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Business Law UK

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Business Law UK


Through an email, G Salasar seeks advice on the necessary changes that Learn Your Foreign Language Limited (LYFL) must implement to its management structure. The client’s goal is to seek a premium listing of the business’ shares at the London Stock Exchange. To have a better understanding of the problem, it is important to provide a brief overview of LYFL’s history. It was incorporated in 2003, and it has been providing a wide range of products designed to teach students foreign languages. It managed to build a positive reputation both nationally and internationally for its successful and innovative learning and teaching tools. The board is made up of three university friends; Elliot Regus (Chairman and Chief executive officer), Beverley Martin (chief financial officer), and Ira Jones (sales director). The managerial style implemented is informal and generally relaxed, but they all are devoted and focused on the business goals. With the desire for business growth, the board is seeking to offer the company’s shares at the London Stock Exchange, but this will require significant changes to its managerial style.


Stock market listing is a strategy that an organization can use to increase its long-term equity finance by offering its shares to a potential institution and public investors (Abdulla et al., 2017). The listing requirements must be fulfilled for a company to be listed. There are various minimum criteria and standards that the stock exchanges have established, such as London Stock Exchange, which outlines the membership requirements. Therefore, LYFL must understand that it can only list its shares for trading if an exchange listing requirements are fulfilled. However, if a company cannot fulfil all the requirements, then it can sometimes still be able to have its shares traded over-the-counter (OTC) (Exchange, 2020). LYFL is a private company, and its decision to ”go public” is dependent on several factors. The IPO is likely to improve the company’s public profile and enhance its access to liquidity and capital. It will also be helpful in future transactions, and the company’ acquisition currency is created, an increasingly important consideration in the future as it seeks more growth. There are several laws and regulations that govern IPO, and UK’s are primarily affected by Brexit (Franklin, 2020). Recently, several changes were made to the UK law, which took effect from the end of 2020. The UK has specific laws on listing, prospectus, market abuse regimes, and business transparency (Exchange, 2020).

The UK regulatory framework comprises several sources of legislation: the Company Act 2006, the UK Stewardship Code, and the UK Corporate Governance Code (Exchange, 2020). The Company Act 2006 has three specific rules; the Listing Rules (LR), the Prospectus Rules (PR), and Disclosure and Transparency Rules (DTR). The other two guidelines are enforced by the Financial Reporting Council (RPC). There is much flexibility in the UK laws as the regulatory frameworks are based on flexibility, proportionality, and targeting, and FRC recognizes that the ”one size fit all” approach cannot be achieved (Akuffo, 2020).

LYFL has issues with corporate governance, especially its managerial structure. It must comply with the FRC’s and FDA’s required corporate governance approach. As outlined under the DTR and LR, corporate governance guidelines must be complied with and reported to the company’s shareholders. The report must be detailed on the areas that the guidelines that are not applied with explanations. The corporate governance practices must satisfy the shareholder’s needs. A company’s obligation extends to either ”comply or explain” is dependent on the nature of its security listing. There are eight listing categories since April 2010, with three main groups; standard, premium, and AIM companies (Acedo‐Ramírez et al., 2019).

When a company is seeking an IPO, effective governance matters. It I not merely public relations of window-dressing exercise. Instead, it enhances the overall trust with shareholders by informing them how the business will be managed on their behalf. Therefore, the interests of management and investors must align. In the case of an organization seeking IPO, the UK government ensures that the institutional investors are protected. At the same time, it recognizes the principle of ”one share, one vote” (Abdulla et al., 2017). Investors have to commit capital to a company at the IPO. They are companies that are not overly familiar or with no track record in the public market. Therefore, any company that is seeking an IPO faces significant challenges and must ensure that it complies with investors’ needs by making necessary internal changes. When the IPO entails the sale of less than 50 per cent of the shares, corporate governance is essential as the investor will hold a minority position (Exchange, 2020). Therefore, through effective communication and corporate governance, minority investors are reassured that their interests are protected.


First, the company must change its managerial structure to satisfy the effective corporate governance guidelines outlined by the FRC. For LYFL to be a successful listed company in the London Stock Exchange, it must comply with DTR and LR. Its reporting to shareholders on its governance must be satisfied. FRC has two policies ”comply or explain’, a strict rule based system that a company can select (Roberts et al., 2020). It is advisable for LYFL to comply to depict good governance and an organizational culture focused on thriving. By choosing to comply, more advantages can be attained as it will be easy for the board to make judgments as there are formal structures. Changing its management structure also promotes accountability of the company to the shareholders. The UK corporate governance system is underpinned by organizational accountability and transparency (Exchange, 2020). With a formal and serious management style, it will also be easy for the board to hold the company accountable if its policies are found wanting.

