Law project on listing and delisting of a company

PROJECT DONE BY

HARDIK MALBARI- 10

KAAJAL JAIN - 15

MONICA JAIN-16

VINI JAIN- 18

TARUN LOHAR – 30

NIMANSHI JAIN - 56

Index

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Listing Page no.

Meaning 3

Guidelines 3

Advantages & Disadvantages of Listing 6

Reasons for listing a company on Stock Exchange 7

Listing Agreement 8

Listing Rules for New Companies 11

Listing Fees 11

Delisting Meaning

12 Process

12 Advantages & Disadvantages of Delisting

14 Types of Delisting

15 Reasons for Delisting

17 Relisting of Delisted companies

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How to delist from Stock Exchange 19

How to stop a Company from delisting 19

Impact of being delisted 20

Listing To be able to understand the meaning of delisting, one has to first understand the meaning of the word “Listing”.

Listing means admission of a Company’s securities to the trading platform of a Stock Exchange, so as to provide marketability and liquidity to the security holders.

LISTING =STOCK EXCHANGES

+ COMPANY  

Guidelines for Listing

Listing means admission of securities to dealings on a recognised stock exchange. The securities may be of any public limited company, Central or State Government, quasi governmental and

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other financial institutions/corporations, municipalities, etc.

The objectives of listing are mainly to :

provide liquidity to securities;

mobilize savings for economic development; protect interest of investors by ensuring full disclosures. 

BSE has set various guidelines and forms that need to be adhered to and submitted by the companies. These guidelines will help companies to expedite the fulfillment of the various formalities and disclosure requirements that are required at various stages of

Public Issues Initial Public Offering Further Public Offering Preferential Issues Indian Depository Receipts Amalgamation Qualified Institutions Placements

A company intending to have its securities listed on BSE has to comply with the listing requirements prescribed by it. Some of the requirements are as under :

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I Minimum Listing Requirements for New CompaniesII Minimum Requirements for Companies Delisted by BSE

seeking relisting on BSEIII Permission to Use the Name of BSE in an Issuer Company's

ProspectusIV Submission of Letter of ApplicationV Allotment of SecuritiesVI Trading PermissionVII Requirement of 1% SecurityVIII

Payment of Listing Fees

IX Compliance with the Listing AgreementX Cash Management Services (CMS) - Collection of Listing

Fees    

[I] Minimum Listing Requirements for New Companies

The minimum post-issue paid-up capital of the applicant company (hereinafter referred to as "the Company") shall be Rs. 10 crore for IPOs & Rs.3 crore for FPOs; and

The minimum issue size shall be Rs. 10 crore; and

The minimum market capitalization of the Company shall be Rs. 25 crore (market capitalization shall be calculated by multiplying the post-issue paid-up number of equity shares with the issue price).

[II] Minimum Requirements for Companies Delisted by BSE seeking Relisting on BSE

Companies delisted by BSE and seeking relisting at BSE are required to make a fresh public offer and comply with the extant guidelines of SEBI and BSE regarding initial public offerings. 

[III] Permission to Use the Name of BSE in an Issuer Company's Prospectus

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Companies desiring to list their securities offered through a public issue are required to obtain prior permission of BSE to use the name of BSE in their prospectus or offer for sale documents before filing the same with the concerned office of the Registrar of Companies. 

[IV] Submission of Letter of Application

As per Section 73 of the Companies Act, 1956, a company seeking listing of its securities on BSE is required to submit a Letter of Application to all the stock exchanges where it proposes to have its securities listed before filing the prospectus with the Registrar of Companies.

[V] Allotment of Securities

As per the Listing Agreement, a company is required to complete the allotment of securities offered to the public within 30 days of the date of closure of the subscription list and approach the Designated Stock Exchange for approval of the basis of allotment.  

In case of Book Building issues, allotment shall be made not later than 15 days from the closure of the issue, failing which interest at the rate of 15% shall be paid to the investors.

[VI] Trading Permission

As per SEBI Guidelines, an issuer company should complete the formalities for trading at all the stock exchanges where the securities are to be listed within 7 working days of finalization of the basis of allotment.

[VII] Requirement of 1% Security

Companies making public/rights issues are required to deposit 1% of the issue amount with the Designated Stock Exchange before the issue opens. This amount is liable to be forfeited in the event of the company not resolving the

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complaints of investors regarding delay in sending refund orders/share certificates, non-payment of commission to underwriters, brokers, etc.

[VIII] Payment of Listing Fees

All companies listed on BSE are required to pay to BSE the Annual Listing Fees by 30th April of every financial year as per the Schedule of Listing Fees prescribed from time to time.

