AN bhfuil cead agam dul amach, mais e do thoil e?

Like the small schoolboy, or girl, entrepreneurs who seek a share quotation on the new Developing Companies Market (DCM) will have to ask their masters for permission to sell their shares. That is, if Independent Telecoms Group (ITG), a communications equipment group, the first entrant to the DCM market, is to be a model for others to follow.

The prospectus makes it abundantly clear that the director shareholders - John Nagle and Maurice Healy cannot dispose of their shares "without the consent of Townsley & Co and Goodbody Stockbrokers" prior to the publication of the results for the year ending April 30th, 1998. And then they can only be sold through Townsley & Co and Goodbody Stockbrokers "during the second 12 month period following admission", i.e. toward the end of 1998.

Are these over restrictive? Or are such assurances necessary in a new issue to give some degree of comfort to new investors?

Obviously some assurances about the sale of shares are necessary. Otherwise founder directors could put a favourable gloss on the prospects of the company, wait for a suitable opportunity, then sell a large whack of their holdings, leaving the new shareholders, and financial backers, with red faces.

New investors need to be assured that the founder directors are committed to their company. There is no better way to display this than by making a commitment to keep their shares. That is why markets rightly frown on new issues where the entire proceeds go into the pockets of the founders with nothing going into the company.

The flotation last month of Qualceram, the Arklow bathroom suites manufacturer, involved the raising of £6.4 million through a placing of new shares. However, only £1.9 million went into the company. The remaining £4.5 million was raised for the three founding directors John O'Loughlin, John Byrne and Tom Byrne - or £1.5 million a piece. It could be argued that the initial take out was too large and that it would have been preferable to take less at this stage and take out more as the company develops.

The prospectus explained the placing thus: "The group is developing rapidly under current management and has reached a stage where it needs additional working capital to develop its products and markets. In addition, the founder shareholders wish to reduce their percentage interest in the company by realising some of their investment."

With most of the funds going to the existing share holders, would it not have been more correct to reverse that order? The main reason was obviously to provide an exit mechanism for the founders.

There is, of course, nothing wrong with founding shareholders realising part of their investment. Indeed, it is important that there are mechanisms in place to allow this.

Some investors may be wary about the founding directors cashing in so many of their shares at such an early stage. However, unlike some other publicly quoted companies, they are taking very modest salaries - £58,000 a piece (they will get almost as much in dividend income) - and will each retain a 21.5 per cent stake.

Also they have agreed not to sell any shares prior to the publication of the results for the year ended December 1997 - i.e. early next year - "otherwise than with the prior consent of English Trust (the main sponsor)".

This is less restrictive than the obligations on the founding directors of ITG who went for what is meant to be a less onerous DCM listing. Also, there is no mention in the Qualceram prospectus (the full listing), of an obligation to sell shares through a specific broker.

Yet the requirements for the DCM were meant to be less onerous than the rules for a full listing. And, unlike Qualceram, the ITG founding directors are taking out only £200,000, so virtually all of the £1.7 million being raised goes into the company.

It has taken the Irish Stock Exchange more than a year to get the new DCM off the ground. Designed to be an alternative to the British Alternative Investment Market (AIM) - ITG has also gone on AIM - it is meant to encourage emerging companies to get a share quotation at less cost than a full listing.

The costs are less but if the market is to take off, the sponsors will have to ensure that the restrictions on share sales by the founders are sufficient to protect new investors but not so onerous as to frighten off new entrants.