Listing Requirements and Delisting - A Comprehensive Guide

Introduction

Given the influx of IPOs, one of the most important concerns for investors is what are the qualifying requirements for an IPO in India. Basically, an IPO is a way for a business to raise money from the market by becoming public.

In FY 20-21, 60 Indian businesses, including small and medium-sized enterprises (SMEs), went public via initial public offerings (IPOs) on the country's two main exchanges, the Bombay Stock Exchange and the National Stock Exchange.

However, despite how accessible these exchanges are to businesses looking to list, there are criteria that must be met in order for a company to be considered for listing. Today, we'll examine the requirements for filing an IPO in India.

To get an IPO, a business must satisfy certain financial and legal criteria, as well as comply with other regulations. Aside from this, the post also discusses the factors that might lead to a stock being delisted from the Indian stock market. Let’s get started.

Eligibility Requirements for Listing a Stock

1. Paid-up Capital

The amount of money a business gets from shareholders in return for IPO shares is known as the paid-up capital. A minimum paid-up capital of 10 crores is required per the qualifying criteria for a business to apply.

Additionally, the company's capitalization (the issue price multiplied by the number of equity shares issued after the IPO) must be at least 25 crores.

2. Offerings to be Made in the IPO

As long as all of the basic criteria are fulfilled, the minimum share price in an IPO may be determined based on the company's post-IPO equity capital.

• A minimum of 25% of each class of equity shares must be issued if the post-IPO equity share capital is less than Rs. 1600 crore
• A proportion of equity shares equal to Rs. 400 crore rupees must be issued if the post-IPO equity share capital is more than Rs. 1600 crore but less than Rs. 4000 billion.
• A minimum of 10% of each class of equity shares must be issued if the post-IPO equity share capital exceeds Rs. 4000 crore.

To avoid being delisted, companies must grow their public ownership to at least 25% within three years of their securities being listed on the market.

3. Financial Eligibility Requirements

• For the previous three years, the company's net worth (assets minus liabilities) must have been at least Rs. 1 crore.
• To be eligible, the business must have at least Rs. 3 crore in tangible assets in each of the three years before application. A maximum of 50% of these assets may be kept as monetary assets.
• The past three years' average operational profit must be at least Rs.15 crore.
• After changing its name, the business must have made at least half of its previous full-year income from the activity represented by its new name;
• The company's current paid-up share capital must be repaid in full or the shares would be forfeited. The business planning to go public should not have any partially paid-up shares in its stock.

4. Miscellaneous Requirements

If a business wishes to be listed on a stock market, it must submit to the NSE three years' worth of annual reports. In the event that it decides to proceed with the listing criteria,

1. The Board for Industrial and Financial Reconstruction has not been notified about this business. (BIFR).

2. The cumulative losses that resulted in negative net worth have not wiped away the company's value.

3. No court-approved winding-up petition has been received by the business.

What is the Delisting of Shares?

Delisting occurs when a business chooses to stop trading its stock and withdraw its shares from the stock market. Private companies are formed when a public corporation discontinues trading in its common stock.

There is no delisting if a company's shares are accessible on several stock exchange platforms and are only withdrawn from one of them. Delisting refers to the process of removing stock from all stock exchanges where it is no longer possible for investors to trade it. Let's have a look at the various delisting processes.

1. Voluntary Delisting

This occurs when a business, on its own will, chooses to withdraw all of its shares from the market. All shareholders must be paid for all their shares in this kind of transaction. When the business's whole structure changes, a corporation enters voluntary delisting.

This may happen if an investor buys a majority stake in the business and then sells it to the company. Exchange rules may also be a factor, since they may make it difficult for the business to operate properly. Some companies delist all of their shares to keep things running smoothly.

2. Involuntary or Compelled Delisting

Involuntary delisting occurs when a regulator forces a firm to remove all of its shares from the market and put an end to trade. Involuntary or compulsory delisting of a company's shares may occur for a variety of causes or circumstances. Involuntary delisting of shares has a variety of causes, some of which are listed below:

1. Failure to comply with exchange rules may result in a company's delisting without notice.

2. It is necessary to delist stocks for six months when shares have traded inconsistently during the previous three years.

3. Delisting occurs involuntarily if the net value of a business is negative as a result of significant losses suffered in the previous three years.

4. Knowing why a company has chosen to delist helps us better comprehend the implications for shareholders.

Conclusion

Whether it is listing or delisting, there are several criteria that directors of a company need to adhere to. With the surge in IPOs coming in the latest financial year, it is crucial that you are familiar with the right information regarding the standard market practices. Having this information at hand makes you a better investor than you were yesterday. Keep investing! Keep growing!