Benefits of Listing on the Stock Exchange for Companies and Investors

Every day, new companies get themselves listed on the stock exchange and go public. An initial public offering is conducted to enable investors to buy the company’s stock. Some companies fare well after being listed on the stock exchange and thrive for many years to come whereas others tend to go quietly without being noticed much. New businesses often question themselves about going public. They are unable to make up their minds about it. If that is the case, then companies should be aware of the benefits of listing on the stock exchange. The good news is that it is also advantageous for investors. How?

Let’s take a look at how listing on the stock exchange benefits both companies as well as investors:

For Companies in Stock Exchange

Increased Capital

One of the most obvious reasons for which businesses decide to list on the stock exchange is the immediate and increased availability of capital. When an organization or a business owner decides to list the company on a stock exchange, they are essentially offering a small part of the business for sale to anyone who is willing to purchase. Shares are bought by investors in the company thereby making them shareholders.

The revenue generated from the sale of shares becomes immediate cash flow that can be used for investing back into company development, growth and longevity. Any business that has been struggling to raise capital or obtain financing for the purpose of investment can choose to go public rather than using the company’s profits.

Increased Exposure

A business that decides to list on the stock exchange is automatically going to get increased company exposure. Initial public offerings are publicized events and are covered in investment journals, news stories and financial magazines. The newly listed firm may also be profiled in a television program or investment periodical and extensive details regarding the business as well as the product or service it offers are reported in all printed reports and materials. If the initial listing on the stock exchange goes well, it can generate a greater deal of exposure and attention. More and more investors would be interested in investing and the company would experience additional growth in this way.

Increased Accountability

When you list your business on the stock exchange, it means that you have to follow the rules of the exchange. Once it goes public, the company has to be completely transparent in all their business dealings and also when reporting their financial data. This is due to the fact that a publicly listed company has to follow regulations that other businesses might be exempt from. Hence, listing a business on the stock exchange helps in promoting increased accountability for the actions of all company management, including leaders and managers. Moreover, a company that’s required to be financially accountable and transparent may enjoy greater success as compared to a privately held company.

Ability to Uphold Control

Companies that are listed on the stock exchange don’t usually depend on the capital obtained from venture investors. When venture capitalists acquire shares of a confidentially held company, they tend to maintain some degree of control over how it operates. This can often create a conflict of interest in the company’s and the investors’ goals. On the other hand, listing on the stock exchange means that a company is able to uphold more control and sovereignty. This is mostly due to the fact that people who buy the shares of a public limited company only have limited rights that are provided to stakeholders.

Collateral Value of Shares

Financiers accept listed securities as collateral for credit services and amenities. A company that’s listed on the stock exchange also has the option of copying from financial establishments as it is satisfactorily valued by mortgagees of capital; supplementary funds can also be nurtured by the company from the public through the issue of new shares.

For Investors in Stock Exchange

Liquidity

The stock market is not very different from a large auction house. Every day, investors buy and sell shares of different companies. Therefore, investing in companies listed on the stock exchange offers people greater liquidity because they can cash out fast as a buyer can be found easily. In contrast, selling other assets can be a lot more difficult and time consuming and can take months whereas you can find a buyer for stocks on the very next day.

High Returns

Some people regard stocks as uncertain assets, but if you study the long-term trend in the stock market, it is apparent that it is on the rise. As compared to other assets, stocks of companies listed on the stock exchange can offer you the highest possible returns. In the last 50 years, the stock market has developed and grown by more than 10 percent every year, which is considerable. In the same period, government bonds only grew by 5 percent. This shows that you can get a lot more return in the stock market than anywhere else.

Deferred Taxation

By buying shares of a company listed on the stock exchange, you can defer the taxation on your gains. For instance, if you buy shares of a company and they increase in value, you don’t have to file a return on them unless you decide to sell. Moreover, if you have lost money on shares, the loss can be used for decreasing taxes imposed on other stock improvements. In contrast, if you decide to invest in a vehicle that earns interest such as a bank account or bond, you have to pay tax on the earnings every year.

Thus, listing a company on a stock exchange is beneficial for the business itself as well as the investors. It is easier to trust a company that’s listed on the stock exchange and businesses are also able to attract high quality employees as it is regulated and has a public image to protect. This can help make a company successful and profitable in the long run.