AIM is a market regulated by the Exchange. Companies wishing to join AIM must comply with the AIM Rules published by the Exchange and, following admission to AIM, they must comply with the continuing obligations of the AIM Rules.

In recognition of AIM's role as a market for growing companies, the Exchange has made the AIM Rules relatively simple and clear, with entry requirements and continuing obligations which are less prescriptive than those of many other markets. For example, the UK Listing Authority's Listing Rules, which apply to companies seeking to list on the Main Market of the London Stock Exchange, are significantly longer and more prescriptive.

It is the Nomad system which makes the balance of the AIM regulatory regime possible – the AIM Rules for Nominated Advisers (the 'Nomad Rules') ensure the Nomad is responsible to the Exchange for assessing the appropriateness of an applicant for AIM. The Exchange imposes detailed requirements on the Nomad to ensure that the directors of a company applying to join AIM are aware of their responsibilities and obligations under the AIM Rules, and that each AIM company complies with the Rules.

The Nomad is required to make a declaration to the Exchange that it considers an applicant company and its shares to be appropriate for admission to trading on AIM. Following admission, the directors themselves are required to seek advice from the Nomad and to take that advice into account. Where Nomad believes that an AIM company for which it acts as Nomad is no longer appropriate for AIM, it must contact the Exchange.

The Exchange can impose sanctions on the company for failure to comply with the AIM Rules (which may include the company being issued a warning notice, fined, censured, or the cancellation of its AIM securities) and on the Nomad in the event that the Nomad has breached its obligations pursuant to the Nomad Rules.

Any company applying to join AIM must, in addition to complying with the AIM Rules, also comply with:

• the UK legal requirements for offers of securities
• the restrictions on financial promotions imposed by the Financial Services and Markets Act 2000 ('FSMA')
• any legal requirements in other countries where its shares are being offered, and
• in the case of a company incorporated outside the UK, the corporate and securities laws of the country in which it is incorporated.

The UK law on public offers of securities is governed by the Prospectus Rules published by the Financial Services Authority. The Prospectus Rules are relevant for AIM companies for two reasons:

• the AIM Rules stipulate that an applicant to AIM must produce an admission document which contains information equivalent to that which would be required by the Prospectus Rules (an 'AIM-PD' document), with certain specified categories having been carved out
• they will determine whether a proposed fundraising on AIM will constitute an 'offer to the public'; if it will, then the admission document must comply with the Prospectus Rules, requiring prior approval by the UK Listing Authority. In addition, the directors will be assuming certain additional legal liabilities.

These rules will also apply to subsequent fundraisings by a company already on AIM.

The company's lawyers will advise on whether an admission document constitutes a prospectus – broadly speaking, an offer directed at no more than 100 persons or to 'qualified investors' will not be an offer to the public under the Prospectus Rules. In order to avoid the complications, delays and cost involved in producing a prospectus, most IPOs on AIM are structured as placings to institutions and possibly a small number of non-qualified investors, so that the fundraising is not an offer to the public and the invitation to subscribe for shares falls within exemptions to the FSMA restrictions on financial promotions.

• an AIM company must appoint and retain a Nomad at all times
• with certain limited exceptions, securities admitted to trading on AIM must be free from restrictions on transferability. This does not prevent certain shares being subject to contractually imposed restrictions on dealing such as 'lock-ins'
• all securities of the same class must be admitted to trading on AIM
• an AIM company must retain a broker at all times
• an AIM company must ensure that appropriate settlement arrangements for its securities are in place, and in particular, AIM securities must be eligible for electronic settlement (except in very limited circumstances agreed by the Exchange, for example in relation to a 'Reg S' offering by a US company)
• an AIM company must pay AIM fees in accordance with the Exchange's tariff
• an applicant which is an 'investing company' (ie a company which has as its primary business the investing of its funds in the securities of other companies or the acquisition of a particular business) must comply with the 'Note for Investing Companies' and make it a condition of its admission that it raises a minimum of £3 million in cash via an equity fundraising at the time of admission to AIM. It must also state and follow an investing policy
• an applicant which is a mining or oil and gas company must comply with the 'Note for Mining Oil and Gas Companies', including the preparation of a Competent Person's Report and specific content requirements.

