Basics of stock market 3: Why does a company want to get listed in the stock market
Let me get this straight. A stock market is a place where people go to buy and sell shares. What are shares? We’ll talk about it at a later time. Buying the shares will increase a company’s valuation. So, if people want to buy shares, there should be a common platform where people can buy shares, this platform is our exchanges.
We have two exchanges in India, which are National Stock Exchange (NSE) and Bombay Stock Exchange (BSE). We’ll discover what NSE, and BSE are at a later stage. By logic, companies go to NSE or BSE and get listed there, so that people can also go to NSE/BSE to buy shares. Just to get things straight, ideally, people cannot go to NSE and buy shares, that is where our brokers come into the picture. Brokers are the mediators between exchanges and the people who want to buy shares. Brokers are the link between these exchanges and us common people.
Joining the stock market will allow the company to benefit from improved access to capital, increased global profile, and greater access to liquidity. Now, let’s see why companies want to get listed in these exchanges, consequently, get listed in the stock market.
Table of contents
Access to Capital for growth
Most companies reach a level wherein you need to pump additional funds to keep up with the growth. Getting additional capital for future growth, expansion plans, lay of debts is vital for a company's survival. Without the added support, there is a limit to which the company can grow.
Going public increases visibility and improves public perception of the company, thereby increasing employee value and trust. Going public attracts a lot of people and institutions. This increases the shareholder base and enhances credibility making more and more people participate in buying the company's shares.
Liquidity means getting more shareholders into the company. A lot of people becoming involved in the company’s business makes the business more liquid. This allows people to share the same risk the company is going through as well as benefiting from the growth of the company.
The company is more transparent in conducting various operational activities. They would have to do an annual audit as well as quarterly auditing. The board and management are responsible for the accountability of the company, no matter whichever positions they are in.
There are a lot of rules and guidelines the company must follow in order to get listed in the exchange. They would also need to quarterly or yearly keep up with this compliance set down by SEBI which are disclosed through the exchanges.
Pay for acquisitions
Now, since the company has a lot of shares in their hand, it can exchange these shares in place of its cash and assets. By this, the company grows using its existing cash and assets which would have otherwise gone to the creditors. This also reduces the company’s debt to a much larger extent.
Structure the company’s business
Since a lot of people have given their trust to this company by buying their shares, the responsibility of the company’s board of directors to review its strategy, growth, vision, success is a very crucial factor. Since the company is now in the competitive space, they would have to review, send reports every quarterly adding to other documentation as well. This maintains the structural integrity of the company to an extent.
Open your company’s share potential
Along with people like you and me who buy shares, large institutions also buy shares of a company. But they do a thorough investigation and many quality checks before they make up their mind to buy the shares. But, once these big institutions start buying, automatically other institutions join up to buy more shares, increasing their valuation and credibility.