SEBI

Explaining Benefits of Listing a Company on the Stock Exchange

Companies listed on the stock exchange have got a lot of benefits. You may have heard about companies listed on the stock exchange, but do you know its benefits. Here in this article, we shall discuss the benefits of listing a company on the stock exchange.

Benefits of listing a company on the stock exchange: What do you mean by stock exchange?

Before discussing stock exchange, let’s discuss the meaning of exchange.

Exchange is an association/organization that hosts a market where stocks, commodities, bonds etc., are traded. On an exchange, sellers and buyers come together to trade financial instruments on business days.

Stock exchange is a facility extended to companies where stocks are traded. A company that seeks to trade in the stock exchange should be listed on the stock exchange. The exchange facilitates the issuance & redemption of securities. Popular stock exchanges in India are the Bombay Stock Exchange^[1] and the National Stock Exchange.

What do you mean by a Listed Company?

A listed company is a company whose shares are traded/listed/quoted on a stock exchange for public trading. Such companies are required to conform to the listing requirements of that exchange. This may consist of a minimum earning level and number of shares listed.

Such companies take out an Initial Public Offering through which they sell their shares to public. The price of the shares is decided based on the supply and demand of the share. The Bombay Stock Exchange lists more than 600 companies.

What are the benefits of listing a company on the stock exchange?

Companies that are listed on the stock exchange get exposure, capacity to uphold control etc. Apart from these benefits, there are many other benefits that we have discussed below.

• Boosted profile

One of the significant benefits of listing a company in the stock exchange is that listed companies have a better profile. Moreover, they are more visible and recognizable as compared to other companies. This allows such companies to attract new customers and clients towards it.

• Access to capital

As per studies, lack of affordable capital is one of the major impairments to the growth of a business. However, companies listed on a stock exchange can easily raise capital by dispensing more shares to investors for the purpose of buying. The capital raised can be used for the growth of the company.

• Collateral value of securities

Lenders accept listed securities as collateral for credit facilities. A listed company is also eligible to borrow from the financial institutions easily as it’s rated favourably by the capital lenders. Further such company can also opt for raising extra funds from the public via the new issue market with high assurance. Thus it is another benefit of listing.

• Capacity to uphold control

Usually, listed companies are not dependent on the capital of venture investors. In return for acquiring off shares of a confidently held company, venture capitalists regularly uphold on possessing some degree of the company’s regulation. Stock exchanges allow companies to maintain more control and sovereignty because the people who get the shares of a publicly-traded corporation hold limited rights accessible to stakeholders.

• Liquidity

Another benefit of listing is that the listing of a company reinforces liquidity by giving an opportunity to shareholders to realize their investment value. Moreover, it lets shareholders negotiate in the company’s shares, sharing risks and benefiting from the increase in organizational value.

• Transparency and Efficiency

Transparency and efficiency are vital for company’s growth. Listing brings in both transparency as well as efficiency to the company. The management team and the board of the listed company hold accountability towards shareholders. Moreover, listed companies also follow timely compliance by providing disclosure to the exchange/shareholders as per the guidelines applicable.

• Better visibility

When a company goes public, it improves its credibility and visibility among institutions and among the investing agency. Further, at the time of conducting operations, it ensures total transparency.

• Higher returns

Getting higher return on investment is the objective of every company or business in the world. Stocks are uncertain assets that indicate that they do not have any assured return nevertheless, the stock market’s long-run trend has been increasing. Stocks have the highest return of any venture asset. Therefore it is one of significant benefits of listing. 

• Increased exposure

A company that is listed on the stock exchange get increased exposure than others. Investors are also more interested in investing in listed companies. The company grows more when more investors invests more capital.

• Increased accountability

Companies listed on the stock exchange have better financial accountability. It should be transparent in its business dealing and reporting. A company that is transparent and financially accountable may enjoy more success than any other.

Conclusion

By complying with the listing requirements, companies become more transparent, and investor-friendly thus boosts up the reputation and the prominence of the company. Surely the pros outweigh the cons therefore, the benefits of listing a company cannot be overlooked.

Read our article: SEBI (Stock Brokers) (Amendment) Regulations, 2021