ability for the company to put you on garden leave, the scope of your duties and your overall compensation package. You may also be asked to enter into a non-competition deed which would need to be carefully reviewed.

3.4 Stock-lending agreement

The bookrunner acting as stabilising manager, ie acting to support the price of the company's shares following admission, may request the founders/existing controlling shareholders to enter into a stock lending agreement in respect of a portion of their retained shares. A lead manager will typically over-allot shares, ie pre-sell more than 100% of the issue, leaving the lead manager with a net short position. The lead manager will then close out its short position by buying shares in the market but if the price rises above the issue price, it can borrow shares under the stock lending agreement instead to sell to investors and acquire further shares from the company under an option known as a Green Shoe Option. The terms of the stock lending agreement need to be reviewed, the counterparty risk considered and you would want to negotiate the payment to the issuer of a proportion (perhaps 50%) of the trading profits and commission earned by the stabilising manager from trading in the shares lent pursuant to the stock lending agreement.

4. What role can I and other members of my family have in the management of the company post-IPO?

Companies with a premium listing are required to either comply with the UK corporate governance code or explain why they do not comply. The bookrunners will generally be keen for there to be at least two non-executive directors in addition to the chairman of the board, for there to be a separate chairman and chief-executive and for the company to have a finance director who is experienced in acting as a finance director of listed companies. For larger companies, the bookrunners will want to see half the board, excluding the chairman, comprising independent non-executive directors. Where you and your family and other persons acting with you or associated with you retain a 30% or greater stake in the company post IPO, a relationship agreement will need to be put in place which will require you to ensure that all arrangements between you and connected persons with the company are on an arm's length basis.

You may also want to consider putting in place a concert party agreement pursuant to which controlling shareholders give each other a right of first refusal on share transfers and potentially agree how to vote on certain issues. Any such agreement would need to take into account the provisions of the UK takeover code given that transfers or acquisitions of shares by a concert party could trigger a requirement on the controlling shareholders to make a mandatory offer for the company.

5. Do I need to address the structure of my holding above the company in view of the potential liabilities identified above and for tax reasons?

It is important that you take steps in advance of the IPO to adopt the optimal structure for your holding, both commercially and from a tax point of view.

At the very least you will need to ensure that the jurisdiction chosen for the IPO vehicle does not jeopardise your personal tax position or, if that is not possible, ensure that it is held through an appropriate holding structure to shield you from any unwanted liabilities.

If you remain a significant shareholder in the company following the IPO, any restructuring that you engage in is likely to need to be disclosed to the market and may require a waiver from the Panel on Takeovers and Mergers. For this reason, it is advisable that any new holding structure is adopted before the listing.

In the UK, there are also a number of tax reliefs that are only available to private rather than listed companies, particularly for individuals looking to establish long term family holding structures, such as trusts or partnerships. Therefore it is advisable to ensure that all steps necessary to establish such structures are completed in advance of the IPO.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions