The AIM Rules for Companies (the 'AIM Rules') set out the continuing obligations of a company on AIM. The company needs to retain certain advisers, most importantly a Nominated Adviser ('Nomad'), to maintain a transparent market in the company's securities and ensure compliance with the continuing obligations rules. There are various other rules and regulations which may apply to a company's ongoing life on AIM, depending on the company's country of incorporation.

A company must retain a Nomad at all times. There is a complete list of approved Nomads on the London Stock Exchange website. The Nomad is responsible to the London Stock Exchange (the 'Exchange') for assessing the appropriateness of a company on AIM and for advising and guiding an AIM company on its responsibilities under the AIM Rules.

A company is required to seek advice from its Nomad and provide any information the Nomad might require in order to carry out its responsibilities under the AIM Rules. For example, a company must provide advance copies of all proposed changes to the board and notifications required under the AIM Rules. A Nomad must maintain regular contact with the board of the client company. This can include attending certain board meetings and monitoring internal company forecasts and trading figures as well as consulting on strategy and all other matters relating to management of the company.

The Nomad should be the first point of contact for the directors of an AIM company regarding any regulatory, market or corporate issue. The Nomad will then advise the company how to deal with those issues, in consultation with the relevant regulators where necessary, to ensure compliance with the AIM Rules. It is usual, but not always the case, that the company's Nomad is also the broker to the company.

If a company ceases to engage a Nomad and a replacement Nomad is not appointed immediately, the Exchange will suspend the company from trading on AIM with immediate effect. If a replacement Nomad is not appointed within one month, admission of those securities will be cancelled.

An AIM company is required to retain a broker at all times. A company may retain more than one broker.

In order to maintain a fully transparent mechanism for trading, the AIM company must ensure that its securities are freely transferable and appropriate settlement arrangements have been put in place. AIM securities must be eligible for electronic settlement unless otherwise agreed with the Exchange. Application must be made for the admission of all securities within a class and the securities must be unconditionally allotted in advance of admission.

An AIM company is required to pay fees set by the Exchange at the required time. Furthermore, contact details including an email address must be provided to the Exchange and updated with any changes.

A key ongoing requirement for an AIM company is to disclose certain information to the market in a timely manner. The failure to release price-sensitive information is a breach of the AIM Rules as well as of certain provisions of the FSMA (Financial Services and Markets Act) relating to market abuse. Information requiring notification to the market pursuant to the AIM Rules must be released as an announcement via a regulatory information service ('RIS'). Information notified via an RIS must be of a regulatory or legal nature; it is not the place for the company to generate market interest in the company, for example, by making marketing-style announcements.

In order for the Nomad to execute its obligations under the AIM Rules and the AIM Rules for Nominated Advisers, internal company procedures should be in place for the company's Nomad to review and authorise all non-routine announcements in advance of release to the market. Release of price-sensitive and other miscellaneous information without delay

An AIM company must issue without delay notification of any new developments which are not in the public knowledge concerning a change in its financial condition, its sphere of activity, the performance of its business or the expectation of its performance which, if made public, would be likely to lead to a substantial movement in the price of its securities. The AIM Rules also require that announcements are not misleading, false or deceptive or leave out anything significant.

This can be a complex assessment to make and there are several areas of subjectivity and opinion relating to these rules. Therefore, the assessment of the requirement to make such an announcement should be made following a detailed consultation with the company's Nomad.

A company is required to announce without delay any dealings by directors and any relevant changes to the holdings of significant shareholders (holders of 3 per cent or more of the shares).

Directors should take advice from the company's Nomad before any form of dealing in the securities of the AIM company. An AIM company must ensure that its directors and applicable employees – defined as an employee who is likely to be in possession of unpublished price-sensitive information relating to that company – do not deal in any of its AIM securities during a close period. This is typically the period of two months ahead of the notification of the company's annual or interim results, one month ahead of the notification of quarterly results, or any other period when an individual at the AIM company is in possession of unpublished price-sensitive information.

Directors and applicable employees should also take note that the definition of 'deal' is wide ranging. For example, it not only includes any sale or purchase of securities, but also grants of options and other rights over financial products. Certain members of a director's family, trusts and companies of which they have more than 20 per cent equity or voting rights will also be included under the definition of deal. Directors are advised to consult the Nomad in advance of any deal in which they have a beneficial or non-beneficial interest.

An AIM company should also notify other miscellaneous information including changes to the board, the year end, the registered office and the company name. If trading performance is likely to differ materially from expectations, if there is a change to the Nomad, the broker or the website address, or if certain information relating to its directors needs to be updated, an announcement must be made.

