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UK Listing Rules reforms: Controlling shareholder regime and dual-class share rights

This is the last publication in a series of Allen & Overy publications on the FCA's Consultation Paper (CP23/31) setting out its detailed proposals for listing rules reforms as part of its Primary Markets Effectiveness Review. You can find all our previous publications on CP23/31 here.

In this publication, we explore the impact of CP23/31 on the controlling shareholder regime and dual-class share rights. We also briefly consider the impact of the FCA's proposals on sovereign controlled commercial companies. 

The relaxation of eligibility requirements and continuing obligations, together with greater flexibility in control rights accommodated by weighted voting rights, better positions the UK as a listing venue for new economy and growth companies. However, there are various other considerations that will influence an applicant's choice of listing venue.

The FCA has retained the controlling shareholder regime to address lingering concerns about the potential for prejudicial behaviour by controlling shareholders. Whilst some may have liked the regime to be placed on a comply-or-explain basis, the actual impact of the rules might be more limited given the relatively restricted nature of the requirements and circumstances in which they will apply.

For weighted-voting rights, the only real constraint is the persons that may benefit from them – natural persons who are existing shareholders. The rationale being that their personal, and likely ongoing, contribution justifies the additional voting power, with the most obvious candidate being a founder who is part way through the delivery of their vision for the company. Any other limitations will be for the market to self impose. This does mean that pre-IPO institutional investors will not be able to benefit from such rights.

Controlling shareholder regime

Controlling shareholders (being shareholders who exercise or control, including together with any person with whom they are acting in concert, 30% or more of votes able to be cast at general meetings) are actively involved with companies in which they have a significant share. They typically prefer a long-term and strategic approach to managing such companies. Therefore, there are certain requirements for the interaction between a premium listed company and a controlling shareholder, which aim to impose a standard of behaviour for the independent operation of the listed company and to safeguard the interests of minority shareholders, including the requirement for:

  • the company and its controlling shareholder to enter into a relationship agreement containing undertakings which are prescribed by the Listing Rules and are designed to ensure that the company conducts transactions with controlling shareholders and their affiliates at arm's length and on normal commercial terms, and that the controlling shareholder and its affiliates will not prevent the company from complying with, or seek to circumvent the proper application of, the Listing Rules; and
  • the company's constitution to provide that the election and re-election of independent directors requires approval by the independent shareholders as well as by all shareholders.

In its previous consultation (CP23/10), the FCA proposed a comply-or-explain approach to the requirement for a relationship agreement. It also proposed to retain minority shareholders' additional voting power when electing independent directors. However, some stakeholders expressed concern about the presumptive weakening of the controlling shareholder regime and questioned the rationale for reversing the current approach. The feedback framed the issue of the role and importance of relationship agreements in the broader context of the other changes proposed for the commercial companies category. It also highlighted the potential risks arising from a combination of related party transactions no longer being subject to shareholder approval and the potential increase in the listing of companies with multiple class share structures.

As a result, the FCA has decided to retain the current controlling shareholder regime for all companies in the commercial companies category and companies with a controlling shareholder must still prove that they can carry on their main business activity independently from the controlling shareholder. The FCA also proposes to retain its existing ability to refuse a listing where the applicant has granted, or may be required to grant, security over its business to a controlling shareholder as this risks a complete loss of value and control for minority shareholders, which the FCA regards as detrimental to investors' interests.

Dual (or multiple) class share rights

The "one-share, one-vote" notion is widely regarded as a fundamental investor protection. It ensures that the management of a company remains accountable to investors at all times. Before December 2021, companies listing on the premium segment could not have a dual-class share structure, although this restriction was not imposed on companies listing on the standard segment. Dual-class share structures give certain shareholders, such as founders, employees, or pre-IPO investors, enhanced voting rights over other shareholders that are disproportionate to their economic interests. There have been concerns that providing enhanced voting rights to certain individuals allows them to control decision-making without the full scrutiny of those providing the company's capital, and increases risks of conflicts arising between entrenched founders, management and other shareholders. In essence, if certain investors have no effective vote, will their views still matter, and will shareholder engagement be compromised?

