Listing your Company on Stock Exchange
To list any company in the stock exchange is not easy. This is because when a company wants to be listed in the stock exchange it has to satisfy many legal requirements under the lays regulation public companies as well the stock exchange listing requirements. However when a company is listed in a stock exchange it enjoys many benefits compared to when it was a private limited liability company.
What is listing?
It is the process of taking a privately-owned organization and making the transition to a publicly-owned entity whose shares can be traded on a stock exchange.
How to get listed?
The amount of time taken to list can range from three months to two years, with six months being typical. However, here are the tips on how to get your company traded publicly:
1. Appoint an investment banker
You will need to hire a reputable investment banker who can increase your company's chances of appearing on the stock market by creating more appeal and ensuring that all the paperwork with the Securities and Exchange Commission (SEC) goes smoothly.
2. Smooth over the details
You will need to make sure the details are stipulated with your banker in terms of what type of security you will offer and the finances that you aim to raise. The bank will usually either provide a firm commitment (guarantee the sale of a certain amount of securities) or best efforts agreement (bank sells the stock but doesn't make any guarantees on the amount sold).
3. Compile the registration statement
Compile the registration statement with the Financial Services Board, who will review the company's management background, legal issues, what the money will be used for, and insider holdings.
4. Create hype
While the Financial Services Board is reviewing your registration, you and the investment banker will need to create hype in the stock. Although you won't know when the release date is, you will need to try and sell stock to investors before it even hits the market so that it starts off strong and the price can rise faster.
5. Select a price for the stock
Select a price for the stock as you aim to make as much money as possible. The higher you start, the more you will be able to make per share. This is why you and the investment bank will need to carefully plan the exact figure you aim to charge per share.
6. Track the stock
It is vital to track the stock on the stock market as it is likely to fluctuate up and down. Shares will and the finances will be given to the business so that it can further invest it to make the company stronger. Cited: MSN-Business, 2012.
Benefits of listing your company on stock exchange
The main benefit a company enjoys when listed in the stock exchange is that it enhances its brand name and thereby it adds value to the company. As well it can add value by implementing an employee share holding scheme. In this manner a company can add value as opposed to a private limited company not listed in the stock exchange.
The other advantage is that it can issue new shares to the public or issue rights issues to existing share holders as opposed to a company not listed in the stock exchange because private companies not listed in the stock exchange cannot issue shares to the public at large. In addition, a company listed in the stock exchange has access to a variety of share holders. For example it can attract institutional investors or some foreign investors. This enables the company to embark on expansion of the company's activities and grow in the future.
In addition to the above as a company when listed in the stock exchange also has a benefit because its shares can be priced because it can be traded in the stock exchange and has a price signal as opposed to a private company not listed in the stock exchange. As well a company listed in the stock exchange can access more capital with minimal cost compared to a private company not listed in the stock exchange.
While there are benefits to going public, it also means additional obligations and reporting requirements on the companies and its directors:
- Increasing accountability to public shareholders
- Need to maintain dividend and profit growth trends
- Becoming more vulnerable to an unwelcome takeover
- Need to observe and adhere strictly to the rules and regulations by governing bodies
- Increasing costs in complying with higher level of reporting requirements
- Relinquishing some control of the company following the public offering
- Suffering a loss of privacy as a result of media interest
As the owner or major shareholder of a private company, it is important to outweigh the benefits and costs of listing in the light of the plans and goals that have been set for the company. Discussions with lawyers, independent accountants and other professional advisors will also provide you with better considerations. Cited: Wiki-answers, 2012.
Page Updated: 05 June 2015