The company must also disclose details of any payments pertaining to its AIM securities, reasons for the admission or cancellation of AIM securities, and the occurrence and number of shares taken into and out of treasury. Finally, the company must disclose the admission to trading or cancellation of AIM securities on any other exchange or trading platform, where such application is at the request or agreement of the company. Companies carrying out corporate actions (eg, the payment of dividends) which have the effect of changing the rights of existing shareholders are required to make announcements to the market about such events. This should be discussed with the company's Nomad and the Exchange in advance.

The disclosure requirement for transactions carried out by an AIM company varies depending on the size and nature of the transaction. In order to establish the size of the transaction and the nature of the disclosure required, the class tests found in Schedule 3 of the AIM Rules need to be calculated. It is important to note that in some cases, the class tests need to be calculated taking into account previous transactions which the company has performed to assess the overall impact. A company should seek guidance from its Nomad as to when this applies. In the case of all transactions, the requirement to make an announcement may be brought forward should there be a leak to the market about the transaction. The company should seek to keep confidential transactions which are in the course of negotiation. Should there be a suspected leak, the company must liaise with its Nomad immediately to ensure the appropriate steps are taken, including announcements where necessary.

There are five tests, each of which results in a percentage, used to determine the size of a transaction on AIM. They are known as the 'class tests':

• the Gross Assets Test
• the Profits Test
• the Turnover Test
• the Consideration Test
• the Gross Capital Test.

Where a company undertakes a transaction which exceeds 10 per cent in any of the class tests, it is known as a 'substantial transaction'. The AIM company must notify the transaction via an RIS as soon as the terms have been agreed. The notification must include certain information prescribed in Schedule 4 of the AIM Rules, including particulars of the transaction, a description of the business, the profits attributable to the assets, the value of the assets involved, the full consideration and how it is to be satisfied, the effects of the transaction and any other information necessary to enable the investors to evaluate the effect of the transaction on the AIM company.

Where a company undertakes a transaction, or a number of transactions over a period of 12 months, which exceeds 100 per cent in any of the class tests or which will result in a fundamental change in its business, board or voting control, it is known as a 'reverse takeover'. For investing companies, a reverse takeover can also be triggered by the company departing materially from its investing strategy. A reverse takeover is conditional on the consent of shareholders and notification of the transaction must be accompanied by the publication of a full admission document in respect of the proposed enlarged entity and documents to convene the general meeting to approve the transaction. The AIM company must notify the market via an RIS as soon as the terms of the transaction are agreed.

Where an AIM company undertakes a transaction with a related party which exceeds 5 per cent of any of the class tests, notification is required without delay as soon as the terms of the transaction are agreed. The definition of a related party under the AIM Rules is quite wide and includes parties such as directors, substantial shareholders or associates (being family or companies controlled by such parties). The notification must include the information required under Schedule 4, name of the related party concerned and nature and extent of involvement in the business. Finally, the notification must include a statement that the directors who are independent of the related party to the transaction, having consulted with its Nomad, consider that the terms of the transaction are fair and reasonable insofar as shareholders are concerned.

A disposal which, when aggregated with any other disposal(s) over the previous 12 months, exceeds 75 per cent in any of the class tests, is treated as a fundamental change of business and is conditional on the consent of its shareholders in a general meeting. It must also be notified without delay disclosing the information specified by Schedule 4 and insofar as it is with a related party, the additional information required by Rule 13. It must also be accompanied by the publication of a circular containing details of the disposal and any proposed change of business together with the information specified above and a notice convening the general meeting.

Where the effect of the disposal is to divest the AIM company of its trading business or assets, it will be treated as an 'investing company' and must adopt an investing policy at the general meeting. The investing company will then have 12 months to make one or more acquisitions which constitute a reverse takeover or otherwise implement the investing policy.

Being on AIM opens up a whole range of opportunities to ambitious companies. It is designed to attract smaller, growth companies and achieves this by having a simplified route to admission (usually without the need to produce a prospectus), a simplified set of rules governing life on AIM and access to the deepest pool of investment capital anywhere in the world. As such, an AIM company has a distinct advantage over its private company rivals when considering raising money, making acquisitions or carrying out corporate finance activities. It is important to maximise the advantages that being a public company provides – the relative standing and profile can really set a company apart when its competitors are still privately owned.

