Startups can enlist on the Stock Exchange without an IPOs

There is more to add to the good luck charm for the Indian start-ups. The Securities and Exchange Board of India (SEBI) has a new proclamation: Start-ups and SMEs can register on stock exchange without going through the vicious cycle of initial public offerings (IPO) and new exit policy for angel investors and VCs have been inked, enabling them to get easy funds from institutional sources.

According to SEBI, “Therefore the listing can be done without an IPO and the expenses associated with it. While such companies are listed on the ITP they will not be permitted to raise capital, though they can continue to make private placements”.

Some firsthand information for the new clause:

1. The ones who can rush in for this:

Startups enrolling on stock exchange must not be older than a decade. It’s paid up capital and revenue must not exceed an amount Rs.25 crore and Rs. 100 crore respectively.

2. Things to buckle up:

Atleast one year’s audited financial documents, documents for the preceding year, one alternative investment fund, venture capital fund or angel investor (who is a member of an angel network) or an institutional investor who has invested at least Rs 50 lakh in the firm. Some other clauses clipped in are raising loan from a scheduled bank for financing or working capital requirements and a three years has elapsed from the date of issue of such loan and the funds have been fully utilized, or it has been funded by an international multilateral agency or domestic agency or public financial institution.

3. Ways to fill the guinea pot:

The firm can raise capital via private placement or rights issue but not through issuance of securities to the public. Also, it cannot form an IPO when its specified securities are listed on the special platform. The enterprise also needs to qualify on certain standards from the stock exchange and from its shareholders through a special resolution followed by the sale of such securities within two months from its approval. Price of the securities in the private placement will be equivalent to or more than the book value of the equity shares as per the last audited financial statement not older than six months or value of shares as determined in an independent auditor’s or registered merchant banker’s report, whichever is higher.

4. The Captain:

The head of this board must have an equity share of 20 per cent of the post listing share capital, which shall in turn be locked in for a period of three years from date of listing.
Also note that the securities of the firm shall be in dematerialised form upon listing on institutional trading platform and the minimum trading amount on institutional trading platform shall be Rs 10 lakh.

5. To strike out from the stock exchange list:

This is the exit route. It requires a nod of approval from the exchange and the shareholders. The special resolution must be passed through postal ballot where 90 per cent of total votes and the majority of non-promoter votes have been cast in favour of such proposal. The criteria to exit are as follows: The firm has been listed for 10 years or it has paid up capital of more than Rs 25 crore or market cap of over Rs 500 crore or revenue exceeding Rs 300 crore in the last year. In a scenario, the stock exchange grants 18 months to such company to delist itself.

It must also be noted that, a company will also be delisted if it has failed to file its periodic filings with the recognised stock exchange for more than a year or it has failed to comply with corporate governance norm(s) for more than a year.

A major con for the promoters and directors for delisted companies is they cannot list another firm in which they are a promoter or a director under the institutional trading platform for a period of five years from the date of such delisting. Independent directors are not confined by this norm.

6. Things to broadcast:

Barring only those information which shall effect the company’s competitive position, it has to disclose the description its business, its products or services and that of its subsidiaries and number of employees. Financial statements such as audited balance sheet, profit & loss account, cash flow statement, with attendant annexure and notes to accounts for the previous year, risk factors and pending legal proceedings against the firm must also be disclosed.

That’s not it! The description of authorised and subscribed share capital, property and information about transactions to acquire such properties, information of securities ownership as well as details of promoters (if it’s another firm, details of those holding over 15 per cent voting rights of such firms), directors and executive officers are also required.

Note: We at Inc42 take our ethics very seriously. More information about it can be found here.