In this article, Senjuti Chakrabarti who is currently pursuing Diploma in Entrepreneurship Administration and Business Law from NUJS, Kolkata, discusses the advantages of listing a company on an SME exchange?

Small and medium enterprises exchange

SME (Small and medium size enterprises) exchange is a platform made by the BSE (Bombay Stock Exchange) in 2012. It has been made by the initiative of the Indian Government along with SEBI. It is a phenomenal framework for the entrepreneurs.  It is a popular concept worldwide.

Problems faced by the small and medium enterprises.

There are various problems faced by the small and medium sized enterprises. These are the enterprise which brings in so much of employment all over the country. They add to the national income of our country to a large extent. After Agriculture in our country, SMEs have their place since they have less capital investment. They have a huge role in the export of our country. Also they are diverse in their nature as they are present and contribute to so many sectors of our country including technology, agriculture, clothes, food etc. In spite of so many achievements they have had, there are present a lot of problems due to which the concept of SME exchange has come into play. What are they?

1. One major problem is capital. There are two ways of raising capital. Either borrowing from bank or funds from promoter. Banking funds are the most common. But for a startup company to bear the cost of that is very risky. If and when the company is doing well, bearing that cost might become easy. But it is not the case initially.
2. Another big factor is the kind of technology . It is quite obvious that the SMEs would not get hold of the kind of technology that is modern and more efficient because there is always a dearth of capital.
3. Lack of fund also comes from the fact that large companies do not lend to the SMEs easily.

There are other several problems that have led to the concept of an exchange for these enterprises.

CRITERIA

There are a few criteria for getting a company listed on an SME exchange. They are-

1. The net worth of the particular company wanting to get listed has to be of one crore minimum. Net worth is the calculation of asset minus liability.
2. The tangible assets of the particular company has to be one crore minimum. Intangible assets do not count when it comes to getting listed here.
3. The company in question has to be in operation for more than three years. A single day less than three years would make it unfit for listing.There has to be a profit history of the company for at least 2 years.
4. When it comes to profit history, no extraordinary income would be counted. The only income that had arisen from regular sources and only distributed profit would be counted.
5. The particular company at the time of listing should not have been involved in any pending suit.
6. There has to be compulsory market making for three years.
7. It has to be a full-time company.

Small and rapidly growing companies should get listed to an SME exchange. The major problem of SMEs being fund, listing is advantageous in several ways.

Firstly, Venture and Angel investment can invest in an SME if it is listed in the exchange.  When listing happens, it leads to raising funds automatically.

Secondly, It is very easy and a convenient way of listing. Very contrary to what people generally think that it would be very complex and cumbersome method to the listing and therefore they drop the idea. But surprisingly enough it takes only three months for the plan to get executed, the company to get listed.

Thirdly, In case of listing, a company’s shares gives rise to more shares and hence more money. How does this happen? When a company lists itself, its shares are also listed. And it can use its existing shares to borrow further shares. Also not always money is required. For example, When a company is listed, and the shares of the company goes up, the shares can be used to buy other companies too simply by giving off those shares. No money is required for this. It is like creating one’s own currency. Currency of shares and not the currency created by the government.

Fourthly,  Listing a particular company on an SME exchange basically opens up a huge market for that particular company which would not have happened if it had not been listed on the exchange. This happens in the manner that when a company is listed, it gets a lot of exposure . Channels start talking about them and their names comes up in front of people. They get noticed . Newspapers might also mention the name of the company since it is a part of the exchange and that way also popularity or acknowledgement is gained. This is profitable in a few ways. One is the company getting the mention or if it can be called as limelight inturn gets a lot of prestige and respect. This is a very important aspect for a small scale company which would have gone absolutely unnoticed and given no importance had it not been listed. But on being listed it gets respect that people thought only large companies with huge turnovers could have got only. But a small company getting the importance at an early stage brings about immense advantage to it.

Fifthly, continuing from the previous point, the free market that gets created for the company that has been listed leads to vendors and customers, etc coming to the company themselves for working with them. The company did not have to go about searching them everywhere trying to hire them. But they get to notice themselves and a gateway is opened where they come and approach the company themselves.

Sixthly, succession is a tricky affair and can bring about huge confusions and complications and might even at times lead to courts. For a company that has been already listed, it is not that difficult for inheritance, say when the owner dies or the property has to go through a devolution . The sharing of the company interms of succession can be simply done through giving off the shares of the company. It is that simple. There is no need for going through a tricky pathway as when we say the word succession it always makes us think that it might be something extremely confusing and cumbersome.

Seventhly, usually, there are people who are under the impression that when they have started a company of their own it is theirs and there is no good reason for giving it away to someone or something or any sort of platform. But this is not a very practical method of thinking. If a company wants capitals, wants to go far in terms of profits in the long run, wants to make the company larger and larger, then listing needs to be done. Since a small company cannot by magic gain a lot of money and makes its company huge overnight. Or not even in days and years for that matter. A small company has basically nothing apart from an idea, determination , creative thinking, skill etc.

For it to overcome all the odds and rise up especially in a time where there are so many large companies which have such huge turnovers and what not. It is very hard and extremely competitive for small companies since they need to have something to think of competing with the large ones. Forget about winning the competition, they are not even capable of competing. And that is because of very practical reasons.

To establish itself in such a competitive world they have to look for a platform, a base from where they can think of looking higher and farther. In case of listing themselves,  wealth can be created out of very little that these companies have. And listing in an exchange does not in any way mean that the particular company wanting to list itself in an exchange is giving away its company to somebody or to a certain place. 75% of the company’s shares is kept with the company itself and 25% goes to the board.

Eighthly, it is very difficult for a small company to find skilled people and hire them. Most times it can be seen that the entrepreneur himself, who has started with the idea does everything on his own. He takes the place of a partner, PR, directors, and is also the one working in every sphere and sector of the company. This is an impractical; way of dealing with a company if the owner actually has dreamt of making his company really big. What listing does is it gives a lot of advantage to the companies who are a part of the exchange. A company gets hold of people who are willing to be partners to the company or go for other posts in the company. This way the company gets a lot of people for its various fileds very easily only which would otherwise have been very difficult.

Ninethly, Another huge advantage of listing a company would certainly be the amount of tax benefits the company would get. So much of tax benefit with basically nothing in return but instead getting hold of a lot of capital and making the company grow to its potential.