Why do Companies List on the Stock Exchange?

Last Updated: 4 May 2024

Investment in the share market generally means investing in the shares of various companies. Investors generally have an ocean of opportunities for investments as those companies may be new to industry stalwarts. A thorough technical and fundamental analysis of the stocks is needed prior to the decision to invest in them.

With that being said, the prerequisite for investing in any organization is that the organization should be listed on a stock exchange. There are various benefits for a company when they are listed on the stock exchange. In this blog, we will take a look at the reason why companies are there in the stock market listing.

What is Listing Shares on the Stock Market?

Listing shares of an organization on a stock exchange means making them accessible to the general public so that they may purchase and sell them. An organization may list the shares on the exchange of stock just after adhering to the conditions laid down by the SEBI. Other than that, they have to go through a thorough procedure of selecting a merchant banker. Additionally, the organizations must ensure they are preparing for the DRHP. 

A company generally lists its shares on the stock exchange to raise funds for the expansion and growth of operations. Other than obtaining financial help from lending, these organizations accumulate money from the public.

Listing Of Securities – The Concept

There are many advantages of listing securities. Generally, listing of securities on the stock exchange or stock market is a procedure where the inventors may purchase and sell the shares.

How do Companies List their Shares on the Stock Exchange?

The process of company listing on shares can be a little complex. First, the organizations definitely should meet the specific eligibility criteria set by SEBI. It is a must to begin the listing procedure. As soon as they meet this criterion, they must appoint a merchant banker who will advise them on all the matters related to the IPO launching.

It is a must for the organization to release or publish a draft red herring prospectus that contains vital information regarding the current situation and how it intends to use the raised capital. 

Following that, the organization may open its IPO so prospective investors can subscribe to their shares within the predetermined price bands. The following steps include scrutinizing the applications of shares and determining if there was any oversubscription of the IPO.

If the IPO is undersubscribed, all the correct applicants are given the shares. On the other hand, in terms of any oversubscription, then the share allotment randomly occurs, and everyone has a fair chance of getting these shares.

Benefits of Listing on a Stock Exchange

Here are some of the many advantages of stock listings: 

• The main goal of the listing is to raise funds. The organization may issue a fresh share capital to raise funds for expansion and growth. Upon share subscription, there is generally a considerable inflow of funds from the market. This generally grants the companies the means to meet a sizable portion of their financial needs.
• Generally, the private shares of a lot of organizations are held by various stakeholders, including the organization’s private investors or promoters. If such investors wish to liquidate their stake completely or partially, listing on the stock exchange might give them the solution. The investors who exist in the organization may offer their shares to a public OFS and sell off their shares to the public.
• In the circumstances when a company is listed, it is a must that it complies with the regulations and rules of the market regulator, SEBI. It maintains tight control over the organization’s financial disclosure and corporate practices. There is very little room for any kind of malpractice here. It is something that raises the confidence of the organization’s stakeholders and its management and operations.

Wrapping Up

Listing an organization on a recognized stock exchange is the main goal of any company. The advantages of listing are numerous, as it opens the door to a wide range of opportunities for many companies.

Frequently Asked Questions

What is one of the unspoken advantages of company listing?

When the shares of an organization are listed on the stock exchange, they are easily traded. The stock exchange is a hotbed for purchasing or selling securities, and listing enables the organization’s shares to participate in their trading frenzy.

How are the stock prices of a listed organization determined?

The stock prices of a listed company are determined depending on the basic functions of the demand-supply of the shares of such an organization.

Is every public company listed?

Every company doesn’t need to be publicly listed. The majority of the companies may not meet the large listing parameters.