Most companies which join AIM do so because they want to grow. There are two ways of achieving growth, either organically or by making acquisitions. Both place demands on cash, albeit in different ways. In order to make an acquisition, there may be a cash requirement up front but there is likely also be a cost to integrating the target business. If a company chooses to grow organically, there are going to be demands on working capital and the company may find it needs to open new offices or branches, buy new equipment or hire new staff. Simplistically, companies raise money through debt or by issuing equity, the former typically from banks, the latter by inviting people to participate in the equity share capital of the business. Being admitted to AIM significantly enlarges the universe of investors which a company can approach and therefore makes raising funds by issuing equity considerably easier.

Money raised can be used in a number of other ways: for example, to reduce the dependency on bank finance, reduce pressure on working capital, pay down significant creditors and buy out founder shareholders. If a company does not want to raise money by issuing equity, many banks understand the rigorous process through which a company and its board has to go to join AIM and this often allows them to be more flexible when setting covenants and the terms of any loan. Also, trade creditors are often able to give more generous payment terms to a public company than they would a private company.

Being on AIM also allows a company to use its equity share capital as 'currency' for acquisitions. Shares in a public company, with an open market value, are far more attractive to a potential target company than shares in a private company. AIM also provides a mechanism for selling the shares which can allow target company shareholders to realise the value in any shares received as consideration. In order to maintain an orderly market, a Nomad will typically insist on a moratorium over selling shares for a period immediately post-acquisition for the significant shareholders and, thereafter, will look for 'orderly market' provisions so that any desire to sell is properly managed.

Under the AIM Rules, only transactions which constitute reverse takeovers (transactions where 100 per cent is breached under any of the class tests set out in the AIM Rules) require shareholder approval. This streamlines the process of making acquisitions considerably and provides AIM companies with a significantly reduced level of costs and compliance during the acquisition process when compared to fully listed (Main Market) companies. Time is often of the essence in a competitive bid for a target company and the AIM Rules essentially allow AIM companies to move as quickly as private limited companies.

An AIM company, if approached by another company with a view to being taken over, should be mindful of the provisions of the City Code on Takeovers and Mergers. All UK-based AIM companies – and many which are not based in the UK – are subject to the provisions that are there to protect shareholders and, in essence, ensure that a fair deal is put on the table and that all shareholders are treated equally.

• Speak regularly to your Nomad so they understand what your intentions are as they develop
• Make use of your Nomad, broker and analyst – they should understand what you want to do and they may well come across opportunities you haven't seen
• Don't be shy about asking for input and ideas from your Nomad and broking team
• Seek value from your Nomad – the mark of a good AIM adviser is the level of active feedback you get
• The golden rule in any corporate action is to keep your Nomad and your legal adviser informed.

An AIM company will be required to produce both half yearly reports and annual accounts, respectively.

Half-yearly reports (or interims) are required to be notified without delay and not later than three months after the end of the relevant six-month period. While the form of the interims must be consistent with the annual report, the required information includes just a balance sheet, an income statement, a cash flow statement and must contain the prior year comparative figures. These figures need not be audited.

The annual accounts must be published by an AIM company and sent to shareholders not later than six months after the end of the period to which they relate. The accounts must be prepared in accordance with International Accounting Standards if the company is incorporated in an EEA country, unless the company is not a parent company, in which case it can prepare its accounts in accordance with the accounting and company legislation and regulations that are applicable in its country of incorporation. A company incorporated in a non-EEA country must prepare its accounts in accordance with IAS or certain prescribed GAAP standards.

The accounts produced must also contain details of any transaction with a related party, even if it has been previously disclosed, where any of the class tests exceed just 0.25 per cent. The identity of the related party and the consideration for the transaction must be disclosed.

In addition, details of directors' remuneration must also be disclosed for the past financial year, including payments such as salaries, share options, non-cash benefits and contributions to pensions schemes.

Under Rule 26, an AIM company must maintain an upto- date website, free of charge, including detailed information on the company such as:

• a description of its business
• names and biographical details of the directors
• copies of certain company documents (eg constitutional documents)
• the company's latest admission document
• its most recent half yearly and annual accounts
• all notifications released in the last 12 months
• identity and percentage holding of significant shareholders.

In order for a company's share price to reflect company performance, there needs to be sufficient liquidity in the company's shares. Liquidity is a term used to describe the ability of investors to buy and sell shares in a company. The higher the liquidity of a company, the higher the daily volume of shares traded.

Following a successful IPO, there are a number of matters which a company should consider in order to maximise its success on the market:

Many companies on AIM attract less research coverage than their larger peers. Often the economics and low commissions from smaller or less liquid companies mean that multiple brokers will not initiate coverage on a stock.

