There are significant advantages that accrue to a listed company: capital raising, financial flexibility, liquidity enhancement, broader market coverage and enhanced brand visibility. There are two ways of listing a company on NSE: An Initial Public Offering (IPO) is the process by which a private company can go public by sale of its shares to general members of the public; and A New Listing – When already listed companies listed on another exchange want to have their securities traded at the NSE.
It’s put under the microscope when a company wants to list on the National Stock Exchange (NSE) in India. The eligibility criteria, which are very strict, cover financials, governance practices and regulatory compliance, looking at the company’s minimum paid-up capital, profit margins, net worth, shareholder requirements and SEBI compliance. This is done to prevent fraud and bring about transparency, and also to shield the interests of the investors.
The journey of a private company listing on an Indian stock exchange is well-documented.
Key Process for Company Listing in the Stock Exchange
Under the Companies Act of 2013, when a firm is being listed, it must first undergo the company formation process and register as a Public Limited Company (PLC). PLCs grant public access to their shares and are allowed to be actively bought and sold; thus, they are required to market transparently and comply with market regulations.
1. Complying with the Listing Requirements of the Selected Exchange
You have to comply with the specific listing requirements of the chosen exchange, which includes, at a minimum, the required shareholding for the exchange, market entry, market cap, and a governance framework. The company is required to comply with the statutory rules of the regulators, like the SEC in the US or SEBI in India.
Financial eligibility is the key, requiring a paid-up capital of INR 10 crores and a proven three-year track record of consistent net worth. Additional financial criteria also hinge on a profitability benchmark of INR 15 crores over the same period, and a turnover threshold of INR 30 crores.
Financial Criteria for Getting Listed
The requirements for a company wishing to list on the NSE are strict to protect the financial integrity of the company as well as protect the stakeholders of the company.
The amount of capital a company has is an important component of listing on the NSE. In the case of manufacturing companies, the minimum paid up is INR 50 million, while for service companies, the minimum paid up is INR 30 million. Companies are also expected to show a continued track record of profitability for 3 years. This is also a primary requirement as the NSE has to determine if the company is financially healthy, as well as has the operational capacity to display increased profitability over time. The NSE also requires that for a company to be listed, the company must have a net worth of a minimum of INR 10 million, which shows that the company is able to meet its obligations.
Corporate Governance Criteria for Listing
Benchmarks for corporate governance that provide guidelines and processes for companies to follow when listing securities on the stock exchange to achieve accountability and transparency include the following.
- Retaining a diverse and independent board led by non-executive directors for robust governance.
- Full disclosure of material information that is transparent and credible for operational purposes and building trust between shareholders.
- Respecting shareholders’ rights in order to guarantee that they are elected and treated fairly.
- Creating an ethics committee to fight corruption and conflicts of interest.
- Implementing a resilient risk management system for effective handling of operational, financial and reputational vulnerabilities backed by crisis planning.
2. Appoint Intermediaries: Hire merchant bankers/underwriters to manage the process
Indian stock exchanges need intermediaries, especially SEBI-accredited Merchant Bankers functioning in the capacity of book-running BRLMs, who manage the entire process of listing, including regulatory compliance. Underwriters (typically BRLMs themselves) do prefer subscriptions to unsubscribed portions of their stock, particularly in SME IPOs, rendering these professionals compulsory for compliant, smooth, and effective public offerings.
The Importance of Intermediaries
- Regulatory Compliance – The merchant banker must adhere to regulatory requirements outlined in the SEBI ICDR Regulations, 2018.
- Due Diligence – The merchant banker provides SEBI with due diligence certificates to confirm that all prospectus information is complete, correct and fair.
- Skill – They have the technical knowledge required to manage and facilitate the issuer’s complex disclosure requirements, capital structure, and investor relationships.
- Bridge Function – They help connect the issuer, which is the company, with the investors or stock exchange. This connection speeds up the process of addressing the issue.
Principal Intermediaries
- Underwriter – Takes responsibility for buying any shares that are not subscribed. This guarantees that the issue will not fall short of subscription.
- Merchant Bankers (BRLMs): Necessary for all IPOs; handle the whole process, from drafting documents to listing, operating as the primary point of contact.
- Other Intermediaries: Depository Participants (DPs), Registrars, Brokers, etc., appointed in deliberation with the Lead Merchant Banker.
Compulsory Appointment
- Underwriters are essential, particularly for SME IPOs, where the Lead Manager must underwrite a minimum percentage (e.g., 14%).
- For mainboard and SME IPOs, at least one lead merchant banker must be appointed.
- One company cannot go public in India without SEBI-registered professionals involved.
3. Create the Offer Documents
- Set up an Offer Document or Prospectus. There should be audited financial statements, governance information, risk assessment, and a plan to use the proceeds. Follow the SEBI guidelines.
- Submit this draft or suggestion to SEBI for review.
- Incorporate SEBI’s suggestions into the draft and complete the prospectus to launch it in the market.
4. Submit to Regulators to Get Approval
- File the draft prospectus in the required format with the chosen stock exchange (NSE or BSE) for them to review it.
- Supply requisite documentation, such as audited financial statements, board approvals, compliance attestations, and governance statements and reports.
- Stock exchanges perform a comprehensive scrutiny before granting consent and authorization to a company’s listing.
- Receive SEBI’s regulatory inputs and its endorsement to proceed with listing.
5. Launch IPO
Commence the public offering (IPO or Offer for Sale) for subscription (through the book-building process).
The IPO framework involves designating merchant bankers, registrars, and underwriters to structure, manage, and market the issue.
Allotment and Share Listing: Complete the process of share allotment, register shares for investor trading and market participation. You need to adhere to the ongoing listing demands by the exchange.
5. Obligations after Listing
After listing, the ongoing requirements for companies include:
- Maintain ongoing reporting obligations of all material information to the exchange.
- Upholding prescribed corporate governance practices through board independence, shareholder empowerment, and operational transparency.
As a means of reporting annual and quarterly accounts, submit annual reports to SEBI and the stock exchange.
Key Rules & How to Follow Them?
- SEBI (ICDR) Rules: These control how companies issue stock and get listed on exchanges.
- Companies Act, 2013: This law makes sure companies are set up right and share information openly.
- Stock Exchange Rules: The NSE and BSE have their own rules about who can list and how to stay in good standing.
How to Get Your Stock Listed?
- IPO (Initial Public Offering): This is when a company sells shares to the public for the first time.
- SME Platform: Smaller businesses can get listed on platforms like NSE Emerge if they meet certain requirements.
- New Listing: Already listed, but want to trade on another exchange? This is how.
Primary Documents
- Draft Offer Document/Prospectus
- Memorandum and Articles of Association
- Annual Reports of the preceding three years
- Detailed project specifications and long-term business planning, including 5-year company planning that incorporates the balance sheet. PL, and projected cash flow statements.
The listing process requires a lot of legal and financial preparation. Experts with the right qualifications guide companies through this.
Risks and Challenges with Compliance
- Checking compliance is crucial because breaking rules can lead to penalties or getting delisted.
- Stock Market Changes: The value of an IPO and investor trust can change with the market.
- Transparency Rules: Companies on the stock market need to keep up with regular information-sharing duties.
Wrap-Up
India’s listing rules aim to connect business growth with steps made to safeguard investor interests. Companies that meet SEBI’s rules, financial standards, and governance practices can take part in capital markets and strengthen their position with stakeholder trust.
Connect with us for expert regulatory knowledge and trusted advisory on listings and related compliance.