The Nomad must make a declaration to the Exchange that:

• to the best of its knowledge and belief, having made due and careful enquiry and considered all relevant matters under the AIM Rules and the Nomad Rules in relation to the application for admission, all applicable requirements of the AIM Rules and the Nomad Rules have been complied with and, in particular, the admission document complies with schedule two of the current AIM Rules
• it is satisfied that the applicant and its securities are appropriate to be admitted to AIM, having made due and careful enquiry and considered all relevant matters set out in the AIM Rules and the Nomad Rules
• the directors of the applicant have received advice and guidance (from the nominated adviser and other appropriate professional advisers) as to the applicant's responsibilities and obligations under the AIM Rules in order to facilitate due compliance by the applicant on an ongoing basis
• it will comply with the AIM Rules and the Nomad Rules as applicable to it in its role as Nomad to the applicant.

AIM's admission requirements permit young and growing companies from around the world with limited or no trading records to join the market. The Exchange does not impose any minimum requirements for market capitalisation, trading record, share price or shares in public hands ('free float'), and the Exchange does not make the decision as to whether a company is suitable for admission to AIM – this responsibility is placed on the Nomad.

The general rule is that all new applicants to AIM must publish an admission document. There are few requirements as to the form in which the information required by an AIM admission document must be set out. In practice, however, the document is usually divided into the sections as shown in the box 'AIM admission document'.

In addition to specific content requirements, the AIM Rules impose a general duty of disclosure, requiring the company to ensure that the document contains 'any other information which it reasonably considers necessary to enable investors to form a full understanding of:

• the assets and liabilities, financial position, profits and losses, and prospects of the applicant and its securities for which admission is being sought;
• the rights attaching to those securities; and
• any other matter contained in the admission document.'

• cover page, including certain 'health warnings' and important information for non-UK investors
• summarised key information in relation to the company
• index
• list of directors and advisers
• list of definitions and glossary of technical terms
• timetable
• placing statistics

• history of the business
• information about the present-day business, current trading and investments
• key business and market trends and prospects
• in the case of an investment company, details of its investment strategy
• summarised information about directors and key personnel
• intellectual property
• information about the placing or offer for subscription
• use of funds
• corporate governance policies
• share option arrangements and dividend policy
• City Code information (if applicable)

• risk factors relevant to the business

• historical financial information relating to the company and its subsidiaries – usually audited accounts for the last three years, or a shorter period of time if the company has been in existence for less than three years. If more than nine months have elapsed since the company's financial year end, interim financial information must also be included, which may or may not be audited.
• an auditors' or reporting accountants' opinion as to whether the financial information shows a true and fair view for the purposes of the AIM admission document
• if appropriate, pro forma financial information

• experts' reports – necessary for mining and oil and gas companies and may be desirable for a company with a specialist business (eg technology, life sciences, intellectual property)

• a responsibility statement confirming that each of the directors and proposed directors accepts general information: responsibility, individually and collectively, for the information contained in the document, and that to the best of their knowledge and belief (having taken all reasonable care to ensure that such is the case), the information contained in the admission document is in accordance with the facts and does not omit anything likely to affect the import of such information
• details of the incorporation and legal status of the company, its registered office and its objects
• information about share capital, including rights attaching to the shares and authorities to issue
• further shares
• information about the company's articles of association and constitution documents
• directors' interests in the company, directorships of other companies and involvement in previous personal or company insolvencies
• the name of any person who, so far as the directors are aware, holds an interest of 3 per cent or more in the company's issued share capital, and the level of that interest
• share option plans
• material contracts, including the placing or introduction agreement
• related party transactions
• terms of engagement of the directors and senior personnel
• summarised tax position
• statement by the company's directors that, in their opinion, having made due and careful enquiry,
• the working capital available to the company and its group will be sufficient for its present requirements, ie for at least 12 months from the date of admission of its securities to AIM
• material litigation
• any 'lock-in' statement required by the AIM Rules or the Nomad
• level of dilution resulting from any offer
• expenses of the issue
• terms and conditions of any offer for the sale of shares
• sundry information

The AIM admission document will usually be published in final form shortly before admission to AIM. Marketing of the fundraising will have been done using a draft admission document, known as a 'Pathfinder', which will be almost complete, with the possible exception of the placing price. Shortly before admission to AIM, placing letters will be signed by investors, attaching a later draft of the admission document (the 'placing proof'). Any significant differences between the Pathfinder, the placing proof and the admission document must be drawn to the attention of investors prior to admission, to give them the opportunity to withdraw.

