What are the listing criteria for Unlisted Companies?

Summary

To get listed on a stock exchange, an unlisted company must meet certain IPO criteria. These include being registered under the Companies Act, having audited financials, minimum net worth and profit track record, and complying with SEBI and stock exchange regulations. The company must also ensure transparency, face no insolvency or regulatory issues, and meet disclosure norms. Meeting these conditions is essential to qualify for an IPO and enter the public market.

Picture your company as a star on the rise—solid fundamentals, loyal customers, and a dedicated team. But there's one thing it lacks: the limelight.

Even though you're building value, your capacity for growth, both rapidly and extensively, is limited without public markets. For this reason, many companies try to list their stock on a stock exchange, or go public.

But you must meet certain listing criteria and undergo a systematic process before you can ring the opening bell and bask in an IPO.

In this piece, we break down all that you need to know—from the reasons to list, to eligibility criteria, the step-by-step IPO process, and key IPO terms. Be you a founder of a startup or an interested investor, this article is your one-stop read.

All you need to know is included in this piece, including the reasons for going public, qualification criteria, the step-by-step IPO process, and key IPO jargon. This guidebook is your ultimate reference point whether you're an entrepreneur or a concerned investor.

Why Do Companies Go Public?

A listing on a stock exchange opens up a world of possibility for your enterprise.Here's why it's such a significant milestone:

• Access to Capital
  Collect massive amounts of capital by selling shares to the general public; good for debt elimination, growth, and acquisitions.

• Brand Awareness and Credibility
  Credibility is heightened when a firm is listed. The stakeholders think that it becomes more trustworthy, mature, and transparent.

• Shareholders' Liquidity
  Early-stage employees and early-stage investors are able to exit or capitalize due to public stocks being liquid to trade.

• Improved Valuation
  Due to their greater visibility and investor interest, Listed companies tend to have higher valuations.

• Attracting and Retaining Talent
  Providing employees with a stake in the profits through employee stock option plans (ESOPs) can assist you in attracting and retaining talent by motivating them to grow with the business.

The IPO Process: How a Company Goes Public

Going public is a significant move—and it comes with a clear-cut procedure. Here's a simplified overview of the IPO process:

1. IPO Preparation
The company begins by:

• Organizing and auditing financial accounts (at least 3 years)

• Complying with all legal and regulatory requirements

• Enhancing internal processes and governance

2. Build the IPO Team
Specialists are hired to oversee the process:

• Merchant bankers to head the issue

• Legal and financial advisers for documentation

• Auditors and registrars to ensure compliance and smooth execution

3. File DRHP with SEBI

A document called the Draft Red Herring Prospectus is submitted to SEBI. It includes:

• Company background

• Financial performance

• Risks and purpose of raising funds

Once SEBI has examined it, the final draft is published.

4. Apply for Listing

An application is submitted to stock exchanges such as NSE or BSE, in accordance with their listing rules and eligibility criteria.

5. Create Buzz
The company promotes the IPO through investor meetings, presentations and media in order to attract the prospective investors and instill confidence.

6. Open the IPO to Public
IPO window is generally open for 3–5 days during which investors offer bids either by:

• A fixed price

• A price range (book building method)

7. Share Allocation
After expiry of the bidding time:

• Shares are allotted to investors

• Excess money (if any) is returned

• Shares are credited to investors' Demat accounts

8. Listing Day
The shares of the company are listed on the exchange and made available for public trading — technically making it a public company.

Listing Guidelines for Unlisted Companies

A company has to meet certain operational, legal, and financial criteria in order to be listed, especially on SME platforms such as NSE Emerge. Below is a condensed summary:

1. Legal Eligibility

• Has to be registered under the Companies Act, 1956 or 2013.

• Shall be in conformance with regulatory SEBI regulations, Securities Contracts (Regulation) Act, and other similar laws.

2. SME Listing Financial Parameters
Post-issue paid-up should not be over ₹25 crore.
Should possess:

• 3-year operating track record

• Operating profitability in at least 2 out of the past 3 years

• Positive net worth

3. Clear Legal Standing

• No pending insolvency or bankruptcy cases.

• No winding-up petitions admitted by the courts/NCLT.

• No significant regulatory and disciplinary proceedings for the last 3 years.

4. Transparent Disclosures
Should reveal:

• Any actions by the regulators during the last 1 year

• Any default in payment to bond/debenture/fixed depositors

5. Rejection Clause

Application for IPO should not have been rejected by a stock exchange within the last 6 months.

IPO Jargon Simplified

The process may be quite less intimidating if you know the following key IPO terms:

• Issuer: The issuer of the shares to the public at large.

• DRHP (Draft Red Herring Prospectus): Formal pre-IPO document submitted to SEBI.

• Book Building: A method of arriving at share price based on investors' demand.

• Fixed Price Issue: IPO where share price is fixed.

• Price Band: Range in which bids can be placed by investors.

• Underwriter: Investment bank which guarantees sale of shares during the IPO.

• Oversubscription: When investor demand is more than share supply.

• Green Shoe Option: Option to offer additional shares if there is strong demand.

• Flipping: the activity of selling IPO shares quickly at a profit at listing.

Conclusion: Listing is a Leap, Not a Step

Going public is a big milestone for every business that is not listed; it's a chance to expand, scale up, and build enduring credibility. The process of being listed is a structured path, even if it appears complicated. Companies can transition from private to public ownership successfully using proper preparation, compliance with regulations, and guidance.

Understanding the listing requirements is the key to success, whether you're preparing your business for listing or simply learning more about initial public offerings.

Are you ready to learn more about market trends, IPO news, and unlisted shares? Look no further than Sharescart.com , the premier source for information regarding India's  unlisted and pre-IPO markets.