Have you ever considered taking your company beyond private ownership between you and other shareholders to allow public to invest in your business and be an indispensable part of its growth? For companies in India, listing on a stock exchange like NSE, BSE or MSE can be a paramount step for raising capital, expanding business operations and building long term growth. However, getting a company listed involves more than making a mere decision to raise funds.
It requires meeting prescribed company listing requirements and following a defined company listing India process. So, how can you list your company on a stock exchange in India? What conditions is your business required to meet and what steps are involved in this whole process? Once you go through this blog post, all of these questions will be answered and you will have a clear idea regarding how company listing process works.
Company listing means the formal process of admitting a company's securities for trading on a recognised stock exchange, such as the National Stock Exchange (NSE), Bombay Stock Exchange (BSE) or Metropolitan Stock Exchange (MSE). Only a public limited company can become a listed company on a stock exchange.
One person companies, private limited companies, limited liability partnerships and other business structures are ineligible for company listing in their present form. For such businesses, conversation to a public company is a prerequisite to qualify for stock exchange listing.
The most common way for a company to get listed on a stock exchange is through an Initial Public Offering (IPO), which can be classified into two main types:- (i) an SME IPO, which is specifically for small and medium-sized enterprises & (ii) a Main Board IPO, which is specifically for larger companies.
An IPO allows a company to raise funds from public by offering its shares to investors, including retail investors, high net worth individuals and institutional investors like mutual fund houses and commercial banks. In return, investors get a chance to become shareholders of company and benefit from its growth through increases in share value. Many listed companies also provide dividends to the investors.
Apart from an IPO, there are several other ways for a company to get listed on the stock exchange. These include direct listing (where a company lists its shares on stock exchange without raising fresh capital through public issue), reverse merger (where a private company merges with an already listed company to get access to stock market) and demerger from a parent company (where a business division is separated from parent company and then gets listed as an independent entity).
Some of the general requirements for company listing are given below:-
The company must be registered as a public company under the Companies Act, 2013.
The company's Articles of Association must allow the free transfer of shares.
All promoter shares must be held in demat form.
The company, its promoters, promoter group and directors must not be barred from the securities market due to any action taken by SEBI.
The company must not be undergoing proceedings under Insolvency and Bankruptcy Code.
None of company's directors or promoters must have been declared a fugitive economic offender under the Fugitive Economic Offenders Act, 2018.
The company must meet the required financial conditions, including net worth, net tangible assets, paid-up capital and operating profit. The requirements for Main Board IPOs and SME IPOs are explained below.
|
Feature |
Main Board IPO |
SME IPO |
|
Net Worth |
The company must have a net worth of at least Rs. 1 crore in each of the last 3 full financial years. |
The company's net worth must be positive (subject to specific stock exchange rules). |
|
Physical Assets (Net Tangible Assets) |
The company must have at least Rs. 3 crore in net tangible assets in each of the last 3 full financial years. |
The company must own at least Rs. 3 crore in net tangible assets. |
|
Business Profit (Operating Profit) |
The company must have an average business profit of at least Rs. 15 crore in any 3 of the last 5 financial years (and make a profit in all those 3 years). |
The company must have a positive operating profit (EBITDA) of at least Rs. 1 crore in at least 2 of the last 3 financial years. |
|
Total Share Capital (Post-Issue Paid-up Capital) |
The company's total share capital after the IPO must be at least Rs. 10 crore. |
The company's post-issue paid-up capital must not exceed Rs. 25 crore. |
The company must also meet any other requirements set by SEBI and the concerned stock exchange.
The company listing process is explained below. Once you go through it, you will understand how to list a company in India through an Initial Public Offering (IPO):-
Step 1:- A SEBI-registered merchant banker needs to be appointed to manage the IPO.
Step 2:- Then, a draft red herring prospectus needs to be prepared and filed with SEBI for a Main Board IPO. However, for an SME IPO, the draft offer document needs to be prepared and filed with the concerned stock exchange.
Step 3:- Then, SEBI or the stock exchange reviews the document and issues its observations. The company must address these observations and file an updated offer document.
Step 4:- Once SEBI or the stock exchange is satisfied with the updated document, it grants in-principle approval for the listing.
Step 5:- Thereafter, the company files the final prospectus with the Registrar of Companies (RoC) and completes the required stock exchange formalities before the public subscription opens.
Step 6:- After that, the IPO opens for public subscription for a few days. During this period, investors can place their bids. Their funds remain blocked through the Application Supported by Blocked Amount (ASBA) facility.
Step 7:- The basis of allotment is finalised, and the blocked funds of unsuccessful bidders are released.
Step 8:- Finally, within the T+3 timeline, the company's shares are listed on the stock exchange.
Many companies in India dream about getting listed on a stock exchange. However, the process is not exactly as simple as you might think it is. It requires careful planning as well as meeting various requirements like having public limited company status and fulfilling net worth, net tangible assets and operating profit criteria. A SEBI-registered merchant banker must also be appointed to manage IPO. The entire process can take considerable time and cannot be completed in just a few weeks. For some companies, getting listed on the stock exchange through IPO can actually take years, especially those that do not fulfill eligibility requirements on time or draft offer document with too many inconsistencies.
Looking for assistance with getting your company listed on a stock exchange? Get in touch with our IPO consultants at Registrationwala for complete guidance and support throughout the entire process.
Book your free IPO consultation with us today!
Q1. Why do companies list on a stock exchange?
A. Companies list on a stock exchange mainly to raise funds for business growth and expansion. Other reasons include improving brand value and increasing trust of the public.
Q2. On which Indian stock exchanges can I list my company?
A. You can list your company on any of the leading stock exchanges to attract investors, including National Stock Exchange, Bombay Stock Exchange and Metropolitan Stock Exchange.
Q3. Which authority is the primary regulatory body for governing the company listing requirements in India?
A. The Securities and Exchange Board of India (SEBI), which is India’s financial market regulator, is the concerned regulatory body for governing company listing requirements through SEBI (Listing Obligations and Disclosure Requirements) (LODR) Regulations, 2015 and SEBI (Issue of Capital and Disclosure Requirements) (ICDR) Regulations, 2018.
Q4. What are some examples of companies that got listed on stock exchanges without initial public offering?
A. Examples of companies that got listed on stock exchanges without initial public offering include Reliance Home Finance, 5 Paisa Capital, Aditya Birla Capital, Arvind Fashion and Sintex Industries.
Hey there, I'm Dushyant Sharma. With the extensive knowledge I've gained in past 8 years, I have been creating content on various subjects such as banking, insurance, finance and all the important registration and licensing processes for various companies. I'm here to help everyone with my expertise in these areas through my articles.
Want to know More ?
Transform your Business.