ADVANTAGES AND DISADVANTAGE OF LISTING IN STOCK EXCHANGEAdvantages

shareholders enjoy limited liability additional capital can be raised by issuing more shares or

debentures it enjoys greater borrowing power board of directors with expertise/experience can be

appointed to take decisions and delegates responsibilities shareholders can sell/transfer their shares freely

 Disadvantages

While private companies may also issue their securities as compensation for services, the recipients of those securities often have difficulty selling them on the open market. Securities from a public company typically have an established fair market value at any given time as determined by the price the security is sold for on the stock exchange where the security is traded. The financial media and city analysts will be able to access additional information about the business.  Disadvantages continued:

loss of overall ownership and control of the business (the personal touch may be lost)

decisions, due to bureaucracy, take longer and there may be disagreements

significant expenses are incurred when setting up a company (legal, accountants, taxes, consultants, etc.)

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more statutory regulations to conform to more people to share profits with (less income) financial affairs must be disclosed publicly (this information

could be used to competitors advantage) published accounts must to be prepared (time consuming

and costly)

Reasons for listing a company on stock exchangeListing or Stock Exchange Listing, as many people call it, is the process of making a transition from a private organization to a publicly-owned entity wherein all or some shares of the company can be traded in the stock exchange. The ability to have the company's shares traded in the stock exchange is fundamental to an organization's decision to have the company listed.These are 8 reasons why you should list your company in the stock exchange.

Capital GrowthStock Exchange listing provides opportunities to both the investor and the listing company. The listed company finds a great opportunity to increase its primary capital for market's organic growth and acquisition funding

Corporate Profile ElevationStock Exchange Listing generally raises the public profile of the organization with their customers, investors, suppliers and media. Companies listed in the stock exchange usually become a part of analyst reports and are usually included in the index.

Improvement in the Company ValuationGenerating an independent valuation becomes possible when a company is listed in the Stock Exchange.

Institutional InvestmentIt is easier for an organization to attract institutional investors or other companies who wish to invest on other companies. This simply means availability of both expertise and capital.

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Trading PlatformMany stock exchange companies offer an ideal trading platform for the company's shares. These companies also give their shareholders a great opportunity to realize the value of their shareholdings, which eventually, can help the company expand its shareholder base.

Alignment of management/employee interests

The process of compensating the company executives, directors and employees with shares becomes simple, making it easier and more flexible to align the company employees' interests with the goals and objectives of the organization.

Reassurance of Suppliers and CustomersThe organizations listed in the Stock Exchange generally find improvement in their business and financial strength.

Exit Strategy for InvestorsStock Exchange listing provides the founders and investors of the company a mechanism to easily exit their investments.

LISTING AGREEMENTListing of Securities:

Listing means admission of securities for dealings on specified stock exchanges. The securities maybe of a public limited company, Central/State Government, quasi governmental and other financial institutions /corporations/municipalities, etc.

Importance of Listing Agreement:

1. Through this agreement company undertakes to provide prompt facilities like transfer, consolidation, sub-division, consolidation of securities.

2. Provide proper notice for record dates and book closure.

3. Furnish accounts on quarterly basis.

Various Important Clauses of Listing Agreement:9

Clause 16:

· Give notice to SE stating the date & purpose for register closure or of record

date.

· SE to be intimated at least 7 days before such closure or record date.

for purposes of declaration of dividend or the issue of right or bonus shares or issue of shares for conversion of debentures or of shares

arising out of

rights attached to debentures.

Clause 19:

Prior intimation to the Exchange about the Board Meeting at which proposal for Buyback of Securities, declaration/recommendation of Dividend or Rights or issue of convertible debentures or of debentures carrying a right to subscribe to equity shares or the passing over of dividend or the issue of right is due to be considered at least 2 working days in advance.

Simultaneous notice in case of proposal of declaration of Bonus is communicated to the Board of Directors

Clause 20 & 22

Under Clauses 20 and 22 of the Listing Agreement companies are required to intimate to the stock exchange, immediately after the meeting of Board of

Directors, regarding the decisions taken in respect of declaration of dividend or rights or bonus etc. In order to avoid excessive volatility in stock prices due to announcement regarding dividend, rights etc., during the Market Hours, such announcement shall be made immediately on the date of the Board Meeting only after the close of the Market Hours.

Clause 35:

Within 21 days from the end of every quarter, file the shareholding pattern of the company with the Stock Exchanges.

