The Bombay Stock Exchange (BSE) is an Indian stock exchange located at the Dalal Street, Mumbai,which was formerly Bombay.
Established in the year 1875, the BSE ,formerly known as Bombay Stock Exchange Ltd., is Asia’s initial stock exchange. It claims to be one of the world’s fastest stock exchange, with a median trade speed of 6 microseconds. The BSE is the world’s exchange with an on the whole market capitalization of more than $2.3 trillion on as of April 2018. Bombay Stock Exchange is the 10th-biggest stock exchange of the world by market cap.
Initial public offering
Initial public offering i.e. IPO or stock market launch is a type of public offering in which shares of a company are sold to an institutional investors and generally also retail (individual) investors; an IPO is underwritten by one or more investment banks, who also arrange for the shares to be listed on one or other stock exchanges. Through this method, colloquially known as the floating, or going public, a privately held company is then transformed into a public company. Original public offerings can be used: to elevate new equity capital for the company concerned; to monetize the investments of private shareholders such as company founders or private equity investors; and to allow easy trading of existing holdings or future capital rising by becoming widely traded enterprises.
After the IPO, shares traded freely in open market are identified as the free float. Stock exchanges specify a minimum free float both in absolute terms (the total value as determined by the share price multiplied by the number of shares sold to the public) and as a part of the total share capital (i.e., number of shares sold to the public divided by total shares outstanding). Although IPO offers many advantages, there are also significant costs involved; chiefly those connected with the process such as banking and legal fees, and the in progress requirement to disclose significant and sometimes sensitive information.
Details of the planned offering are disclosed to possible purchasers in the form of a lengthy document known as a prospectus. Most companies take on an IPO with the assistance of an investment banking firm acting in the capacity of an underwriter. Underwriters provide numerous services, including help with correctly assessing the value of shares (share price) and establishing a public market for shares (initial sale). Substitute methods such as the Dutch auction have also been explored and applied for numerous IPOs.
Advantages and disadvantages
When the company lists its securities on a public exchange, the money paid by an investing public for the newly-issued shares goes directly to the company (primary offering) as well as to any early private investors who opts to sell all or a piece of their holdings (secondary offerings) as part of the larger IPO. An IPO, thus, allows a company to tap into a wide pool of potential investors to provide itself with capital for future expansion, repayment of debt, or working capital. A company selling common shares is never necessary to repay the capital to its public investors. Those investors should endure the unpredictable nature of the open market to price and trade their shares. After the IPO, when shares are traded liberally in the open market, money passes between public investors. For early private investors who decide to sell shares as part of the IPO process, the IPO represents an occasion to monetize their investment. After the IPO, once shares are traded in the open market, investors holding large blocks of shares can either sell those shares little by little in the open market or sell a large block of shares straight to the public, at a fixed price, through a secondary market offering. This sort of offering is not dilutive since no new shares are being fashioned.
Once a company is listed, it is able to issue extra common shares in a number of different ways, one of which is the follow-on offering. This process provides capital for various corporate purposes through the issuance of equity without incurring any liability. This capability to quickly raise potentially large amount of capital from the marketplace is a key reason several companies seek to go public.
An IPO accords numerous benefits to the previously private company:
- Enlarging & diversifying equity base
- enable cheaper access to capital
- growing exposure, prestige, and public image
- Attracting and retaining improved management & employees through liquid equity participation
- Facilitating acquisitions
- Creating numerous financing opportunities like equity, convertible debt, cheaper bank loans, etc.
There are numerous disadvantages to completing an initial public offering:
- Significant legal, accounting and marketing costs, a lot of of which are ongoing
- Requirement to reveal financial and business information
- Meaningful time, effort and attention necessary of management
- Risk that necessary funding will not be raised
- Public dissemination of information which may be useful to the competitors, the suppliers and the customers.
- Loss of control and stronger agency problems because of new shareholders
- amplified risk of litigation, plus private securities class actions and shareholder derivative actions
Documents which are required for Listing on the BSE
- Copies of draft offer document.
- Soft copy of the prospectus for uploading on website.
- PAN &TAN of the company.
- DIN & PAN of promoter and directors.
- Articles & Memorandum of Association of the Company.
- Balance Sheets, Profit & Loss Accounts, and Cash Flow Statements.
- Copy of resolution passed by the Board of Directors, for issue of securities.
- Under 62(1)(c) of Companies Act, 2013, copy of the shareholder’s resolution.
- Such other documents are required as per schedule from time to time.
What is the Procedure for SME Listing on BSE?
There are two ways to raise capital. Either by borrowing from banks or by funds from promoters. Banking funds are the most ordinary type of borrowings. But for a start-up company, to put up with the cost of borrowed funds is very risky. in spite of the benefits associated with the public listing, the SMEs were not able to access the capital markets through Stock Exchanges due to numerous factors such as stringent regulatory compliances, disclosure and financial requirements etc. The BSE SME Exchange has been set up by Bombay Stock Exchange (BSE) to provide Small and Medium Sized Enterprises (SMEs), a stand for raising equity capital for their growth and expansion, in March 2012.
A devoted stock exchange for SMEs would allow them accessing the capital markets easily, quickly and at smaller costs. SME (Small and Medium-size Enterprises) exchange is a stage made by the BSE (Bombay Stock Exchange) in 2012 by the initiative of the Indian Government along with the SEBI. It is a extraordinary framework for the entrepreneurs. It is a well-liked concept worldwide.
For more information, visit Company Vakil website.