January 24, 2018

Sreekanth B

The Advantages of Listing a Company on the Stock Exchange


The main benefit a company enjoys when listed in the stock exchange is that it enhances its brand name and thereby it adds value to the company. As well it can add value by implementing an employee share holding scheme. In this manner a company can add value as opposed to a private limited company not listed in the stock exchange.

The other advantage is that it can issue new shares to the public or issue rights issues to existing share holders as opposed to a company not listed in the stock exchange because private companies not listed in the stock exchange cannot issue shares to the public at large. In addition, a company listed in the stock exchange has access to a variety of share holders. For example it can attract institutional investors or some foreign investors. This enables the company to embark on expansion of the company’s activities and grow in the future.

In addition to the above as a company when listed in the stock exchange also has a benefit because its shares can be priced because it can be traded in the stock exchange and has a price signal as opposed to a private company not listed in the stock exchange. As well a company listed in the stock exchange can access more capital with minimal cost compared to a private company not listed in the stock exchange.

The Advantages of Listing a Company on the Stock Exchange


The main reason companies decide to go public, however, is to raise money - a lot of money - and spread the risk of ownership among a large group of shareholders. Spreading the risk of ownership is especially important when a company grows, with the original shareholders wanting to cash in some of their profits while still retaining a percentage of the company.

One of the biggest advantages for a company to have its shares publicly traded is having their stock listed on a stock exchange.


Drawbacks

While there are benefits to going public, it also means additional obligations and reporting requirements on the companies and its directors:
  • Increasing accountability to public shareholders
  • Need to maintain dividend and profit growth trends
  • Becoming more vulnerable to an unwelcome takeover
  • Need to observe and adhere strictly to the rules and regulations by governing bodies
  • Increasing costs in complying with higher level of reporting requirements
  • Relinquishing some control of the company following the public offering
  • Suffering a loss of privacy as a result of media interest.
As the owner or major shareholder of a private company, it is important to outweigh the benefits and costs of listing in the light of the plans and goals that have been set for the company. Discussions with lawyers, independent accountants and other professional advisors will also provide you with better considerations.

The JSE lists approximately 400 companies on its Main Board and AltX and is well known for its world-class regulation, its access to deep pools of capital and the high participation of foreign investors. Today, the JSE is one of the top 20 stock exchanges in terms of market capitalisation and considered to be a gateway to investing in quality listed African companies.

The local and international investment community considers the exchange to be a mature, efficient, secure market with world class regulation, trading, clearing, settlement assurance and risk management.

In 2011, South Africa’s inward listing rules were changed to allow foreign domiciled companies to be treated as domestic listings. The lifting of these restrictions has been an important regulatory shift for the exchange and makes the JSE a more attractive listings destination.

Benefits of listing
  • Enjoy local analyst coverage as well as high media interest, which helps to improve your corporate reputation and profile.
  • Improve your capital raising ability, which can be used for organic growth or to fund acquisitions.
  • Attract international investors who are easily able to trade in JSE-listed Shares without any restrictions.
  • Trade your Shares securely and efficiently on our Nutron and Millennium IT trading systems.
  • Be eligible for inclusion in the FTSE/JSE Africa Index Series, providing additional exposure for your company both locally and internationally.
  • Market your business to investors with the assistance of the JSE Business Development Team.
  • Enhance relations with many stakeholders such as banks, suppliers, distributors and customers.
  • You can offer Share Option Incentives, which increases your ability to attract and retain high quality talent.
  • Improve the quality of information available for decision-making. Listing compells the company to improve its reporting.
  • Increase liquidity for investors and allows shareholders to realise the value of their investments through a public trading platform.
  • Facilitate broad-based black economic empowerment deals.


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