Listing of Securities

Chapter Objectives

To understand the concept of listing of securities To know the criteria for listing shares

To learn the listing procedure

To understand the concept of delisting

Concept of Listing of Securities

It means the admission of shares of a public limited company on the stock exchange for the purpose of trading. A company intending to have its shares listed on the stock exchange has to write an application to one or more recognised stock exchanges. A company becomes qualified to list its shares after getting the prior permission from the stock exchange.

Some of the advantages of listing of securities are:

Liquidity

Best prices

Wide publicity

Some disadvantages of listing of securities are:

Subjected to various regulatory measures Expensive exercise

Criteria for Listing

A company that wants its securities to be listed in the stock exchange has to fulfil certain minimum requirements, such as:

Minimum issued capital: A company should have minimum issued capital of Rs. 3 crores and the minimum public offer must be of Rs. 75 lakhs. Listing on multiple exchanges: It is essential for a company to get listed in the stock exchange if its paid up capital is above Rs. 5 crores. Number of shareholders: A company must have a minimum ten shareholders. Articles of Association: The Articles of Association must be prepared in line with the sound corporate practice of a company. Advertisement: A company during the subscription period must not advertise by thanking the public for their overwhelming response. Applying mode: A company must issue a prospectus, which provides information on how the investor should apply for the shares. Public offer size: A company, in the first page of the prospectus must state the size of the public offer and the value of shares.

Listing Procedure
To get the listing permission from the stock exchange, a company has to undertake the following steps:

Preliminary discussion: A company must have a detailed discussion with the authorities of the stock exchange in order to acquire complete knowledge about the various formalities to be completed for listing of securities. Articles of Association approval: A company must fulfil the following requirements in order to get the Articles of Association approved by the stock exchange authorities:

It must use a common form of transfer. In case of distributing dividends, it must comply with Section 205-A of the Companies Act. The free dealing of shares must not be restricted by any provision.

Draft prospectus approval: It is very essential for a company to get its draft prospectus approved from the stock exchange authorities. A prospectus must contain all the information required by the stock exchange.

Listing Application

A company that wants to offer its shares through the prospectus must file an application to the stock exchange. A company has to file following certificates alongwith the prospectus:

Three certified copies of the memorandum and articles of association, and debenture trust deed. A copy of every report, balance sheet, valuation, court order, etc. as specified in the prospectus. Certified copies of underwriting, brokerage and sales managers agreement. Copies of agreements with the financial institutions.

Listing Fee

It is a fee charged by the stock exchange from the company for permitting the companys securities to be traded in the exchange.
It varies from major stock exchanges to regional stock exchanges.

It also varies due to the equity base of the company.

Listing of Right Shares

A company has to fulfil certain formalities in case of listing right shares in the stock exchange, such as:

A company must inform the stock exchange about the date of meeting with the Board of Directors for considering the proposal of listing right shares. A company must obtain the consent of the shareholders by passing on a special resolution. A company must file a letter of offer that provides the financial information about the current market price of the share. A company must file a letter of offer within six weeks. A company must file a specimen copy of the offer letter to the stock exchange.

Delisting

It is the removal of a companys shares from the listing in the stock exchange. Delisting can be of two types:

Compulsory: The causes for compulsory delisting are as follows:

Non-payment of the listing fee Non-redressal of grievances Unfair trade practices carried on by the managers

Voluntary: The causes for voluntary delisting are as follows:

Business suspended Mergers and takeovers Small capital base

Chapter Summary
By now, you should have:

Understood the concept of listing of securities

Learnt the procedure of listing of securities Understood the concept of delisting