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Clause 40A:

The provision requires a company to maintain on a continuous basis, public shareholding of at least 25% of the total number of issued shares of a class or kind, for every such class or kind of its shares which are listed.

Clause 41

The quarterly financial result of the company is required to include details of promoters and promoter group shareholding including the details of pledged shares, as specified in the annexure.

To make announcement to SE regarding quarterly unaudited financial result within 15 minutes of closure of Board Meeting.

To publish unaudited/audited financial results in one English daily newspaper circulating in whole of India.

Companies shall be required to furnish segment wise Revenue, Results and Capital Employed along with and as a part of the quarterly financial results

Clause 47(a)

Appointment of Company Secretary to act as Compliance Officer & will be responsible for monitoring share transfer process & report to company’s Board of directors in each meeting.

Clause 47(c)

To ensure that the RTA or the in-house share transfer facility produces a certificate from Practicing company secretary certifying that all share certificates have been issued within one month of the date of lodgment for transfer, sub-division, consolidation, renewal, exchange or endorsement of calls/allotment monies and a copy of the same shall be made available to the Exchange within 24 hours of the receipt of the certificate by the Company

Listing Rules for New Companies

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The following eligibility criteria have been prescribed for the companies seeking permission to get listed on the stock exchange, effective August 1st 2006.

The companies are classified into two categories: Large Cap and Small Cap. A company is treated as a large cap company if the issue size is greater than or equal to Rs 10 crore and Market capitalization of not less than Rs 25 crore.

a)    In case of Large Cap Companies

The minimum post-issue paid-up capital of the applicant company shall be Rs. 3 crore.

The minimum issue size shall be Rs. 10 crore; and

b)    In respect of Small Cap Companies

The minimum post-issue paid-up capital of the Company shall be Rs. 3 crore

The minimum issue size shall be Rs. 3 crore

The minimum market capitalization of the Company shall be Rs. 5 crore

The minimum number of public shareholders after the issue shall be 1000.

c)    For all companies

In respect of the requirement of paid-up capital and market capitalization, the issuers shall be required to include in the disclaimer clause forming a part of the offer document that in the event of the market capitalization (product of issue price and the post issue number of shares) requirement of BSE not being met, the securities of the issuer would not be listed on BSE.

The applicant, promoters and/or group companies, shall not be in default in compliance of the listing agreement.

Listing fees

The listing fees depend on the companies paid up capital at both NSE and BSE. While the initial listing fee at NSE is Rs.7,500, it is Rs.20,000 at BSE. The annual listing fees for a company with a paid up capital upto Rs. 5 Crores is Rs. 10,000 at BSE while it is

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Rs. 8,400 at NSE. For a company with paid up capital between 5 to 10 crores, BSE charges Rs. 15,000 while NSE charges

Delisting

“Delisting” is totally the reverse of listing. To delist means permanent removal of securities of a listed company from a stock exchange. As a consequence of delisting, the securities of that company would no longer be tradeable at that stock exchange.

DELISTING =STOCK EXCHANGES

- COMPANY  

"Delisting" i.e. the said removal from a Stock Exchange, may be Voluntary (i.e. at the will of the Company) or Compulsory (i.e. out of a penal action by the Stock Exchanges, for the reason of any violations/ lapses).

 

 ProcessA recognized stock exchange may, by order, delist any equity shares of a company on any ground prescribed in the rules made

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under section 21A of the Securities Contracts (Regulation) Act, 1956 .

Constitution of Panel (Regulation 22 (2))

The decision regarding compulsory delisting shall be taken by a panel to be constituted by the recognized stock exchange consisting of -

Two directors of the recognized stock exchange (one of whom shall be a public representative);

One representative of the investors;

One representative of the Ministry of Corporate Affairs or Registrar of Companies; and

Public notice before delisting order (Regulation 22 (3))

Before making a delisting order the recognized stock exchange shall give a notice in one English national daily with wide circulation and one regional language newspaper of the region where the concerned recognized stock exchange is located and shall also display such notice on its trading systems and website.

Time period of making representation (Regulation 22 (3))

Time period of not less than fifteen working days from the notice, be given to any person who may be aggrieved by the proposed delisting within which he can made representations to the recognized stock exchange which has issued a notice for the delisting.

Delisting Order by the Recognised Stock Exchange (Regulation 22 (4))

The recognized stock exchange passes an order under sub-regulation (1) after considering the representations, if any made by the company and any aggrieved person in response to the notice and after considering the following points:-

Nature and extent of the alleged non-compliance of the company and the number and percentage of shareholders who may be affected by such non-compliance.

The status of compliance of the company with the office of the concerned Registrar of Companies.

