Penny stocks are low-priced stocks that are usually issued by new, young and growing companies to get the finance for growth to become the next giant Microsofts, IBMS, Apples and many other companies. AIM is an acronym for Alternative Investment Market and is the secondary stock market in the United Kingdom that offers companies to get listing with minimum requirements at flexible terms, which otherwise would not have been possible getting listed at the main stock exchange market.
AIM is perhaps, one of the world’s most favourite place for young and newly growing companies to issues penny stocks and raise funds that could not have been possible with big listing requirements at the London Stock Exchange. AIM started back in 1995 and over the course of 16 years, attracted well over 3,000 firms from different established niches to raise funds. The companies listed at AIM stock exchange are usually entitled to several tax benefits and relaxed terms of raising finances through the public.
There is a big difference in the listing requirements of AIM and LSE. LSE requires a certain level of minimum market capitalization along with having at least 25% of shares held by the public to be eligible to get registered and continue that registration. Moreover only those companies having a successful 3 year minimum past trading record would be registered. If we do a comparison of both markets, AIM does not have strict quality criteria for listing.
AIM is home to over 65 billion GBP of accumulated funding raised by growing companies from 1995 to 2010. Out of these, 20% of the companies are from oversees. Combined, well over 40 sectors make up the unique structure of AIM.
The listing requirements do not require minimum market capitalization, past trading records, and level of shares to be held by the public. The company is free to select as many people as it wants from the public to give ownership to in the form of penny stocks and low cap shares as deemed appropriate. One of the toughest requirements for the admission though is that the company needs to establish a strong PR with the public. That means that company’s sales growth, and other strategies must be clearly and honestly defined to the media, the shareholders and the general public to maintain high level of portfolio and reputation in the market.
In order to be eligible for listing, the company must appoint and maintain a reputed nominated adviser at all times and these responsibilities are set out in the respective AIM rules for Nominated advisers. It is compulsory for all companies to have a nominated adviser with them at all times, failing which could result to temporary suspension of trading securities on the floor and even leading to permanent exclusion (cancellation) from AIM.
Ideally companies join Aim specifically to raise funds on small shares for growing companies that want to become the future giants. This process also involves developing a long term relationship with the key customers and suppliers so that the business remains liquid enough to continue its business operations.
Investors highly regard independent research to determine the company’s financial strengths and weaknesses. This is the most preferred method of investors and one that is virtually free from mistakes or bias. Those companies having independent research are likely to incur fewer losses and gain more momentum and speed in raising funds for their business operations.