In a common scenario, where a company is covered only by the house broker, it may seek to expand its research coverage. If other brokers will not initiate coverage, the company may consider paid-for research coverage or the appointment of a joint broker.

It is not uncommon for the spread – the difference between the bid and ask price – to be quite wide in smaller or less liquid AIM companies. Adding one or more new market makers can assist in reducing the difference between the buy and sell prices. Improving liquidity and daily volumes may also reduce the spread.

Many companies actively seek to increase daily volumes in an effort to improve liquidity. One way of achieving this is by increasing the number of private investors on the shareholder register as private investors tend to trade more regularly than institutional investors and hold much smaller shareholdings. Typically, they also have varied investment strategies, investment criteria and risk requirements and much of the daily volume in AIM companies is brought about by these small private investors.

Attracting private investors can take a significant investment in management time. There are a number of ways a company can attract private client investors including:

1. Incorporate private client brokers (PCBs) in investor roadshows, particularly around the results reporting cycle. Usually, the company's advisers can arrange for the company to have meetings with several of the larger PCBs.
2. Attend private investor events. There are a number of private investor events that allow companies to present to a large private investor audience.
3. Increasing independent research and paid-for research to provide investors with further information on the company and broaden the potential investor audience.
4. Press coverage, including magazines and journals. Although the broadsheet newspapers may not provide regular coverage of smaller AIM companies, some investor magazines and journals focus specifically on them.

Directors in an AIM company will often hold or seek to hold shares in the company on whose board they sit. This can be problematic as directors of fast-growing businesses may often be in possession of unpublished, price-sensitive information regarding company results, strategy and potential acquisitions, therefore preventing them from dealing. It can be frustrating if the company is making good progress but the directors cannot invest in the company 'like ordinary shareholders'. It is typical therefore to see directors of an AIM company take the opportunity to buy shares after the announcement of the full- or half-year results when up-to-date financial information has been made public. It is important for the board of an AIM company to have a clear and transparent policy for directors' dealings. An AIM company may seek to implement the policy at IPO following consultation with its Nomad.

• A company board should not be overweight but should be lean enough to make decisions in a timely way.

There should be a good balance of executive and non-executive directors sufficient to ensure objectivity but to avoid inefficiencies.

• The decision-making process should be transparent.

The board should have a formal schedule of matters for which it is responsible. The board should establish an audit committee and a remuneration committee with clear terms of reference.

• Responsibilities for different areas of company business should be clearly laid out.

The roles of chairman and chief executive should be performed by different people. It should be clear who is responsible for 'running' the board of directors and who has executive responsibility for the running of the business. No one director or group of directors should have undue influence.

• The mechanism for the protection of the company's assets should be clearly spelt out.

There should be a regular formal review of internal controls, the results of which should be reported to shareholders.

• The board should possess the right skills to do the job expected of them.

An appraisal process helps ensure that directors have the relevant skills and identifies those who lack them. A nominations committee is helpful in formalising this process and keeping it objective.

• Relevant information must be provided in a timely way to permit informed decisions.

Those responsible for providing information should be aware of what is required of them and when.

• All board members should play an active role in the decision making process.

There should be a formal agenda of matters reserved for the board's attention and individuals board members views should be minuted.

• All board members should understand the longer-term objectives of the business.

An open dialogue with shareholders is essential.

• Board members should play an active part in setting and testing strategic objectives.

Regular attendance at board meetings by non-executives should be encouraged.

• Board members should avoid conflicts of interest or vested interests.

The roles of chairman and chief executive should be kept separate and at least two non-executive directors should be appointed to the board. It should be clear how the board protects shareholders from the risks of concentration of power.

• The mechanism for identifying and recording transactions involving the board should be robust.

All directors need to be aware of their duties and reporting responsibilities.

• Dealings by or involving directors should be reported in a timely and transparent manner.

The channel for communicating transactions and dealings in shares must be clear.

• There should be an open dialogue between the board and shareholders so mutual goals are understood.

The board is responsible for maintaining an open dialogue with shareholders and ensuring the company business is run to seek to achieve those goals.The board is responsible for maintaining an open dialogue with shareholders and ensuring the company business is run to seek to achieve those goals.

Corporate governance is the set of principles by which a board of directors manages a company's affairs to protect shareholders' interests. Effective corporate governance helps to ensure that a company is administered for the benefit of shareholders and not merely for the benefit of those who run the company. Where matters of doubt arise on issues regarding corporate governance, AIM companies should consult their Nomad.

