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Registering a business to be listed on a stock exchange does not necessarily require the business to be a huge billion dollar equity company. This is so as laws that enable smaller businesses to offer stocks on secondary exchanges such as the Chicago Stock Exchange or Arca Exchange allow those companies to remain private.
Smaller public companies that wish to be listed on a stock exchange but do not meet larger exchange requirements may also have the option of listing on regional exchanges. If a company is private, the small corporate offering registration (SCOR) requirements within U.S. States is a specific form of stock offering that facilitates remaining a private company while still being able to gain access to stock exchange listing. The listing requirements and benefits vary form exchange to exchange, however finding and registering for an appropriate exchange may be well worth the cost for a number of reasons outlined in this article.
Listing requirements
Each stock exchange has different listing requirements such as historical earnings bars, share volume and stock capitalization value. These requirements may be determined by a Board of Directors and/or Executive group. Generally, the larger the exchange, the higher such bars are set but this does not necessarily exclude smaller businesses from being listed on an exchange. Rather, it determines which exchanges smaller businesses may have the opportunity to become listed on.
To illustrate, the Nasdaq stock exchange requires a minimum earnings of $11 million over three consecutive years prior to listing in addition to a minimum of one and a quarter million share float. By contrast, the Chicago Stock exchange has a tiered structure of requirements defined in part by business asset value. For example, a business with $4 million in assets must have net income of at least $400,000 in the last two years and share capitalization of $300 million for 500,000 shares with a minimum of 800 shareholders or 1 million shares with a minimum of 400 shareholders.
Benefits of listing on a stock exchange
Being listed on a stock exchange has many advantages that a business owner of any size might consider as part of a businesses strategic plan. Moreover, when expansion and leveraging are on the business agenda, stock exchange listing can cast a wider net into the capitalization pool i.e. the potential sources of equity funding. A few of the benefits of stock exchange listing are illustrated below.
• Market exposure
Through listing on a stock exchange a company is gaining market exposure to a broader membership of the financial community including market makers, buyers, sellers, and institutional traders, mutual funds and possibly hedge funds. Consequently, if a business is worth investing in, the listing opportunity has the potential to greatly increase capital investments. In other words, as opposed to private negotiations and networking, a listing on an exchange facilitates exposure to a larger financial market and wider range of investors.
• Advertising via market listings
Another benefit of listing a business on a stock exchange is the complimentary advertising that is included in the filing fee and registration. While this advertising may not be direct, the listing of a business on the exchange affords a business advertising through association. In other words being associated with the exchange and listed on it, a business is in effect advertising itself indirectly if not directly. What's more the cost of registration may be a good bargain because not only does it provide market exposure and advertising but the opportunity to generate capital investment.
• Improved brand equity through listing
Being listed on a stock exchange means that a business has met qualification standards set by the exchange. This can add credibility to a business and therefore brad equity, i.e. customer and/or client perception of value in a company and/or its products. Furthermore, in addition to the credibility resulting from the indirect endorsement from the listing, financial information and investor public relations may also be enhanced through contact information made available through the exchange listing.
• Potential for increased capitalization
A need for capital investment should be one of the main reasons a company lists on a stock exchange. Otherwise it might not be worth the time to be listed for the sake of advertising alone. Stock market listing is one of several sources of capital leveraging, but also happens to be one of the widest and most accessible forms of investment for both investors and businesses. It is largely in effect, a free market for buyers and sellers to meet, assess and trade capital for ownership and vice versa.
• Lower reliance on venture capital firms and debt financing
The potential for increased capitalization through wider market exposure may also reduce the need and reliance upon alternative sources of funding such as venture capital firms. This lower reliance for alternative sources of financing may improve negotiating leverage when obtaining financing from venture capital firms whether it be through less liability protection as determined by the stock ownership terms or lower cost of capital. In other words, if the market exposure gained through listing is positive, the effects on financing can also be positive.
To summarize, listing a business on a stock exchange may be a good idea for a business seeking improved market awareness, greater potential for capital investment, enhancements to brand equity and negotiating influence etc. Listing on an exchange should probably be in line with or in accordance with business strategy, otherwise the listing may be premature or unnecessary. Nevertheless, for companies that do seek stock exchange listing, the opportunity is there through multiple regional and national stock exchanges and different choices regarding business status and registration requirements with the Securities and Exchange Commission.
Sources:
1. http://www.chx.com/content/Trading_Information/Listing_standards.html
2. http://www.nasdaq.com/about/listing_information.stm
3. http://www.cftech.com/BrainBank/FINANCE/USStockExchs.html
4. http://en.wikipedia.org/wiki/Stock_exchange
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