Want to List Your Company? Learn All About Publicly Listing Company in India Here!
A public listed company is a legal form of organization that has been the talk of many investors, entrepreneurs and stockholders. If you have always heard the term ‘public listing’ but do not fully understand what it is or why it matters, you’ve come to the right place. This article will further explore the fundamentals of going public in India, the advantages and disadvantages that come along with it. Read our kick starter’s guide for Going for Public Listing in India below!
What Is a Public Listed Company?
A public listed company is an organization that sells its stocks and trades freely in the primary and secondary stock exchange market. When private company transitions to become a publicly listed company, it will go through Initial Public Offering or better known as ‘IPO’. Before the process of IPO takes place, the transitioning company must find a suitable investment bank. The investment bank’s role will be mightily crucial, given how these banks function as the intermediary for companies and investors. Investment banks are also in charge of handling the stocks, finding buyers, underwriting new stocks and being an overall financial advisor to the said company undergoing IPO.
There are multiple stock exchanges in India, but the two major stock exchanges are the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). NSE is said to have a higher trading volume, whereas BSE, Asia’s oldest stock exchange, is more suitable for beginners. The stock exchanges are regulated by the Securities and Exchange Board of India (SEBI) to monitor the securities and commodity market.
Is Going Public Listing a Good or a Bad Idea?
Not sure what your stance is on an ongoing public listing in India? We’ve compiled several pros and cons of public listed companies in India. See below.
1. Advantages of Public Listed Companies
- Ability to better gain capital.
When a company becomes public, more people are aware of its existence – generating the company new streams of customers. Investors also benefit from trading with a public company as they are flexible, allowing investors to enter and exit investments at their ease. Investing in a private company is much rigid – one will be tied to them when making investments. Apart from that, publicly listed companies can freely trade stocks and shares, leading the company to raise funds quickly. On the other hand, private companies are dependent on a few investors and need to rely on banks for loans.
- Increased valuations.
A public listed company has higher chances of increasing its company’s valuation. Typically, investors are driven to invest in a public company that is listed on the stock exchange. Aside from that, increased valuations give the company expansion opportunities.
2. Disadvantages of Public Listed Companies
- Must adhere to strict financial reporting standards.
Public listed companies have must comply with the International Reporting Financial Standards (IRFS). Public companies are required by the law to be transparent in their financial records. Therefore, reporting to IRFS holds companies by strict accounting standards and provides the public with accessible information on the company.
- Loss of control as owner.
When you go public, your control as the original owner is significantly reduced; instead, the company’s controlling powers go to the Board of Directors.
- The transition may incur high costs.
Going public is not cheap – many specialists such as bankers, attorneys, accountants, underwriters, financial advisors and more are involved in this lengthy process, which may contribute to high costs.
Before making any decision, be sure to do your research and properly weigh the pros and cons of going public. The many advantages will benefit your company, but at the same time, there are consequences to it as well. You could also reach out to a corporate lawyer for more professional and educated insight.