Secondly, changing the management style to a more formal structure will provide confidence to the shareholders in the company’s position and direction. It will also limit the board’s voting power. Under the Companies Act, Section 168, the investors have the power to dismiss or retain individual directors of a company (Sarah & Vida, 2020). With a serious management style, the shareholders are likely to be more satisfied, thus no need for dismissal. Also, under Sections 303 and 305, the shareholders have the power to call for a company’s general meeting; this can be avoided by complying with DTR and LR corporate governance policies (Sarah & Vida, 20200. For any company listed in the FTSE 350 index, the Code outlines that its directors must be presented for re-election every year (Exchange, 2020). Therefore, even if LYFL does not change its management structure now, it will in the future, especially if the shareholders are not satisfied.

Thirdly, by changing its managerial structure and style, LYFL will satisfy the five sections of the UK’s Corporate Governance Code. They include effectiveness, leadership, remuneration, accountability, and relation with shareholders (MacNeil & Esser, 2021). They all have code provisions as well as main and supporting principles. The Codes were published in May 2010 but were revised in 2012 (MacNeil & Esser, 2021). It outlines that an effective board must head the company, considering the company’s long-term success. The change is needed because it does not satisfy the requirement of having a chief executive responsible for running the organization’s operations and a chairperson responsible for the board’s leadership. Currently, Elliot Regus is the chairman and the chief executive officer.

Fourthly, the board’s skills and competence may be in question. In regard to effectiveness, the board member must be competent individuals. They must possess the suitable balance of experience, expertise, and knowledge that allows them to execute their responsibilities effectively (Exchange, 2020). LYFL’s three board members were in the same university. They may be competent, skilled, and knowledgeable, but they seem to lack diverse experiences. It is recommendable that diversity, particularly gender diversity, was considered; the board has one male and two women. Therefore, more diversity can be considered if the company chooses to restructure its management. Diversity in knowledge, skills, experience, expertise, gender, race, ethnicity and even age should be considered. By doing so, it will create a positive public image, especially for the stakeholders. The board should be remunerated based on their performance and effectiveness. The remuneration process must be formal and transparent (Franklin, 2020).

Finally, LYFL will have to appoint several advisors to help the company find clarity on various matters on stock exchange listing. The needed advisors include; an auditor, lawyer, public relations officer, investor relations advisor, reporting accountant, and a sponsor. While this report will offer legal guidance, especially on managerial structure and style, the various advisors with public market experience will be needed. Each will provide vital advice before, during, and after the application and admission process. For example, a reporting accountant will review the company’s financial position and advise if specific regulatory requirements have been met and align with legal requirements.


After reviewing UK laws, particularly the Business Act 2006, UK Stewardship Code, and the UK Corporate Governance Code, LYFL was advised to change its managerial style and structure. When seeking an IPO requires effective corporate governance cannot be achieved through the informal and the more relaxed leadership style. Therefore, the following are this research’s records:

  • FRC’s effective corporate governance guidelines must be complied with by ‘’complying’’ and not ‘’explaining’’.

  • Changing the managerial structure will provide more confidence and satisfaction to the investors or shareholders.

  • It will satisfy the five sections of the Corporate Governance Code if it changes. The five are; effectiveness, leadership, remuneration, accountability, and relation with shareholders.

  • The board’s competence, skills, and experience will have to be changed to represent diversity.

  • LYFL is advisable to appoint a list of advisors to help it find more clarity on stock exchange listing.


Acedo‐Ramírez, M. Á., Díaz‐Mendoza, A. C., & Ruiz‐Cabestre, F. J. (2019). IPO underpricing

in the second and main markets: The case of the London Stock Exchange. International Finance22(1), 103-117.

Abdulla, Y., Dang, V. A., & Khurshed, A. (2017). Stock market listing and the use of trade

credit: Evidence from public and private firms. Journal of Corporate Finance46, 391-410.

Akuffo, J. A. (2020). Why? Examining and Understanding the UK Financial System and Its

Regulatory Framework for Corporate Governance. In Corporate Governance and Accountability of Financial Institutions (pp. 147-195). Palgrave Macmillan, Cham.

Exchange, L. S. (2020). Main Market.


Franklin, J. (2020). Global IPO markets in 2020: what to expect. International Financial Law


MacNeil, I., & Esser, I. M. (2021). The emergence of ‘comply or explain’as a global model for

corporate governance codes. European Business Law Review (Forthcoming, 2022).

Roberts, J., Sanderson, P., Seidl, D., & Krivokapic, A. (2020). The UK Corporate Governance

Code Principle of ‘Comply or Explain’: Understanding Code Compliance as ‘Subjection’. Abacus, 56(4), 602-626.

Sarah, R., & Vida, A. (2020). Business law. Pearson.

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