The largest companies in the world are listed companies for a very simple reason – access to public capital is cheap. When a company has a successful and proven business model and intends to scale, raising finance from the public is the most convenient route. It may enable a company to generate a larger volume of capital than it can by approaching an institutional investor, a private equity fund or a bank. The deal size or transaction volume of listed company capital generation and financing transactions is extremely high, which renders working on a listed company transaction very rewarding for any business advisor. Activities of a listed company are heavily regulated and the regulations are stringent with respect to financial transactions. Knowledge of such regulations is essential for advisors, lawyers, professionals as well as a businessman. Introduction to Listing- Eligibility for Listing Conventionally, most businesses are structured as private limited companies. It should be noted that a Private Limited Company is not permitted to be listed in a stock exchange. Prior to listing, the business must convert to a public limited company. The conversion process requires a special resolution of the shareholders to convert, to raise the prescribed minimum paid-up capital, and to adopt a new set of Articles of Association. Listing requires the companies to comply with a different regulation issued by Securities and Exchange Board of India (SEBI) which is the regulator for securities market. SEBI has issued extensive regulation for reporting and compliance by listed companies and market intermediaries such as stock brokers, depositaries etc. When a listed entity has listed any of the following securities on a recognized stock exchange then they also have to comply with the SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015 (LODR). Specific securities listed on main board or SME Exchange or institutional trading platform; Indian depositary receipts, Securitized debt instruments; perpetual debt instruments, non-convertible debt securities, perpetual non-cumulative preference shares, non-convertible redeemable preference shares; Units issued by mutual funds; Any other securities as may be specified by the Board. The listed entity must ensure that key managerial personnel, directors, promoters or others dealing with the listed entity, are complying with the duties, which have been assigned to them under ADR regulations. These regulations prescribe the composition of the board of directors i.e. there should be an optimum combination of executive and non-executive directors with at least one woman director and not less than 50% of the board shall comprise of non-executive directors. Further, every listed entity shall constitute a qualified and independent audit committee. Board of Directors shall also constitute the nomination and remuneration committee, stakeholders’ relationship committee and risk management committee. Before issuing the securities, a listed entity shall obtain an ‘in-principle’ approval from a recognized stock exchange. The listed entity shall submit the annual report to the stock exchange within 21 working days. In order to make a public issue, a company must fulfill certain eligibility criteria specified in the SEBI (Issue a Capital and Disclosure Requirements) Regulations, 2015 (ICDR Regulations). These criteria require companies to have a high amount of assets (minimum Rs. 3 crores) and net worth (minimum Rs. 1 crores). Minimum paid-up capital requirements are also quite high –Rs. 10 crores if the company is listed companies on the main board. Alternatively, if the company cannot meet such requirements, a significant portion of its shares in the IPO must be subscribed by large financial institutions). Since it is extremely difficult for small business to meet these requirements, SEBI permitted the stock exchange to create a listing for SMALL and Medium Enterprises (SME) called as SME board in 2011. Companies listed here are exempted from meeting profitability and net worth related requirements – they are only required to have a paid up capital of Rs. 50 lakhs. However, the framework for a listing of SMEs has few disadvantages as well. Initial Public Offer Post-conversion, if a company meets the eligibility requirements under the ICDR Regulations, it must make an initial public offer (IPO) in terms of the regulations. A prospectus is also required to be filed with the ROC and SEBI. The key features of the IPO process are: A company is only required to offer 25% of its shares to the public in its IPO. Therefore it is possible for founders and promoters to own substantial stakes in the company post listing. The promoters are required to contribute 20% of the total capital. This is known as ‘minimum promoters’ contribution’ and is locked in for a period of 3 years. If a promoter has contributed more than 20%, the excess contribution is locked in for 1 year period. The contribution of non-promoter entities, e.g. investors, is required to be locked-in for a period of 1 year. Venture Capitalists registered with SEBI are exempted from this lock-in period. Acquisition-Related Regulations and Compliance- Takeover Code Acquisitions of listed companies shares are regulated by the SEBI (Substantial Acquisition of Shares and Takeover) Regulations 2011, known as Takeover Code. It requires the acquirers to notify the listed company (Target Company) and the stock exchange on their shareholdings if they have acquired certain percentage amount of shares. If his shareholding reaches 25%, an acquirer is required to make an open offer to acquire a minimum percentage of 26% of the company- so as to take his shareholding beyond 51%. The rationale behind it is that the existing shareholders must be given an opportunity to exit in the event that a new shareholder is set to acquire control of the company. The price of the offer is set in the Takeover Code. The acquisition price can either be paid in cash or by the swap of shares of the acquirer or combination of both. A specific portion of the acquisition price must be deposited in an ‘escrow arrangement’, which acts as security that the acquirer has the financial capacity to pay the shareholders of the target company.