A growing number of new floats on the Alternative Investment Market (AIM) have been Isle of Man (IoM) companies; it is estimated that approximately 5% of all AIM-traded companies are incorporated in the IoM. This suggests that international businesses are realising the advantages of using an IoM vehicle to access the AIM market.

There are a number of specific factors which have contributed to the success of the IoM as a jurisdiction for AIM listings:

. the island has a high-quality and stable political, legal, fiscal and regulatory environment and has received an AAA credit rating from both Standard & Poor's and Moody's credit rating agencies;

. closed-ended investment companies are not classed as funds under IoM law and are not therefore subject to the IoM funds regulatory regime, which results in a saving of time and costs. No regulatory approval is required to form a public company;

. the quality of the island's professional infrastructure. There are many lawyers, accountants, administrators and banks on the island who have the expertise and experience to deal with AIM listings;

. this year has also seen the implementation of the Manx tax strategy which has been the subject of much planning, fine tuning and consultation over the past five years. As a result, the general rate of corporate income tax in the IoM is now 0%, so Manx companies are tax neutral, yet do not have to comply with any tax exempt regime;

. The provision of company administration services is a regulated activity in the IoM. All persons providing such services are required to be licensed by the IoM Financial Supervision Commission (FSC). As a result, the island has developed a professional and mature corporate service provider sector.

. The IoM has a common law legal system and the island's laws in most areas are very similar to those of England. In particular, credit and security concepts are the same and London-based banks and their lawyers are therefore comfortable dealing with the IoM; and

. The IoM is only an hour's flight from London and within the same time zone, making board meetings easy to arrange and attend.

New companies legislation

The benefits of using an IoM vehicle for AIM listings will be further enhanced with the introduction of new company legislation later this year. Traditionally, Manx company legislation has been based on English company law statutes and the existing IoM Companies Act 1931 closely follows the English Companies Act 1929, subject to certain amendments unique to the IoM.

The new IoM Companies Act 2006 will introduce a new simplified corporate vehicle into Manx law. The new corporate vehicle follows the international business company model which is available in a number of offshore jurisdictions.

The new legislation is anticipated to come into force in November 2006 and once in force the Act will be largely a standalone piece of legislation. Companies incorporated under the Act will co-exist with present and future companies incorporated under the existing Companies Acts 1931-2004.

Principal features of the new companies legislation

Companies incorporated under the new Act will have far more flexibility (in terms of capital restructuring and returning capital to its members) and will be easier to administer than 1931 Act Companies.

Some key features of the new Act are set out below.

. The Act does not distinguish between public and private companies and (subject to any restrictions in a company's memorandum or articles of association) any type of company under the Act will be able to offer its securities to the public.

If a company does issue an offering document, the criteria with which the offering document must comply are far less prescriptive than the traditional prospectus requirements which apply to 1931 Act companies. The Act simply requires the directors to ensure that any offering document issued in relation to a company contains all material information that the intended recipients would reasonably expect to enable them to make an informed investment decision and of which the directors were aware or would have been aware had they made reasonable enquiries. An offering document may be filed at the IoM companies registry if the company chooses to do so.

. The Act sweeps away the traditional concept of capital maintenance. A company incorporated under the new Act will not need to classify its assets as income or capital. Instead, the Act will allow a company to distribute its assets to its members (whether by way of dividend, buy back or redemption of shares or otherwise), provided that the directors of the company are satisfied that the company will, immediately after the distribution, satisfy the solvency test. A company will satisfy the solvency test if it is able to pay its debts as they become due in the normal course of its business and the value of its assets exceeds the value of its liabilities.

. Similarly, a company will be able to reduce its share capital in any way, without the need for the sanction of the court, provided that the directors are satisfied, on reasonable grounds, that the company will immediately after such reduction, satisfy the solvency test.

. There are reduced compulsory filings under the new Act. In particular, there will be no requirement for a company to file details of its members with the Registrar of Companies or to notify the Registrar of any changes in its directors (although details of a company's directors will need to be included on its annual return).

. The Act contains very few prescriptive rules relating to members meetings. Companies are not required to hold annual general meetings and the Act will allow members meetings to be held at such time and in such places, within or outside the IoM, as the convener of the meeting considers appropriate. Listed companies will of course provide for annual members' meetings in their articles of association.

. The Act also introduces an amount of flexibility in relation to the constitution and conduct of board meetings; however, most of these provisions will not be of relevance to listed companies.

. The Act provides an extensive range of member protection provisions. Under the new legislation, members will have the right to apply to court for a restraining compliance order, the right to bring derivative actions, remedies for oppressive or unfairly prejudicial conduct, the right to bring personal actions and the right to apply to court for an order that an investigation be made of the company and any of its associated companies.

Every company incorporated under the new Act will have to have a registered agent in the IoM. Only corporate service providers who hold the appropriate licence issued by the FSC will be able to act as regis-tered agents. This requirement ensures that there is a licensed professional on the IoM overseeing the administration of the company.

The result

The introduction of the zero rate of corporate income tax in the IoM and the proposed implementation of new company legislation, when added to the existing benefits which the IoM has to offer in terms of its professional expertise, means that the use of an IoM vehicle to access the AIM market will continue to be an extremely attractive proposition for businesses wishing to benefit from the advantages of floating on AIM.

Simon Cain is a partner at Dickinson Cruickshank.