Listing of Start-Up in India – A Complete Analysis

At present, when all efforts are being made to improve the economy of India, special attention is being given to start-ups to give special impetus to innovation and entrepreneurship. But the availability of economic resources is an essential fact for any enterprise. Arrangements have also been made to list startups on stock exchanges to attract investments and raise funds.

 It also brings transparency in the working of start-ups due to compliance with SEBI and stock exchange guidelines. In this article, we will go through the process of listing on the stock exchange of a start-up in detail.

 Table of Content-

1. What is Start Up?
 2. What is a Startup Listing?
3. What are the benefits of Startup Listing?
4. What types of start-ups can get listed on the stock exchange?
5. What relaxation has been given by SEBI for the listing startups?
6. What are the conditions a start-up has to comply with before listing?
7. What is the process of listing on the stock exchange of a start-up?
8. How to apply for a listing of startups?
9. What is the process followed by the stock exchange after applying for the listing of a startup?
10. How do start-ups get permission to list on the stock exchange?
11. How is the initial public offer issued when the start-up is listed on the stock exchange?
12. What is the post-listing process for startups?
13. Conclusion

1. What is Start Up?

In general, a start-up refers to an enterprise that is started as a company, partnership, or temporary organization. Startups are started in pursuit of repeatable and scalable business models. Startups are mainly doing research for innovation development, recognition, and target markets.

2. What is a Startup Listing?

Listing of a Startup refers to the listing of the Startup on the stock exchange so that the Startup Enterprise can raise capital effectively.  At the same time, investors can also choose the right venture for investment so that they can get maximum return on their investment. With this, while on one hand equity capital will be easily raised for the development of startups, startups will also get an opportunity to grow into full-fledged companies.

3. What are the benefits of Startup Listing?

The listing of any startup on the stock exchange brings transparency to the working of the startup.  Listing of startups helps in mobilizing investment and capital for the growth and smooth functioning of the enterprise. Also, the corporate practices followed in the functioning of start-ups become standardized. The listing of startups also brings liquidity to the security. The general public also benefits from listing startups.  

The maintenance of data from time to time by the stock exchange brings out the real picture of the startup so that the public and investors are able to take the right and rational decisions in terms of investment. The listing of a startup on the stock exchange helps immensely in the independent valuation of the business and also makes the actual valuation of the stock easier.  The listing of startups provides easy access to information related to the enterprise from time to time.  This also increases the confidence of investors in startups.

4. What types of start-ups can get listed on the stock exchange?

Specific criteria have been prescribed for startups to be listed on the stock exchange.  Bombay Stock Exchange has listed startups working in the following sectors like Information Technology and Nanotechnology, Biotechnology, Space Technology, 3D Printing, E-commerce, Artificial Intelligence, Startups related to Life Sciences, etc.  In addition, the Bombay Stock Exchange has also stipulated that the minimum paid-up capital of a start-up should be Rs 1 crore and should be registered with MSME or DIPP.  

Also, the startup should have been in operation for at least two years before applying for listing on the stock exchange.  They must have a positive net worth among other monetary standards.  The Maximum paid-up capital of the company would be rs 25crore after the issue has been made.  The post-issue paid-up capital of the company shall not be more than Rs 25crore.

5. What relaxation has been given by SEBI for the listing startups?

The capital market regulator SEBI, a few years back, has relaxed norms to make it easier for startups to raise funds.  The rules for delisting, takeover, and alternative investment funds have been significantly relaxed for new start-ups working in various technology sectors.  SEBI has created a separate platform in the domestic stock exchanges for shares of startups.  

To keep small investors away from risk apprehensions, SEBI has fixed the minimum trading lot and minimum application size at Rs 10 lakh.  However, these start-ups may come to the main platform later.  

The main objective of this effort of SEBI is to prevent Indian start-ups and entrepreneurial talent from going abroad.

6. What are the conditions a start-up has to comply with before listing?

Startups should comply with the provisions of the Companies Act 1956/2013.  No petition should be pending in the court against the applicant's startup.  No disciplinary action has been taken by any regulatory authority against the start-up.  No case of financial forgery should be registered against the promoters of start-ups.  Auditor's certificate is also given to the respective stock exchange.

7. What is the process of listing on the stock exchange of a start-up?

A startup has to go through the following procedures for listing on the stock exchange:

A. Merchant banker is appointed by the start-up, who prepares various plans and takes care of the planning.

B. Various documents are prepared by the merchant banker like financial documents, government permissions, promoters' details, etc.

C. Then the processes related to application, public offering, and post listing are done.

8. How to apply for a listing of startups?

The DRHP (Draft Prospectus) is first prepared by the merchant banker for listing on the stock exchange of the start-up.  In which the guidelines of SEBI and Stock Exchange are fully followed.

9. What is the process followed by the stock exchange after applying for the listing of a startup?

After applying for listing in the stock exchange of the start-up, the site of the start-up is visited by the officials of the stock exchange.  The documents submitted by the start-up are verified. Promoters are called for an interview with the Listing Advisory Committee.

10. How do start-ups get permission to list on the stock exchange?
 

The RHP is filed by the Merchant Banker after verification of the start-up by the officials of the Stock Exchange and approval of the Listing Advisory Committee along with the opening and closing date of the issue is given to the ROC.  After the approval of the ROC, the exchange is informed about the opening date of the issue and necessary documents are also provided.

11. How is a public offer issued when a start-up is listed on the stock exchange?

The initial public offer is opened and closed as per the schedule.  After the closure of the IPO, the startups are given documents as per the checklist of the exchange to finalize the allotment.

12. What is the post-listing process for startups?

The notices are issued by the stock exchanges on the basis of allotment and issues finalized.  After which the process of listing and trading the start-up is completed.

13. Conclusion:

While start-ups in India are encouraging innovation and entrepreneurship, Indian entrepreneurs are also succeeding in preventing talent from going abroad.  To raise funds for these start-ups to get listed on the stock exchange, relaxation in the rules has also been provided by SEBI, etc.  Overall, the effort is just that the start-ups can become a strong base for the strength of the Indian economy.