What is an IPO? What are the eligibility conditions for a listing on the stock market?
A private company must meet the requirements of existing stock exchanges and the Securities and Exchange Commission (SEC) to obtain approval for an IPO. When a company achieves unicorn status or achieves a private valuation of around $ 1 billion, the company realizes it can start seeking IPO approval. However, this is not required as companies can demonstrate better credibility and future potential as well as the fundamentals for being listed. Competition in the markets will be important in this area.
Before getting approval for an IPO, a company’s shareholders are usually founders, family, friends, and venture capitalists. But, a public offering means that ordinary citizens’ money will be involved in the business. So, keeping money safe is very important to the SEC and the stock exchanges. With an IPO, early investors can also opt out of their investments.
As IPO eligibility, SEBI mentioned, net tangible assets of at least Rs. 3 crore in each of the previous full 3 years of which no more than 50% is held in monetary assets. However, the 50% limit on monetary assets will not be applicable in the event that the public offer is made entirely by offer to sell. Minimum of Rs. 15 crore as average operating profit before tax in at least three years of the previous five years. Net worth of at least Rs. 1 crore in each of the previous 3 full years. If there has been a change of company name, at least 50% of the turnover of the previous year must come from the new activity designated by the new name. Finally, the size of the issue must not exceed 5 times the net value before issue.
Stock exchange listing with NSE
There are several eligibility criteria for an IPO candidate who wishes to list their securities on NSE. They must fulfill the following prerequisites, – “The paid-up share capital of the applicant must not be less than 10 crore, and the capitalization of the equity capital of the applicant must not be less than 25 crore. The applicant wishing to list his securities should satisfy the exchange on the following points: Details of the pending investor grievances against the issuer, the listed subsidiaries and the 5 main group companies listed by market capitalization, and the arrangements or mechanisms developed for the settlement of the grievances of the investors, notably through the SEBI complaints system, ”NSE officially said. noted.
Equity value and business growth
The number of shares and the share price will generate the new equity value. Equity always represents the shares held by investors when they are both private and public; with an IPO, equity increases significantly with the liquidity of the primary issue.
A stock market listing generally gives a business a better opportunity for growth and expansion in the market. With this possible growth opportunity, there will be more need for credibility and transparency. A company will hire investment banks for marketing, to assess demand, to set the rate and date of the IPO, etc.