This article on ‘Procedure for a listing of securities in the stock exchange‘ was written by an intern at Legal Upanishad.
A company needs a listing of securities to trade in the stock market. This ensures that the company is registered on the stock exchange. The interested company has to act according to the provisions of the Companies Act, 2013. A company must have a minimum of five crore rupees in its equity and sixty percent of that is offered to the public for listing on the stock exchange. It is necessary for every company to list its shares on the stock exchange to get registered because unregistered securities cannot be traded and thus is a loss for the company.
Benefits of listing of securities
Registering on the stock exchange has many benefits, they are as follows:
- First and foremost when a company gets registered on the stock exchange, its securities become tradeable.
- The company has the chance of getting the best price from its securities as the market price on the stock exchange is regulated by the availability of buyers and sellers and the number of buyers and sellers there is huge.
- Registering on the stock exchange gives the company great publicity as all information such as opening price, closing price, and other information are provided through almost every means of communication such as the internet, and newspapers, basically becoming public and providing more reach.
- A proper timely report has to be maintained for a company to stay on the stock exchange. This helps in eradicating fraud and maintaining transparency in the operations of the company.
Conditions for registering in the stock exchange
According to regulation 4(2) of the SEBI Regulations, 2009, if a company wants to list its securities on a stock exchange then it has to make an application to one or more designated stock exchange, which has nationwide trading capacity. Certain other conditions need to be fulfilled by a company to enter the stock market, they are as follows:
- A company has to publish a prospectus through which twenty-five percent of the securities are to be offered to the public.
- The company must have a good amount of capital structure and the securities which are being listed must be in the public interest.
- The prospectus should also contain the date of receipt of the application and such other details as necessary.
- The basic or minimum requirement of capital is three crore rupees out of which sixty percent,i.e., one crore eighty lakh rupees should be made available for the public. If the share capital exceeds five crore rupees then it becomes mandatory for the company to get itself registered under a recognized stock exchange.
- The company must inform the stock exchange in case the board of directors changes or new securities are issued.
- A company needs to file the annual return and inform the stock exchange.
- Last but not least, a company must comply with the terms and conditions of the stock exchange under which it is getting registered and strictly adhere to them.
Documents needed for a listing of securities
Certain documents are needed to be shown by the company which wants to register its securities in a stock exchange, they are as follows:
- Details of the company since its inception.
- Certified copy of Articles of Association and Memorandum of Associations.
- Copy of financial report and auditor’s report for last five years.
- Details of the company’s capital structure.
- Prospectus and agreement.
- Consent copy from SEBI.
The procedure for a listing of securities on the stock exchange
There is a step-by-step procedure that is to be followed for a listing of securities in the stock market:
- Firstly, an application has to be submitted by the company to a recognized stock exchange. This procedure is provided vide section 73 of the Companies Act, 1956 whereby it is stated that if a public limited company wants to list its securities on the national stock exchange then it has to submit an application regarding the same with necessary documents to that stock exchange. The stock exchange can ask for any missing documents that are needed and the company has to submit them within ten working days.
- Next, the stock exchange will inspect the financial status of the company and make sure everything is in line. If the stock exchange accepts the application of the listing company then the stock exchange and the listing company enter into an agreement.
- The listing company has to accept all the terms and conditions and follow rules and regulations of the stock exchange under which it is getting registered and also abide by the regulations of SEBI.
- A company shall have to pay a fee for listing annually, which is calculated on the company’s paid-up capital.
- A company seeking admission to the stock exchange has to pay a security deposit which the stock exchange can confiscate if the company fails to pay dividends or delays in transferring securities, etc.
- Finally, a company gets access to trade in the stock market after it fulfills all the formalities within the time prescribed under the SEBI Regulations, 2009.
The stock market is an essential and huge place for companies to thrive. Listing of securities is a normal procedure for companies today. It helps in the growth of the company and enhances its value in the market. A company’s listing in the stock market gives it wide publicity. This listing of securities is of immense importance today and a company has to abide by the rules and regulations of the stock exchange as well as the statutes to trade in the stock market.