The opportunities for small and medium enterprises (SMEs) listing on the junior stock exchange vary from access to capital, expansion through equity rather than debt; full tax exemption on profits for the first five years after listing, and tax on 50 per cent of profits for an additional five years.

The details of the tax benefits are to be announced by the Jamaican Government.

These opportunities are in addition to advantages presently enjoyed by all listed companies, including exemption of transfer tax and stamp duty on the transfer of shares traded on the exchange, and from tax on dividends.

The only way for a SME to list on the junior exchange created by the Jamaica Stock Exchange (JSE) is by an initial public offering which requires the filing of a prospectus.

A prospectus is basically a statement to the public of the present status and the future prospects of the company.

The procedure, which in some cases may be complicated, time consuming and expensive, will be somewhat simplified by the use of a 'shelf prospectus' and other documents required for listing provided by the JSE on its website. The effect of this initiative is to make the IPO less daunting and expensive.

The JSE has announced that the listing fees will also be up to 50 per cent lower than the fees payable by a company to list on its main board.

To qualify for listing, the SME must have share capital of no less than $50 million and no more than $500 million and it should have at least 25 shareholders holding no less than 20 per cent of its issued share capital.

Where a SME fails to maintain at least this minimum share capital and the number of shareholders, the JSE rules provide that they be delisted.

An SME must also have a 'mentor' on the board prior to listing, which, as the word implies, is a personwho holds the proverbial 'hands' of the company through its tenure on the JSE. The mentor guides and assists the SME to ensure the company stays within the requirements of a listed company, that is, be compliant with the rules.

However, an SME must be eligible to apply to list and to ready itself to do so - somewhat like a child preparing for first communion! That is, it must be in a particular state to be admitted to the fold.

Where an SME is a private company it must convert to a public company because:

A private company may not have more than 20 shareholders and to list, as mentioned above, it must have at least 25 shareholders; and,

A private company may not make an offer to the public to subscribe for its shares as it is required to do by way of a public offering or IPO to become listed.

Where an SME has articles of association it must adopt new articles of incorporation which contain certain provisions mandated by the JSE rules. The rules include a provision that there must be no restrictions on the right to transfer the shares which is an important criterion for any company that is to have its shares traded across the floor of a stock exchange.

On the conversion of an SME to a public company, it must have at least a minimum paid-up share capital of $500,000 in order for the company to obtain a certificate from the Registrar of Companies to carry on business.

The profit and loss accounts and the balance sheet statements for five years preceding the issue of the prospectus must be available for auditors to prepare a report on the financial status of the company regarding those years to be placed in the prospectus for the scrutiny of the public invited to invest in the company.

Board changes

Where the SME is a 'family' company which normally comprises a small board of family members and/or connected persons, the board should be reconfigured to comprise at least three members, preferably with at least one non-executive director who has a reputation for good corporate governance and business acumen in the particular business or for business generally.

A competent secretary must also be appointed to serve the board.

The decision, whether to list or not, involves a mix of business, legal and emotional issues.

The board of an SME should prepare itself to accept that as overseer of a listed company, it has to change its 'mind-set' from accountability to a few to accountability to hundreds of shareholders, and that the company will be required to file quarterly and annual financial reports with the JSE on a timely basis, failing which the company may be delisted.

The mentor can also assist the board of an SME in making this important mental transition.

Janet E. Morrison is an attorney with the law firm DunnCox in Kingston.

janet.morrison@dunncox.com