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Janet Morrison, attorney-at-law with DunnCox Jamaica.
Going public or making an offering of shares to individuals through an exchange is one way to increase the capital base of your company to raise funds for new projects without borrowing money.
Now it is easier for small and medium enterprises to go this route since the April 2009 launch of the JSE Junior Stock Exchange.
As incentive to list, new entrants to the junior stock market will be eligible for tax breaks.
But before we go into the benefits, you should note that listing on the exchange involves a number of new practices, including turning out quarterly financials and the restructuring of your system of governance, primarily through the creation of a board of directors who will influence operational policies and hold managers accountable.
Benefits
But, before we get all fearful, you should know that the Jamaica Stock Exchange (JSE) has set up a system that allows more established companies to mentor SMEs through the process, and the benefits of taking the plunge include full tax exemption on profits for the first five years after listing, and after this time, tax on only 50 per cent of profits for an additional five years.
Listed companies will also enjoy an exemption from transfer tax and stamp duty on the transfer of shares traded on the exchange and exemption on tax on dividends.
Janet Morrison, attorney-at-law with DunnCox Kingston who made a presentation on the junior market at a workshop in Kingston Tuesday, said the only way for a small business to list is by making an initial public offering (IPO), which requires the filing of a prospectus with the Jamaica Stock Exchange.
A prospectus, she notes, is a statement to the public of the present status and the future prospects of the company.
You can get more information on this from the JSE website - www.jamstockex.com. While there, also peruse the rules of the JSE, which not only detail the conditions to list, but what rules must be followed if successful.
The prospectus can be replaced as well by a shelf prospectus and other documents required for listing. Listing fees for the junior exchange are 50 per cent cheaper than that paid by companies on the main JSE board.
What kind of company do you need to be if you are considering going public?
Morrison points out that your share capital must be no less than $50 million and no more than $500 million and you should have at least 25 shareholders holding no less than 20 per cent of issued share capital.
Where an SME fails to maintain this minimum holding, it will be delisted.
You will also need a 'mentor' on board who is an individual responsible for guiding the process and assisting with compliance as stipulated by the JSE board.
If you go to the JSE's website, you will also discover that you need to adopt new articles of incorporation.
Ask your lawyer
You would best ask your lawyer to guide you through the process. You will also need minimum paid-up share capital of $500,000 in order for the company to obtain a certificate from the registrar of companies to conduct business.
Your new board should also include at least three individuals, one of whom should be non-executive. A company secretary must also be appointed.
The new board will be accountable to hundreds of shareholders on successful listing, not just to you and/or your family.
Quarterly and annual financial reports must be filed with the JSE, failing which your company could be delisted.
As you can see, going public is a serious venture. But, if done according to guidelines, the benefits reaped could lead to you getting rid of expensive debt, securing funds for expansion and improvements, which will grow your profits and yield rich dividends for you and your new shareholders.
avia.collinder@gleanerjm.com
The stock market is an organised exchange that brings together buyers and sellers of stocks or equity ownership in companies that trade on that exchange.
The trading of shares is done through middlemen called stockbrokers.
There are 11 brokerages in Jamaica, which are easily located through the Yellow Pages or the Jamaica Stock Exchange (JSE) website.
Let's say you want to become a stock market investor. Your first step is to find a broker who will guide you on your purchase.
Buying stock requires the completion of an application, providing appropriate identification and references.
Once the application is completed, the broker opens an account in your name which gives you the starting point to invest.
Once your account has been opened, you can begin trading. Before you decide what to buy, speak to your broker and get advice on potential 'growth' and 'value' stocks.
Know how much you want to invest and have your broker place the order.
The transaction is completed when your broker locates a seller willing to buy at your 'bid' price, or if you agree to buy at the seller's 'ask' price.
The broker then writes the contract detailing how many shares or stock units you have purchased and at what price.
You will be charged a fee, which is usually a small percentage of the value of the transaction.
There is an intervening three days to finalise the sale once a trade is agreed. This is called the settlement period and is referred to in market jargon as 'T+3'.
Your broker will also ensure that the shares are registered with the Jamaica Central Securities Depository, where shares are held electronically.
Each time you buy or sell shares or stock units, the activity will be registered on your account at the depository, which will update you periodically on the status of your investments.
Your broker will also provide you with regular reports on the value of your stock portfolio.
Jamaica's daily newspapers publish the reports of the previous day's trading activity on the stock market, and the JSE also posts the reports on its website.
This allows you to monitor the movement in value of your investment, and to get reports on activities in listed companies, including the payment of dividends.
How Price is Determined
Kevin Donaldson of Pan Caribbean Financial Services, advises that in a free market, prices tend to fall when there is more supply than demand, and rise when demand is high.
The stock market operates in a similar manner. However, this represents one component of price determination of stocks. The other aspects, he says, are:
Investors consider the outlook for the industry - whether demand for the type of product or service is growing or falling, how much competition exists in the market, and whether the company has a strong management team.
When you buy a company's ordinary stock, you have acquired equity in the company and are now a part owner or shareholder.
The stock gives you voting rights, normally exercised at annual general meetings and special meetings.
Note that companies also issue 'preference shares', which normally guarantee the investor a certain level of return but which generally do not allow the investor, except in rare cases, voting rights.
You earn from ordinary stock in two ways:
1. Capital gains, which occurs when you the sell the stock units at a profit, or a price higher than the purchase price. The corollary is a capital loss;
2. Dividends, which the company normally pays from profits it generates, either on a quarterly, half-yearly or annual basis.
Capital gains and dividends are tax free.
Not all stock market companies pay dividends on a consistent basis; some pay no dividend at all.
Ask your broker about a company's dividend policy before investing.
The dividend stream provides investors with a cash return on the investment, which may be re-invested for continued wealth creation.
Improve in price
Companies that are classified as being 'growth stocks' are expected to generate higher-than-average earnings and, therefore, improve in price at a faster rate than other stocks.
Companies classified as 'value stocks' trade at near book price but have underlying assets that are of greater value.
The book price is normally determined by the shareholder equity reported on a company's balance sheet divided by the number of issued shares.
Growth and value stocks can both provide capital appreciation in the mid to long term.
Income stocks are those companies that provide attractive dividends on a regular basis.
To determine what mix is right for you, seek the advice of a reputable brokerage house.
And set your long-term investment objectives.
Once you make your investment decision, as a shareholder you need to keep yourself informed on changes that will affect the industries and ultimately, the companies whose stock you own.
Email Kevin: kdonaldson@gopancaribbean.com.