One of the questions which arises in the minds of young entrepreneurs is what are the benefits to get the company listed on Bombay Stock Exchange (BSE) / National Stock Exchange (NSE), well this article gets you covered on this. Listing refers to the company’s shares being on the list (or board) of stock that are officially traded on a stock exchange.
Most companies reach a level wherein additional capital is required to be infused to fund the company’s growth / expansion plans.
II. Advantages & Disadvantages of getting listed:
· Enhances the capital base of the company
· Increases the value of shareholders in the long run
· Increased Goodwill/Reputation
· Better liquidity of securities
· Involvement of various intermediaries in the process
· Time consuming
· Adhering to various compliances regularly
· Privacy issues
III. Compliance under different acts & regulations:-
Various compliances under different Acts and Regulations needs to be adhered to while getting the company listed as follows-
A.The Companies Act, 2013:-
Eligibility criteria to be complied for an IPO as per the Companies Act, 2013-
i. The company must be registered under the Companies Act,1956 or the Companies Act,2013;
ii.The issuer has net tangible assets of atleast Rs 3 Crores, calculated on a restated and consolidated basis, in each of the preceding three full years;
iii. The issuer has an average operating profit of at least Rs.15 crores, calculated on a restated and consolidated basis, during the three preceding 3 years, with operating profit in each of the three preceding years;
iv. The issuer has a net worth of at least Rs.1 crore in each of the preceding three full years, calculated on a restated and consolidated basis.
Further, the applicant who is desirous of listing its securities must also fulfill the following pre-requisites:-
a. Paid up share equity capital of the applicant shall not be less than Rs 10 Crores & capitalization of applicant’s equity shall not be less than Rs 25 Crores
b. Atleast 3 years record of either the applicant, the promotors or the partnership firm subsequently converted into a company
c. The applicant or the promoting company shall submit annual reports of three preceding financial years to NSE and also provide a certificate to the Exchange in respect of the following:
1. That the company has not referred to the Board of Industrial & Financial Reconstruction (BIFR) &/OR No proceedings have been admitted under Insolvency and Bankruptcy Code against the issuer and Promoting companies
2. The company has not received any winding up petition admitted by NCLT
3. The net worth of the company should be positive. (Provided this criteria shall not be applicable to companies whose proposed issue size is more than Rs.500 crores) [*Net Worth – as defined under SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018.
v. The applicant desirous of listing its securities should satisfy the exchange on redressal mechanism of investor grievances.
B. ICDR Regulations-
1. Promotor’s Contribution-
a. Minimum of 20% of the post issue capital of the Company for unlisted companies;
b. Following shares are ineligible for the computation of Promoter’s contribution
–Issued in last one year at a price lower than issue price, unless topped up
–Issued in last three years out of bonus issue or revaluation reserve for consideration other than cash
2. Lock-in period-
a. For Promotors-
Lock-in for a period of 3 years from the date of allotment or from the date of commencement of commercial production, whichever is later
b. Balance pre-issue capital, other than held by Indian and Foreign Venture Funds (registered with SEBI) and shares held for at least one year and being offered for sale in the issue
–Must be locked-in for a period of 1 year from the date of allotment
a. In case of public issue of securities by a company which has been listed on a stock exchange for at least 3 years and has a track record of dividend payment for at least 3 immediately preceding years.
b. In case of companies where no identifiable promoter or promoter group exists.
c. In case of rights issues.
C. Corporate Governance Requirement as per SEBI-
- Composition of the Board-
Optimum number of executive and non-executive directors with at least 50% being non-executive. If the chairman, has executive powers then 50% of Board comprises of Independent directors. While if chairman has non-executive powers, then 1/3 of the Board comprises of Independent directors.
- Audit Committee-
Mandatory constitution of Audit Committee with minimum three directors and headed by an Independent director.
All members shall be financially literate (should be able to understand financial statements) and at least one member should have accounting and financial management expertise.
- Investor Committee-
Shareholder/Investor Grievances Committee to be formed under the chairmanship of a non-executive director to look into the redressing of shareholder and investor complaints like transfer of shares, non-receipt of balance sheet, non-receipt of declared dividends.
- Subsidiary Company-
At least one director on the Board of the holding company shall be a director on the Board of a material non listed Indian subsidiary Company. Material non-listed subsidiary means a subsidiary whose turnover or net worth exceeds 20% of the consolidated turnover or net worth in the preceding accounting year
Audit committee of the listed holding company shall also review the financial statements, in particular, the investments by the unlisted subsidiary Company.
- Report on Corporate Governance-
A separate section on Corporate Governance to be included in the Annual Reports with disclosures on compliance of mandatory and non-mandatory requirements.
Submission of quarterly compliance report to the stock exchanges.
6. CEO/CFO Certification-
CEO/CFO to certify the financial statements and cash flow statements.
IV. IPO Execution Process Timeline:-
As evident from above, the entire execution process takes upto 23 weeks
As already mentioned earlier, getting your company listed on a recognized stock exchange has many advantages and hence the company once listed should comply with the necessary guidelines i.e. SEBI LODR (Listing Obligations and Disclosure Requirements) along with the relevant provisions of The Companies Act,2013.