The company's lawyers produce verification notes, which test each statement in the admission document, any Pathfinder and any investor presentations. The verification exercise is designed to protect the directors and the company from legal liability by ensuring that:

• each statement in the offer documentation is accurate and not misleading in the context in which it appears
• the directors have reasonable grounds for any opinions which they express in the documentation
• there is evidence to substantiate factual statements
• statements are not selectively presented so as to be misleading.

Verification is an interactive process that assists in the drafting of the admission documentation.

The Nomad, the lawyers and the accountants will undertake a comprehensive review of the company's business, prospects and commercial risks. The purpose of the due diligence is:

• to identify information to be disclosed under the general duty of disclosure
• to establish the corporate structure and standing of the company and its subsidiaries and assess whether any corporate reorganisation should be undertaken to facilitate the AIM admission
• to verify title to assets, including intellectual property, and establish what needs to be done to ensure the company owns what it should do
• to examine the historical financial information and working capital requirements of the applicant
• to examine material contracts and employment agreements and recommend remedial action
• to review any current or prospective litigation
• to ensure the Nomad has complied with its admission responsibilities under the Nomad Rules

Whether or not a company is raising funds contemporaneously with its admission to AIM, the Nomad and broker will require comfort from the company and its directors that the contents of the admission document are accurate and not misleading. The solicitors to the Nomad and broker will therefore prepare a draft placing agreement or, where no funds are being raised, an introduction agreement. In either case, the agreement will contain:

• warranties by the company and its directors (and possibly also significant non-director shareholders) on the accuracy of the admission document
• an indemnity from the company (and often from its directors) to the Nomad and broker in relation to liabilities arising out of the admission
• any lock-ins and orderly market undertakings to be given by the directors
• in the case of a placing agreement, an undertaking by the broker that it will use all reasonable endeavours to find placees for the shares which are the subject of the fundraising and, if the issue is underwritten, that it will subscribe for any shares for which placees have not been found
• the fees, commissions and expenses to be paid by the company to the Nomad and broker
• the obligations imposed on the company to consult the Nomad before engaging in transactions which are material in the context of the placing or the admission to trading on AIM
• the events which will entitle the Nomad and/or broker to terminate the agreement and therefore not proceed with the company's admission to trading on AIM.

In assessing the appropriateness of an applicant and its securities for AIM, a Nomad must satisfy the admission responsibilities, which include:

• achieve a sound understanding of the applicant and its business, using in-house specialists or external experts where necessary to achieve this
• investigate and consider the suitability of each director and proposed director of the applicant and key managers and consultants
• consider the efficacy of the board as a whole
• consider making investigations in relation to substantial shareholders
• oversee and assess the due diligence process, satisfying itself that it is appropriate and that any material issues arising from it are dealt with or do not affect the appropriateness of the applicant for AIM
• consider whether commercial, specialist (eg intellectual property) and/or technical due diligence is required
• oversee and be actively involved in the preparation of the admission document, satisfying itself that it has beenprepared in compliance with the AIM Rules with due verification having been undertaken
• consider whether any specialist third-party reports are required (eg for companies in particular sectors such as property or biotechnology)
• satisfy itself that the applicant has in place sufficient systems, procedures and controls in order to comply with the AIM Rules and understands its obligations under those Rules (eg release of unpublished price-sensitive information, significant shareholding notifications, regulation of close periods)
• be satisfied that the directors have been advised of their and the company's continuing responsibilities and obligations under the AIM Rules and that the directors are aware of when they should be consulting with or seeking the advice of the Nomad.

The AIM Rules require that 'where an applicant's main activity is a business which has not been independent and earning revenue for at least two years… all related parties and applicable employees as at the date of admission agree not to dispose of any interest in its securities for one year from the admission of its securities' (it is likely that the Nomad and/or broker will require further lock-ins in order to protect prospective investors and maintain an orderly market). 'Related parties' include directors, shareholders owning 10 per cent or more of the voting shares (an 'authorised person' and certain other entities are carved out from this rule), and their respective families. An 'applicable employee' is one who, together with his or her family, owns 0.5 per cent or more of any class of the company's securities quoted on AIM.

