Direct Listing And Delisting

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Direct Listing And Delisting


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About Direct Listing And Delisting

A Direct Public Offer raises capital directly without the assistance of an underwriting or a broker-dealer firm. Such Direct public offerings generally come handy to small & medium sized companies and nonprofit organisation who want to raise capital directly within their own community rather than going to financial institutions like banks and venture capitalists. It’s like creating your own vehicle from scratch and these Direct Public Offerings match the spirit of Crowd funding, however, they do undergo some degree of regulatory scrutiny and do register at the state level. Some DPOs are therefore conducted on crowd funding platforms as well.

Such companies neither become a publicly-traded company nor does it typically become subject to a security board’s reporting requirements. However, the company may subsequently move to register its stock on a public market or over the counter.

Delisting means permanent removal of stocks from the stock exchange. Promoters do this to increase their stake in the company, or when the company is poised to get merged or be acquired. However, the process can take six to eight months.

This increases the value of such stock and as soon as the news float about delisting investors rush to acquire these stocks and gain advantage from short-term gains. However, for those who already hold shares, it’s a good decision to tender their shares if the company is giving a good price and you are not sure about the future of the company. Selling shares of an unlisted company are difficult to sell in the market

A company needs to buy back 90% of shares which is the minimum requirement for delisting.

Advantages

  • A public listing adds value and prestige, increases attractiveness for employees.
  • It offers the ability use shares to leverage acquisitions, provide an exit strategy to the original founders and investors.
  • There are fewer regulatory restrictions compared to a traditional IPO.
  • The issuing company has much more control over the DPO
  • DPOs are not subject to market conditions and a brokerage firm does not need to be hired
  • Shares can be sold in public using a variety of methods and marketed via internet and direct adds
  • Such offerings that don’t require registration can harness funds more quickly and cheaply
  • Price discovery of shares and a launch pad for further raising capital
  • Increased visibility
  • Access to a vast network of BSE trading members
  • Broader access to investment capital
  • Raise capital from the company’s own community that includes small non-wealthy investors
  • Absolutely no need to purchase or use an expensive/potentially risky shell company. This helps avoid unknown risks inherited from such reverse mergers
  • DPOs are much more affordable than an IPO
  • It gives the ability to utilize stock to complete acquisitions
  • Provide stock options to attract and retain employees

Documents Required

Any company or nonprofit organization can conduct a direct public offering. There are no sales, profit, asset or other traditional paperwork requirements or qualifications.

  • A disclosure statement called an offering memorandum or prospectus that provides complete information of potential investors
  • Any and all state regulatory approval.

Type Of Delistings

• Voluntary delisting where companies decide on its own to remove security

• Compulsory delisting is when securities of a company are removed from a stock exchange as a penal measure for not making submissions or complying with various requirements set out in the Listing agreement as per SEBI (Delisting of Securities) Regulations, 2009

Frequently Asked Questions

What does direct listing mean?

What is a direct listing? In a traditional initial public offering, banks underwrite the offering, meaning they set an offering price, and buy or sell shares during the initial selling to keep prices from being too volatile

Such entities often choose to go via the direct listing process, a less-expensive alternative to an IPO. DLP is also known as Direct Placement, or Direct Public Offering (DPO). In DLP, the business sells shares directly to the public without the help of any intermediaries

Initial public offering (IPO) or stock market launch is a type of public offering in which shares of a company are sold to institutional investors and usually 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 more stock

A public offering is the offering of securities of a company or a similar corporation to the public. Not all public offerings are IPOs. An IPO occurs only when a company offers its shares (not other securities) for the first time for public ownership and trading, an act making it a public company.

In corporate finance, a listing refers to the company's shares being on the list (or board) of stock that are officially traded on a stock exchange.

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