Section 68 of the Companies Act, 2013 signifies that any company limited by shares or guarantees with share capital can opt for Buyback of Shares and other specified securities. Whether...
We have heard a lot about companies listing on the stock exchange. But a very few of us are aware of the benefits of stock exchange listing.
Listed companies get more exposure as compared to unlisted. Moreover, the shares of a listed company are freely tradable, and investors have the choice to sell and purchase them at their discretion.
Likewise, companies listed on the stock exchange have got a plethora of advantages. Generally, there are two types of companies- listed and unlisted. From listing we mean the company listed on the stock exchange.
Both the listed and unlisted companies have their own pros and cons and differ from each other on several grounds.
However, both of them are formed with the common objective of profit maximization. Hence, in this piece of article, we have put some light on how listing on the stock exchange will help you take your business to the next level.
Browse through our articles on services provided at Swarit Advisors, and just let us know if we can help you with your IPO or Comapny Takeover or SEBI Advisory Services.
What is a Stock Exchange?
Before we discuss the stock exchange, let’s understand what is meant by an exchange.
An exchange is an association/organization which hosts a market where stocks, commodities, bonds, futures and options, etc. are traded. Sellers and Buyers come together on an exchange to trade financial instruments at specific hours of business days.
Now coming to the stock exchange, it’s a facility provided to companies where stocks are traded. Any company willing to trade in the stock exchange must be listed on it. The exchange facilitates the issuance and redemption of securities.
In India, there are two more popular stock exchanges, namely- Bombay Stock Exchange and National Stock Exchange. However, we have a total of six stock exchanges in India.
Note: Stock exchange does not own the stocks. It only lets companies/entities to trade the stocks. It is similar to a vegetable market where buyers purchase vegetable from the sellers at a particular location but the market doesn’t own the vegetables.
What is Listed Company?
A listed company is the one whose shares are traded/quoted/listed on an official stock exchange for public trading. Such companies have to adhere to the listing requirements of that exchange strictly. Besides, this may also consist of a minimum earning level and number of shares listed on the stock exchange.
Usually, such companies take out an IPO (Initial Public Offering) through which they sell their shares to the public. In turn, they receive capital. After that, the stock exchange lists such companies and let them trade their shares.
The price of the shares is decided on the basis of the supply-demand of the share. The BSE (Bombay Stock Exchange) in India lists over 600 companies.
List of Stock Exchanges in India
As per SEBI, there are a total of six stock exchanges in India out of which three are permanent. The list of the same is given below:
|1.||BSE (Bombay Stock Exchange) Ltd.||Permanent|
|2.||Calcutta Stock Exchange Ltd.||Permanent|
|3.||India International Exchange (India INX)||Dec 28, 2019|
|4.||Metropolitan Stock Exchange of India Ltd.||Sep 15, 2019|
|5.||National Stock Exchange of India Ltd.||Permanent|
|6.||NSE IFSC Ltd.||May 28, 2020|
Top Ten Benefits of Stock Exchange Listing in India
Companies listed on the stock exchange get exposure, capacity to uphold control, increased accountability, etc. Apart from this, there are several benefits of stock exchange. We have brought to you ten topmost advantages of the same as given below:
One of the most significant benefits of listing companies on the stock exchange is that listed companies have a better profile.
Furthermore, they are more visible and recognizable when compared to their privately-held counterparts. In turn, this helps the company to allure new customers and clients towards it.
Besides, it also aids in drawing the attention of media, which might be daunting and expensive for unlisted companies.
Access to Capital
According to studies, one of the major impairments to business growth is the lack of affordable capital.
However, companies listed on stock exchanges can easily raise affordable capital by dispensing more shares to investors for the buying purpose.
Additionally, the capital raised could be utilized for the company’s growth and paying for different costs.
Collateral Value of Securities
Lenders accept the listed securities as collateral for credit facilities. Moreover, a listed company is eligible to borrow from the financial institutions easily since it is rated favourably by the lenders of capital.
Furthermore, the company can opt for raising extra funds from the public through the new issue market with high assurance. Hence, listing a company on a stock exchange would surely be beneficial.
Capacity to Uphold Control
Usually, listed companies do not depend on the capital provided by venture investors. In return for acquiring shares of a confidentially-held company, venture capitalists have to regularly uphold on possessing some degree of the company’s regulation.
Stock exchanges let companies maintain more control and sovereignty, for the reason that people who get the shares of a publicly-traded corporation only hold the limited rights accessible to all stakeholders.
The listing of the company reinforces liquidity by providing shareholders the opportunity to realize their investment value. Besides, it lets shareholders negotiate in the shares of the company, sharing risks and benefitting from any increase in the organizational value.
Transparency and efficiency
Transparency and efficiency are two such aspects that are crucial for the company’s operation and growth. Listing brings both efficiency and transparency to the company. Besides, the management team and board of the listed company hold accountability towards its shareholders.
Furthermore, the listed companies also require following the timely compliance by providing disclosure to the Exchange/Information/shareholders as per the applicable guidelines or as setting up in the listing agreement.
When the company goes public, it enhances its credibility as well as visibility among institutions and the investing public. The same is due to the reason that such companies have to comply with several regulatory norms. Furthermore, at the time of conducting operations, it ensures complete transparency.
Achieving a higher return on investment is something every company or business in the world requires. Stocks are uncertain assets that imply that they don’t have any assured return and have the risk of losing money.
Nevertheless, the stock market’s long-run trend has been rising indisputably. Stocks have the uppermost return of any venture asset over the long term. Hence, it is again one of the most important benefits of stock exchange and listing.
A company listed on the stock exchange often gets more exposure than others. IPOs are mostly advertised and could be covered in investment journals, financial magazines, and news stories.
Investors are more interested to invest in listed companies. In turn, the company grows even more when more investor invests more capital in the same.
Companies listed on the stock exchange have greater financial accountability. Furthermore, every listed company needs to follow the exchange rules strictly.
Besides, it must be transparent in every business dealing and financial data reporting. In turn, it lets listed companies to promote accountability for the actions of all company managers, leaders, and insiders.
In addition, a company that needs to be transparent and financially accountable might savor greater success than that privately-held.