The company's lawyers will prepare and/or advise on and negotiate:

• agreements for the engagement of the Nomad and broker, reporting accountants, public relations advisers and registrars
• articles of association and constitution documents
• documentation for any necessary corporate restructuring and share re-organisations, including (if appropriate) the creation of a new holding company as the vehicle for the flotation
• the statutory and general section which usually appears at the back of the admission document
• employment agreements for executive directors and other key staff
• appointment letters for non-executive directors
• share option and incentive plans for directors and employees
• memoranda and letters of advice to the company's directors on their responsibilities under the admission document/prospectus, on their continuing obligations under the AIM Rules, on corporate governance and on the liability of the company and its directors under the warranties and indemnities in the placing or introduction agreement
• agreements which will govern the relationship between the company and the Nomad and the broker in relation to their respective roles and responsibilities following the admission
• any 'relationship agreement' that may be advisable to ensure that transactions between the company and its substantial shareholders are conducted at arm's length
• detailed board minutes recording that the directors have reviewed, considered and approved the Pathfinder and supporting documentation and, subsequently, the placing proof and the final admission document
• terms of reference for board committees (eg audit committee, remuneration committee, investment committee and nomination committee)
• powers of attorney and responsibility statements to be signed by each of the directors, confirming that they have understood the responsibilities they are accepting by approving the issue of the offer documents
• placing letters
• comfort letters
• a contents list for the financial, constitutional and corporate information which the company is obliged, under AIM Rule 26, to publish on its website.

The AIM Rules do not require AIM companies to be incorporated in the UK or in any other specified jurisdiction. Non-UK issuers are subject to the same eligibility requirements as UK-incorporated companies.

In cases where the AIM Rules requiring electronic settlement of shares are difficult to comply with, it may be appropriate to set up a UK holding company, whose shares would be traded on AIM instead. The decision to use a UK holding company may also be affected by tax considerations and, in certain circumstances, the desire of institutional investors to invest in a UK entity.

A non-UK company is subject to the same continuing obligations under the AIM Rules as apply to UK companies. In particular:

• if it is dual listed, it must ensure that announcements required under the AIM Rules are announced simultaneously on all markets
• it must publish annual audited accounts prepared in accordance with International Accounting Standards or (in the case of non-EEA AIM companies) equivalent standards – which include US GAAP, Canadian GAAP, Australian IFRS or Japanese GAAP)
• all documents required by the AIM Rules must be in English and, where the original document is not in English, an English translation must be provided.

A company incorporated outside the UK must also comply with the corporate and securities laws of the country in which it is incorporated and in those territories where its shares are being offered.

Lawyers will be needed in the jurisdictions in which the company is incorporated and operates, to work with the UK lawyers to advise on due diligence, verification, supporting documentation and corporate and securities laws.

The City Code is a set of rules and principles that govern the way takeovers and mergers of public companies are carried out in the UK. It applies to all AIM companies resident in the UK, the Channel Islands and the Isle of Man. Its purpose is to ensure the protection and equal treatment of shareholders in certain takeover and merger situations, including where there are changes in the individuals and groups that control a company. In simple terms, 'control' is defined as a 30 per cent (or greater) shareholding in a company.

In circumstances where the City Code does not apply to a non-UK applicant, the Nomad may advise that, to make the applicant attractive to prospective investors, or generally suitable for admission to AIM, the applicant's constitutional documents should include provisions which are similar to the requirements of the City Code. However, the City Code cannot be imported in its entirety, as companies within its scope are regulated by the Panel on Takeovers and Mergers, which is unable to accept jurisdiction over companies to which the City Code does not apply.

These rules ('DTR'), issued by the UK Financial Services Authority, stipulate requirements for the notification of significant shareholdings. In relation to AIM, they only apply to UK-incorporated companies. However, companies to which the DTR do not apply are still subject to the obligation in the AIM Rules to disclose shareholdings of 3 per cent or more and any relevant changes to those shareholdings. The AIM Rules advise such a non UK-incorporated company to include provisions in its constitution requiring significant shareholders to notify it of any relevant changes in their shareholdings in similar terms to the DTR. The Exchange also advises such a company to make appropriate disclosure (eg in the admission document) that the legal requirements for disclosure are different and may not always comply with the AIM Rules' disclosure obligations.

Once a company has been admitted to AIM, it is subject to the continuing obligations in the AIM Rules. These are summarised in the 'Being on AIM Chapter'. A transaction which involves a reverse takeover will require legal work and due diligence in relation to the shareholder circular and admission document to the same standard as that required for the initial admission.