In the United States, dual-class share structures are more common, especially among technology companies (e.g. Snapchat and Facebook). In 2023, about 44% of tech companies listed in the US had a dual-class share structure, while around 22% of non-tech IPOs had one.1 Although some high-profile companies have listed in recent years on the standard segment with dual-class share structures (e.g. THG, Deliveroo, Oxford Nanopore, and Wise) there is a sentiment that the current restrictions are discouraging some founder-led technology/life sciences companies from listing in London. The ability to have a dual-class voting structure can be important for innovative, high-growth companies when deciding on an IPO venue. This structure is particularly attractive to rapidly growing companies where founders want to retain voting control after an IPO. The main argument in favour of this structure is that it allows visionary founders to focus on the company's long-term strategy, growth, and performance without worrying too much about short-term targets.

In December 2021, the FCA introduced a targeted and time-limited form of dual-class share structure for premium listings. The FCA is now proposing a more permissive approach to dual-class share structures by:

(i) removing the mandatory time-related sunset period on enhanced voting rights (currently five years from the date of initial listing);

(ii) removing limits on the maximum enhanced voting ratio (currently limited to 20 votes per share);

(iii) allowing enhanced voting rights to apply to shares held by a broader range of shareholders, including directors, investors who are natural persons, employees of the issuer and persons established for the sole benefit of, or solely owned and controlled by, any of them (the current regime applies only to directors and a beneficiary in their estate after their death); and

(iv) permitting enhanced voting rights shares to be used on a wider range of shareholder votes, including reverse takeovers and the election and re-election of independent directors (other than where the controlling shareholder regime would restrict the holder from voting).

These changes could encourage a more diverse range of companies to list in the UK and allow market practice and industry norms to determine the appropriate constraints.

The FCA intends to limit the ability of shareholders with enhanced voting rights to influence a vote that might harm the rights and benefits enjoyed by the general listed class of shares. As a result, voting of the shares with enhanced rights will not be permitted on matters that might potentially be damaging to minority shareholders, such as approval of a cancellation of listing or transfer to another listing category, approval of employee share schemes and incentive plans, approvals of discounts above 10% in respect of certain equity raising transactions, and dealings by the issuer in its own securities and shares.

Sovereign controlled commercial companies

Since 2018, sovereign controlled commercial companies have been able to list shares and global depositary receipts in a separate premium listing segment without being required to comply with certain requirements that would apply to non-sovereign controlled commercial companies with a premium listing. So far, no companies have been listed in London under this regime. The FCA proposes to discontinue the sovereign controlled commercial companies category, meaning that shares in sovereign controlled commercial companies will now be listed in the commercial companies category, subject to specific disapplications of certain requirements relating to control and ownership including:

  • removal of the requirement for the sovereign controlled company to carry on its main business activity independently from the sovereign controlling shareholder; and
  • disapplication of the requirement for a 'fair and reasonable' statement from a sponsor in respect of a related party transaction (see our recent publication on proposed FCA reforms to significant and related party transactions) with the sovereign controlling shareholder, or for any director who is the sovereign controlling shareholder (or is affiliated with them) to recuse themselves from the board's consideration of such a related party transaction.

Sovereign controlled commercial companies wishing to list global depositary receipts will do so through the new category for certificates representing securities.


The FCA has been careful to strike a balance in proposing far-reaching reforms to promote the growth and competitiveness of London's capital markets while ensuring the reforms are proportionate, effective and provide adequate protection for investors. The FCA acknowledges that the Listing Rules reforms alone are unlikely to increase London's attractiveness as a capital markets and financial services hub. Therefore, access to a stronger UK investor base, increasing liquidity in UK capital markets, closing valuation gaps for UK listed companies, improving UK equity research coverage, revisiting stamp duty on share transfers, and changing UK investor attitudes toward executive remuneration will be necessary.

A link to the Consultation Paper (which includes a draft of the first tranche of the new UK Listing Rules sourcebook) can be found here. The consultation closes on 22 March 2024, and the FCA intends to publish the final UK Listing Rules sourcebook via a Policy Statement at the start of the second half of 2024, with a brief period of two weeks before implementation.


1. Jay Ritter, Initial Public Offerings: Dual Class Structure of IPOs Through 2023.

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