Listing of SecuritiesListing of Securities

Chapter 5Chapter 5

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Chapter ObjectivesChapter Objectives

To understand the concept of listing of securitiesTo understand the concept of listing of securities

To know the criteria for listing sharesTo know the criteria for listing shares

To learn the listing procedureTo learn the listing procedure

To understand the concept of delistingTo understand the concept of delisting

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Concept of Listing of SecuritiesConcept of Listing of Securities It means the admission of shares of a public limited It means the admission of shares of a public limited

company on the stock exchange for the purpose of trading.company on the stock exchange for the purpose of trading. A company intending to have its shares listed on the stock A company intending to have its shares listed on the stock

exchange has to write an application to one or more exchange has to write an application to one or more recognised stock exchanges.recognised stock exchanges.

A company becomes qualified to list its shares after getting A company becomes qualified to list its shares after getting the prior permission from the stock exchange.the prior permission from the stock exchange. Some of the advantages of listing of securitiesSome of the advantages of listing of securities are:are:

LiquidityLiquidity Best prices Best prices Wide publicity Wide publicity

Some disadvantages of listing of securities are:Some disadvantages of listing of securities are: Subjected to various regulatory measuresSubjected to various regulatory measures Expensive exerciseExpensive exercise

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Criteria for ListingCriteria for ListingA company that wants its securities to be listed in the stock exchange A company that wants its securities to be listed in the stock exchange has to fulfil certain minimum requirements, such as:has to fulfil certain minimum requirements, such as: Minimum issued capitalMinimum issued capital: A company should have 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.of Rs. 3 crores and the minimum public offer must be of Rs. 75 lakhs. Listing on multiple exchangesListing on multiple exchanges: It is essential for a company to get listed in : It is essential for a company to get listed in

the stock exchange if its paid up capital is above Rs. 5 crores.the stock exchange if its paid up capital is above Rs. 5 crores. Number of shareholdersNumber of shareholders: A company must have a minimum ten : A company must have a minimum ten

shareholders.shareholders. Articles of AssociationArticles of Association: The Articles of Association must be prepared in : The Articles of Association must be prepared in

line with the sound corporate practice of a company. line with the sound corporate practice of a company. AdvertisementAdvertisement: A company during the subscription period must not : A company during the subscription period must not

advertise by thanking the public for their overwhelming response.advertise by thanking the public for their overwhelming response. Applying modeApplying mode: A company must issue a prospectus, which provides : A company must issue a prospectus, which provides

information on how the investor should apply for the shares.information on how the investor should apply for the shares. Public offer sizePublic offer size: A company, in the first page of the prospectus must state : A company, in the first page of the prospectus must state

the size of the public offer and the value of shares.the size of the public offer and the value of shares.44INDU JAININDU JAIN

Listing ProcedureListing ProcedureTo get the listing permission from the stock exchange, To get the listing permission from the stock exchange, a company has to undertake the following steps:a company has to undertake the following steps: Preliminary discussionPreliminary discussion: A company must have a detailed discussion : A company must have a detailed discussion

with the authorities of the stock exchange in order to acquire complete with the authorities of the stock exchange in order to acquire complete knowledge about the various formalities to be completed for listing of knowledge about the various formalities to be completed for listing of securities.securities.

Articles of Association approvalArticles of Association approval: A company must fulfil the following : A company must fulfil the following requirements in order to get the Articles of Association approved by the requirements in order to get the Articles of Association approved by the stock exchange authorities:stock exchange authorities:

It must use a common form of transfer.It must use a common form of transfer. In case of distributing dividends, it must comply with Section 205-A In case of distributing dividends, it must comply with Section 205-A

of the Companies Act.of the Companies Act. The free dealing of shares must not be restricted by any provision.The free dealing of shares must not be restricted by any provision.

Draft prospectus approvalDraft prospectus approval: It is very essential for a company to get its : It is very essential for a company to get its draft prospectus approved from the stock exchange authorities. A draft prospectus approved from the stock exchange authorities. A prospectus must contain all the information required by the stock prospectus must contain all the information required by the stock exchange.exchange. 55INDU JAININDU JAIN

Listing ApplicationListing Application

A company that wants to offer its shares through the A company that wants to offer its shares through the prospectus must file an application to the stock exchange.prospectus must file an application to the stock exchange.

A company has to file following certificates alongwith the A company has to file following certificates alongwith the prospectus:prospectus: Three certified copies of the memorandum and articles of Three certified copies of the memorandum and articles of

association, and debenture trust deed.association, and debenture trust deed. A copy of every report, balance sheet, valuation, court order, etc. A copy of every report, balance sheet, valuation, court order, etc.

as specified in the prospectus.as specified in the prospectus. Certified copies of underwriting, brokerage and sales managers’ Certified copies of underwriting, brokerage and sales managers’

agreement.agreement. Copies of agreements with the financial institutions.Copies of agreements with the financial institutions.

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Listing FeeListing Fee

It is a fee charged by the stock exchange from the It is a fee charged by the stock exchange from the company for permitting the company’s securities to company for permitting the company’s securities to be traded in the exchange.be traded in the exchange.

It varies from major stock exchanges to regional It varies from major stock exchanges to regional stock exchanges.stock exchanges.

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

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Listing of Right SharesListing of Right Shares

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

A company must inform the stock exchange about the date of A company must inform the stock exchange about the date of meeting with the Board of Directors for considering the proposal meeting with the Board of Directors for considering the proposal of listing right shares.of listing right shares.

A company must obtain the consent of the shareholders by A company must obtain the consent of the shareholders by passing on a special resolution.passing on a special resolution.

A company must file a letter of offer that provides the financial A company must file a letter of offer that provides the financial information about the current market price of the share.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 letter of offer within six weeks. A company must file a specimen copy of the offer letter to the A company must file a specimen copy of the offer letter to the

stock exchange.stock exchange.

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DelistingDelisting It is the removal of a company’s shares from the listing in It is the removal of a company’s shares from the listing in

the stock exchange.the stock exchange. Delisting can be of two types:Delisting can be of two types:

Compulsory: Compulsory: The causes for compulsory delisting are as The causes for compulsory delisting are as follows:follows: Non-payment of the listing feeNon-payment of the listing fee Non-redressal of grievancesNon-redressal of grievances Unfair trade practices carried on by the managersUnfair trade practices carried on by the managers

Voluntary: Voluntary: The causes for voluntary delisting are as follows:The causes for voluntary delisting are as follows: Business suspendedBusiness suspended Mergers and takeoversMergers and takeovers Small capital baseSmall capital base

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Chapter SummaryChapter Summary

By now, you should have:By now, you should have:

Understood the concept of listing of securitiesUnderstood the concept of listing of securities

Learnt the procedure of listing of securitiesLearnt the procedure of listing of securities

Understood the concept of delistingUnderstood the concept of delisting

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