Public notice after Delisting Order (Regulation 22 (6))

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Where the recognized stock exchange passes the delisting order, it shall, -

(a) Forthwith publish a notice in one English national daily with wide circulation and one regional language newspaper of the region where the concerned recognized stock exchange is located.

(b) Inform all other stock exchanges where the equity shares of the company are listed, about such delisting and the surrounding circumstances.

Disclosures to be made in the notice

Facts of such delisting, The name and address of the company, The fair value of the equity shares determined under sub-

regulation (1) of regulation 23 and The names and addresses of the promoters of the company

who would be liable under sub-regulation (3) of regulation 23.

Important points:-

No open offer is required to be given by the Delisted company in the case of compulsory delisting made by a recognized stock exchange.

Where a company has been compulsorily delisted the company, its whole time directors, its promoters and the companies which are promoted by any of them shall not directly or indirectly access the securities market or seek listing for any equity shares for a period of ten years from the date of such delisting.

Advantages and disadvantages of delisting

At a first glance, delistings seem to bring a round of disadvantages for the equity market, especially if the first effect is the reduction of number of active issuers.

“The main reason is the narrow size of deals in the local market. At least at a first glance. Instead, if we consider the total number of issuers, we can say we have a record number of companies listed at the stock market. Under these conditions, delisting can

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be seen as an effective solution as it washes out the market from companies with low liquidity.

“I would rather prefer the variant of larger tradable volume and fewer issuers than what we see now”, Lupsan continued.

The main disadvantage is that the company could no longer get the financing through stocks market (a fast and cheap solution).

“In addition, the company will become less attractive to minority shareholders.

Types of Delisting the Companies

Listing of Companies denotes permission granted by a stock exchange, to a company, for trading of its particular securities (e.g. equity shares, debentures etc.) on the stock exchange. Delisting of Companies refers to the removal of a company's shares from listing on the stock exchanges, either voluntarily or involuntarily.Delisting can be carried out in two ways:

Voluntary Delisting

Compulsory Delisting

In voluntary delisting, the company or its promoters or any other persons other than stock exchange can choose to remove its securities from the stock exchange. SEBI Guidelines has prescribed its mode, procedure & manner to be adopted by the company. The final exit price is to be paid to the shareholder, which is decided through reverse book building method. 

Compulsory delisting can be initiated by the stock exchanges by the companies with terms of Listing Agreement only for default whereby the trading has been suspended for more than six months or as per the norms laid down in the SEBI

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Guidelines. 

Delisting may also result as a consequence of Amalgamation, demerger merger, or Winding up of the Company. 

Comparison between Voluntary and Compulsory Delisting

S. No Criteria Compulsory DelistingVoluntary Delisting from all the Exchange(s)

1. Applicable Regulations

Regulations 22 to 24 Regulations 5 to 21

2. Initiative Action

Any Recognized Stock Exchange makes an order to delist the equity shares of a company.

Any Company can voluntarily apply to the concerned stock exchange(s) for delisting.

3. Grounds Delisting order can be made on the non-fulfillment of the listing regulations of the respective exchange and on any other ground prescribed in the rules made under section 21A of SCRA, 1956.

The Company either for cost benefit, or to comply with any of the rules and regulations etc may seek delisting from any of the exchange.

4. Public Notice Public Notice in this case be given by the Exchange

Public notice and all announcements be given by the Promoters of the company.

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5. Approvals The Panel of Experts has to take the decision after giving a reasonable opportunity of being heard to all the persons who may be aggrieved by the Delisting of the company.

The Company seeking voluntary delisting shall take the approval of the concerned stock exchange(s) and also of public shareholders.

6. General Meeting of the shareholders

No need of the General meeting of the shareholders

Shareholders resolution to be passed through Postal ballot.

7. Appointment of Merchant Banker

The complete process is monitored by the Panel of Experts

The complete process is monitored by the Merchant Bankers

8. Exit Price To be calculated by the Independent valuer at which the Promoter should take the shares from the Public shareholders.

The price to be determined on the basis of the past trading data or book values of the company by the promoters in consultation by the Merchant Banker

Reasons for delisting:In the last decade, we have seen numerous cases where listed subsidiaries of multinational companies (MNCs) got delisted from Indian stock markets. Companies such as Reckitt Benckiser, Cadbury, Philips, Panasonic, Ray Ban, Otis and Carrier were once listed on the Indian bourses. Some of these companies were dream businesses in which investors would have happily parked their funds and slept well in the night. In this article, we will highlight the possible reasons behind delisting of MNCs from Indian bourses. 

