2003 • Volume 28 • Number 3

Can UK Small Businesses Obtain Growth Capital in the Public Equity Market? — an Overview of the Shortcomings in UK and European Securities Regulation and Consideration for Reform

Hse-Yu Chiu

This article deals with several aspects of the need for growth capital for small businesses in the UK. First, the article makes a comparison between equity and debt capital as financing options for a growing small business. The article then advocates the superiority of equity capital in meeting small business needs. Equity capital, supported by the legal rules on the maintenance of capital, provides small businesses a degree of permanence that is important for growth purposes. The article then examines the advantages of public equity financing and advocates the view that public equity is better suited to meet growth capital needs because it allows perpetuity in the capital provided This degree of perpetuity is provided by the availability of secondary markets where shares could change hands. The article next explores the weaknesses in the UK and European legal infrastructure in securities regulation and why it does not meet small business needs in seeking public equity financing. These weaknesses may be further augmented if the European draft Prospectus Directive comes to pass. This article concludes by recommending that Europe should consider the modification of its one-size-fits-all mandatory disclosure rules in securities regulation and adopt a tiered disclosure regime based on issue size, akin to US. federal securities law, in order to facilitate small business access to the public equity markets.