Listing companies on the stock exchange, or IPOs, is the optimal way for companies that are not listed or traded in particular to raise funds from the open market. Subscription is a process in which the company’s shares become publicly available, and the listed company can buy and sell its shares according to the rules regulating the trading.
The listed company is a public company that has put forth its shares through the stock exchange; each share represents a small share of the company’s ownership. These shares -whose value rises or decreases on demand- can then be bought and sold by investors.
But the company must apply to the stock exchange to be listed, and each exchange determines its own requirements, which typically include minimal cash flows and the company’s assets. The company must also adhere to the exchange’s corporate governance standards.
Since they are public companies, all listed companies are regulated by the Securities and Exchange Commission. This means, among other things, the company must publish its quarterly and annual financial reports.
Listing companies on the stock exchange is very significant. According to a report by E&Y in 2021, 72 IPOs were launched in India between January and September, which raised USD 330.66 billion.
Below is “Entrepreneurship KSA”, reviews the benefits of listing companies on the stock exchange.
The primary objective of listing companies on the stock exchange is to raise funds; the company can issue new capital to raise funds for growth and expansion. When shares are subscribed there is a large flow of money from the market.
This would give the company the means to meet a large part of its financial needs. Funds can also be used to reduce a company’s debt. Thus, listing companies on the stock exchange allows companies to benefit from investor funds that are used for business expansion purposes.
The listed company can also borrow money more easily from an external source when it needs it. Moreover, increased transparency and verification of financial statements from external and internal auditors increase lenders’ confidence in the company’s ability to repay funds.
Exit route for existing investors
Many stakeholders own shares of many private companies, including promoters of the company and private investors. If these investors want to liquidate their share in part or in whole, listing companies on the exchange can give them a solution.
These investors offer their shares to the public through a sale offer (OFS). By listing, current shareholders can exit the company and direct their money to the destination they want.
Liquidity and equity marketability
When companies are listed on the stock exchange their shares can be traded easily. The stock exchange is a subsidiary for the sale and purchase of securities. The listing allows the company’s shares to participate in various trading processes. Thus, stocks are easily marketable and are able to access liquidity- efficiency or ease with which an asset or security can be converted into ready cash without affecting its market price- an initiative that motivates investors to own a stake in the company.
Strict regulations to be followed by the company at the time of listing and until the end – even if the company is liquidated – are considered to be a dual benefit for the company and stakeholders. Increased transparency generates greater confidence among investors regarding the feasibility and profitability of their investments. At the same time, it allows the company to follow a structured process to build and maintain its high credibility.
Facilitation of acquisitions
Listing companies on the stock exchange gives companies the necessary funds through which they can acquire smaller companies in the same business to achieve advanced growth. The huge size of the finance also allows the company to expand which directly affects its profitability.
Improving brand reputation
Another feature of the listing is that it generates brand awareness. It is worth to pose this question: How many companies did you have a glimpse of their IPOs?
Through listing, companies attract the attention of investors and analysts who study their basic and technical aspects. This creates a public profile of the company and can also play an important role in enhancing its goodwill and reputation in the market.
Enhancing transparency and efficiency
Listing companies on the stock exchange promotes transparency and efficiency in the company’s overall operations. The board and management team of a listed company are responsible to the shareholders. Furthermore, listed companies need to ensure timely compliance by providing information and disclosure to the stock exchange and shareholders as stipulated in the listing agreement or applicable guidance.