The main source of these principles is the UK Corporate Governance Code (the 'Code') which is kept under review by the Financial Reporting Council. Compliance with the Code is mandatory for companies listed on the Main Market of the London Stock Exchange (those admitted to trading on the Official List) but is voluntary for AIM companies. Compliance with the Code by AIM companies is, however, widely regarded as good practice and has become expected of larger AIM companies. Many investing institutions expect their investee AIM companies to comply with the Code or set out the reasons for non-compliance in much the same way as Main Market companies have to adopt the 'comply or explain' principle.

For many AIM companies, the costs of full compliance with the Code would outweigh the benefits to the average shareholder. Other AIM companies simply cannot comply with all of the terms of the Code. For these reasons, some organisations, notably the Quoted Companies Alliance (QCA) and the National Association of Pension Funds, have produced guidelines which are designed to help AIM companies understand how best to achieve Code compliance within the scope of resources available to them. Both are based on the provisions of the Code and it is here where the underlying guidance is to be found. An AIM company should discuss with its Nomad which corporate governance guidelines it will seek to follow and implement. The principles of the Code deal with governance under the following broad headings:

• directors
• directors' remuneration
• accountability and audit
• relations with shareholders; and
• institutional shareholders.

The overarching goal is to ensure that a company's board is sufficiently independent, experienced and efficient to enable it to deal effectively with company affairs in a timely way. As such, the QCA guidelines set out the key features of governance which will help a board operate efficiently, effectively, in an entrepreneurial way and in a way which benefits all shareholders over the longer term. These are summarised in the box opposite.

The board of an AIM company should also set up, maintain and review the terms of reference of an audit committee, a remuneration committee and, more rarely, a nominations committee.

The audit committee should comprise at least two members and all should be independent non-executive directors. Most AIM companies have an audit committee. Its formal terms of reference will include: l monitoring, alongside the auditors, the integrity of the financial statements, company announcements regarding performance and financial reporting judgments

• reviewing internal controls
• reviewing the internal audit function, if any, or considering whether one should be created
• making recommendations regarding the appointment, reappointment and remuneration of the external auditor
• monitoring the performance and independence of the external auditor
• developing and implementing the policy for using the external auditor for services other than audit services, bearing in mind relevant ethical guidance;
• reviewing the whistleblowing policy.

The remuneration committee should also comprise at least two members who should all be independent non-executive directors. Most AIM companies have a remuneration committee whose formal terms of reference will include:

• determining policy for setting remuneration of the chairman, chief executive and other senior management to whom delegation of this role is deemed appropriate by the board. No director or manager should be involved in any decisions as to their own remuneration
• determining targets for performance-related pay schemes
• determining policy and scope of pension provisions for executive directors ensuring that contractual terms on termination and payments made are fair and do not reward failure within the agreed policy
• determining the total reward package for all executive directors including bonuses, incentive payments and share options
• coordinating with the nominations committee, where there is one, as to remuneration to be offered to incoming directors
• keeping abreast of changes in employee benefit structures throughout the company
• setting the policy for agreeing expenses claims from the chairman and chief executive
• ensuring remuneration is properly disclosed in accordance with relevant legislation; and
• setting the terms of reference of remuneration consultants, if any are used.

Recommendations to the board regarding new board appointments should be made by a nominations committee, where an AIM company has one. The nominations committee can comprise the whole board, though a majority of its members should be independent non-executives. Nominations committees are rare among AIM companies and the Nomad can provide assistance in reviewing and setting its terms of reference.

The annual report should include a detailed statement of how the company achieves good corporate governance. An AIM company should formally review and minute the mechanisms by which it has complied with the principles of corporate governance. In line with Rule 26 of the AIM Rules, AIM companies should publish or make available on their website the terms and conditions of appointment of non-executive directors and the terms of reference of the audit committee, remuneration committee and, if appropriate, the nominations committee.

For an AIM company embarking on life as a public company, the value of good corporate governance should not be underestimated: a demonstrably robust internal control structure, a willingness to deal in an open and straightforward manner with shareholders and the market at large, an independent and responsible board – it should come as no surprise that bodies representing the investor community, like the Association of British Insurers and the National Association of Pension Funds, put great store by companies with a good corporate governance culture.

The process of putting in place the key attributes of strong corporate governance should improve the way a company is run and thereby make it more attractive to the wider investor community, allowing it better access to the deep pool of sophisticated capital available to companies on the London markets.