Lenient FDI norms and removal of sector caps In the first place it is important to understand the reason behind MNCs getting listed in the Indian stock markets. Two decades back, foreign companies eager to set up their shops in India had restrictions to operate alone. They had to adhere to the foreign direct investment (FDI) policy that had an upper cap on the

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maximum ownership by a foreign entity. They could not have owned 100% of the business entity in India. This requirement led many foreign companies to list their subsidiary in India. 

Strategic move for greater independence and lower costs For a company to stay listed, the company has to adhere to a lot of rules and regulations. There are various forms of compliance to be met with BSE, NSE, SEBI and other regulatory bodies. Timely information is to be disclosed to the shareholders (e.g.: annual report, quarterly results, etc). Approvals are mandatory for taking significant investment decisions like M&A, raising funds among others. So if the MNCs have enough financing support from their parent company and do not require financing from the Indian capital market, it makes sense for them to delist. 

Depressed market conditions Whenever we see the stock markets falling due to various reasons, almost all the stocks get beaten down. These suppressed stock market conditions lead to pessimism among investors who just want to get out of equities. Most investors do not differentiate between the good and the bad in that kind of pessimistic environment. Promoters of MNCs use this kind of undervaluation to their advantage. They acquire the remaining shares at lower valuations and apply for delisting.

RELISTING OF DELISTED COMPANIESDEFINATION:-

The return to listed status for a stock after having been delisted from an exchange for not being in compliance with the exchange's listing requirements. A company's stock may be delisted either by the exchange or voluntarily for a number of reasons including bankruptcy, failure to file mandatory reports, or a depressed share price that is below the exchange's minimum threshold. Once the company puts its house in order and meets the listing requirements, it can apply to relist its shares

RULES AND REGULATIONS

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Companies cannot relist themselves on the bourses for up to ten years after their delisting, instead of two years as was the case earlier.

The re-listing of a company can be done only after ten years, if its delisting is compulsory or initiated by the bourses, while in cases of voluntary delisting, the companies can list themselves again after a gap of five years.

As per the new delisting norms framed by the Securities and Exchange Board of India , small companies and those getting delisted due to winding-up or operation of law, can also get listed again after five year.

Under the earlier guidelines, the companies could apply for relisting of shares on stock exchanges after two years of cooling period.

The regulator has increased the cooling period for companies seeking relisting of shares in its new Sebi (Delisting of Equity Shares) Regulations 2009, which replaces the guidelines issued in 2003.

The regulations further said a company could be delisted only if a promoter hikes its stake to 90 per cent or acquires at least 50 per cent through a share purchase offer aimed at giving the shareholders an exit opportunity

Regulation 24 prescribe the Consequences of Compulsory Delisting as under: Where a company has been compulsorily delisted under this Chapter, the company, its whole time directors, its promoters and the companies which are promoted by any of them shall not directly or indirectly access the securities market or seek listing for any equity shares for a period of ten years from the date of such delisting. The prescribed consequences are too severe in the sense that the promoters and even Directors cannot access the securities market or seek listing for a period of 10 years. Even the status of Nominee or Independent Directors has not been clarified. 

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How to Delist From the Stock Exchange

Delisting from the stock exchange can save a company a considerable amount of money and reduce paperwork.

Companies can be forced to delist from a stock exchange for a number of reasons, such as falling stock prices, failure to meet capitalization rules and so forth. But it is also possible for a company to voluntarily delist from a stock exchange. Delisting means that a company no longer has to pay the rather steep fees involved in being listed on an exchange. A delisted company no longer needs to file financial reports with the Securities and Exchange Commission, which oversees companies listed on the stock exchanges. The process for delisting a company is not terribly difficult, but must be followed precisely.

How to Stop a Company From Delisting

To avoid delisting, publicly listed companies must meet all of the exchange's continued listing requirements.

To remain listed on a stock exchange such as the New York Stock Exchange, companies must adhere to a series of continued listing requirements. Stock exchanges normally have a combination of quantitative and qualitative continued listing criteria. If any of these conditions is unmet, a listed company may come under scrutiny for delisting. In such situations, the management must promptly resolve the unmet conditions in order to remain listed.

Impact of Being Delisted

Many times when a company is delisted, it faces punishment from its creditors, making it more difficult to raise capital for operations and growth. For example, when a company is delisted, its creditors can sometimes withdraw lines of credit and ratings agencies can downgrade its credit score, making it more expensive to borrow money. A company can survive delisting, but

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typically, being delisted is a signal to investors that the company is in trouble.

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